Building a Strategic Alliance to Save a Local Institution

Mission-focus informs board member’s swift decisions

by Tammy Noteboom, The Village Family Service Center

Michelle Powers’ laser-like ability to cut to the core of her responsibilities as a steward of Nokomis Child Care Centers has served the centers’ children and families well over the years.

Today, Nokomis operates two child care centers as a program of Alliance for Children and Families member The Village Family Service Center, Fargo, N.D., but that wasn’t the case several years ago when Nokomis faced the real possibility of closing its doors for good. Up against a variety of financial hurdles, sometimes director-level staff would even hold their own paychecks until the money came in to clear them.

By 2004, Nokomis faced a critical fork in the road. As a member of the board of directors at the time, Powers was a vital member of the team that brought Nokomis and The Village to the table to discuss a merger that would improve business practices in a way that would benefit both agencies and the community.

While providing traditional care in a nurturing, safe, and stimulating environment for families with the ability to pay, Nokomis also fills a need for families with both financial and emotional special needs. While filling this need is important, it is also the rub which led Nokomis to severe financial challenges every month. Jane Greminger, current director of Nokomis Child Care Centers, says it was a daily worry to just pull the dollars together to make payroll.

As an active discussion participant, Powers helped steer the group through the uncertainty and fear which accompany most merger talks. Through it all her primary consideration was always—and still is—“How do we best serve the kids we’re serving?” and also, “How do we continue to exist for the kids who need us in the future?”

Financial Sensibility, Mission-Focus are Key

	Michelle Powers interacts with children attending Nokomis I Child Care Center, one of two facilities operated as a program of Alliance member The Village Family Service Center, Fargo, N.D. Powers is a member of the board of directors at The Village, and as a member of the Nokomis board in 2004, she helped Nokomis and The Village merge.

Powers followed her father onto the Nokomis board—both of whom have a special family tie to Nokomis Child Care Centers. Powers’ sister, Margy, who is mentally handicapped, has two children who both attended Nokomis in the past.

“Without Nokomis,” Powers says, “Margy would probably have had to give those children up. The Nokomis staff literally helped her raise those kids. Nokomis helped us know that Margy was doing a good job and that everyone was safe.”

This family tie gives Powers a special zeal for the mission of Nokomis, and brings intensity to her decision making. While she advocates for due diligence in getting all the facts, she is quick to move to decisions, especially if it means more children can be served.

Never was this more apparent than in 2004 when the Nokomis board approached The Village about partnering.

Gary Wolsky, CEO/president of The Village Family Service Center, remembers the situation well. “The board of directors called and they wanted to visit because Nokomis had a history of losing executive directors—six executives in seven years—and they had a chronic problem with money. As a million-dollar-a-year outfit, they weren’t large enough to have the supports nonprofits need these days: a strong business office, marketing, fundraising, etc.”

Powers’ financial sensibility and connection to the Nokomis mission led her to support a merger between Nokomis and The Village. “It made sense to merge with The Village for the financial stability that infrastructure ensures, that backbone of support,” she says. “In this day and age, many nonprofits are going to have to start conglomerating because we just can’t support all of these small nonprofits.”

Some Nokomis board members were hesitant about merging because of concern about loss of identity. However, Powers’ continued focus on providing for the kids who need Nokomis services made her feel differently.

“I felt like we could work with The Village and still maintain our identity,” she says.

Communication, Active Participation Promote Success

Once the merger concept was put on the table, The Village and Nokomis staff conducted an exhaustive study of the child care centers and prepared a report to present to both organizations’ boards. The report included descriptions of Nokomis programs, finances, daily operations, business practices, fundraising activities, personnel, and facilities.

In addition to details about current activities in each of these areas, the report included recommendations for actions to be taken both before and after the proposed merger.

While the boards were making final decisions and handling the legal aspects of the merger, The Village leadership team, along with members of the Nokomis board, held meetings with Nokomis staff to discuss what the merger would mean for them. The meetings answered a variety of questions: Would a merger lead to layoffs? How would the policies change? How would Nokomis maintain its identity?

Powers attended the majority of these meetings and says, “The Village did a wonderful job of easing the minds of Nokomis staff. We were concerned about the staff leaving but we retained 95 percent of the staff through the merger.”

Wolsky says that because of all the open communication, “The merger was absolutely seamless. By the time we pulled the trigger we had talked about everything we needed to talk about.”

As part of the merger agreement, Powers, who was the Nokomis board president when the merger was finalized, joined The Village board.

Wolsky was pleased with her presence on the board and her ability to make a smooth transition. “Michelle came on board representing Nokomis. As the months and years have gone by, she has become as passionate about the other 70,000 people we serve as she is about the Nokomis children and families,” he says. “Michelle is the epitome of a great board member: passionate, bright, financially supportive, and willing to be decisive. All nonprofits should be so richly endowed with such board commitment.”

Powers adds, “Joining The Village board has opened my eyes. I am on the program committee and every month we review one Village program. Whoever is in charge of that program comes in to discuss how it’s operated, the good that comes of it, where it is struggling, and the program finances. This gives us an opportunity to know where the need is and maybe brainstorm a way to help that need. 

Learn more about The Village and Nokomis Child Care Centers through the organization's website. 

Tammy Noteboom has worked at The Village for 25 years and currently serves as director of communications. She earned a bachelor’s degree in university studies, with a focus on journalism, from North Dakota State University, Fargo, N.D.

 

Feeling the Pulse

Trademark program demonstrates best practices in board engagement, quality improvement

St. Aemilian-Lakeside’s unique stakeholder interview process engages board members, strengthens interagency relationships, and feeds an ongoing strategic planning process—all of which make the agency more nimble as a business and better equipped to serve Milwaukee’s children and families.

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Along with changing leaves and cooling air, autumn ushers in an annual tradition at Alliance for Children and Families member St. Aemilian-Lakeside, Milwaukee. Every year the agency convenes its board and a group of upper-level staff who venture into the community for face-to-face dialogue with a variety of organizational stakeholders—from funders to judges, school district officials, and leaders from other nonprofits.

During these annual interviews, board members inquire about stakeholders’ respective businesses and organizations, their upcoming challenges or opportunities, and anticipated impacts. Ultimately, the process allows interviewers to feel the pulse of each stakeholder and gauge how their circumstances may affect St. Aemilian-Lakeside in the coming year. It also provides an opportunity to learn about perceptions: How do stakeholders perceive the agency and its performance? How can the organization improve?

The process is more than just a methodical ritual. These “stakeholder interviews,” as St. Aemilian-Lakeside staff call them, have evolved into a trademark program. The interviews engage board members as agency ambassadors, solicit valuable feedback that gets plugged into an ongoing strategic plan, and build esteem between St. Aemilian-Lakeside and its stakeholders.

“In my experience it really is unique,” Jim Marks says of the interview process. As vice president and director of grant programs for the Greater Milwaukee Foundation, a philanthropic organization that has provided funding to St. Aemilian-Lakeside programs in the past, he has been interviewed several times since the initiative began in 2001.

“In fact, I really can’t think of too many other agencies that have done this kind of thing,” he adds. Other organizations have interviewed him for his philanthropic perspective, but none on a regular basis like St. Aemilian-Lakeside.

The initiative demonstrates St. Aemilian-Lakeside’s commitment to best practices in board engagement and continual quality improvement—two of the reasons why the organization earned an Alliance Agency of the Year Award in 2008. The awards recognize member organizations for their accomplishments across a full spectrum of leadership and management areas, including board participation and support; impact of advocacy efforts on local, state, or national levels; and innovative programs.

Board Members Play Lead Role

Over the years, St. Aemilian-Lakeside’s stakeholder interviews have realized a variety of results, including numerous benefits for the agency and the board, changes to agency programs, and shifts in priorities. Those results and the interview process’ success depend largely on the key role played by the agency board, says Teri Zywicki, president and CEO of St. Aemilian-Lakeside.

“It’s a process that promotes engagement outside of the boardroom which, in turn, brings a greater investment in the organization when the board meets in formal sessions,” adds Ann Umhoefer, chief administrative officer at St. Aemilian-Lakeside.

Bruce Kamradt, director of Wraparound Milwaukee, a county managed care program that contracts for more than $2 million in services with St. Aemilian-Lakeside, says he doesn’t usually see boards of directors—especially outside of a boardroom setting.

“We get surveys and questionnaires from other agencies in the mail, but I don’t recall anyone else who comes and sits down with me in that format,” he says.

For the 2008 stakeholder interviews, every member of St. Aemilian-Lakeside’s 16-person board participated, along with seven management staff, and three program directors. More than a dozen stakeholders are interviewed each year, with as many as 30 interviewed in a previous year, Umhoefer says.

Board members, staff, and stakeholders credit Zywicki for driving a thorough and ongoing strategic planning process that includes summaries of the stakeholder interview responses as one data component.

The strategic plan is updated on a monthly basis; board members receive a color-coded report: green is used to signify on-track items, yellow for changes or opportunities, and red for no progress. Each week throughout the year, when Zywicki’s seven-member management team meets, she says they read, review, and discuss at least one stakeholder interview.

By involving board members in stakeholder interviews and strategic planning, they become “full advocates for our strategic goals,” Zywicki says. “They’re already on board with us because they’ve heard it firsthand from somebody outside our agency.”

Initiative Provides Strategic Response
to Challenges

When Zywicki became president in 2001, St. Aemilian-Lakeside was facing a decline in residential placements, which posed a significant problem because of their high levels of reimbursement. The decrease in placements underscored a need to diversify the services offered—leading to expanded community-based services and treatment foster care programs, plus a restructuring of the board.

“It was crucial to become more nimble, more quick on our toes,” Zywicki says.

The stakeholder interviews grew from the strategic planning response to the decline in residential placements and greater involvement by a board committed to diversification and accountability, Zywicki says. She led St. Aemilian-Lakeside to look externally to determine what programs they could tailor to suit changing conditions and tightening funding streams.

Initially, Zywicki says the stakeholder interviews were with social service facilities, purchasers, judges, and school districts. Later, they added agencies like fellow Alliance member the Social Development Commission, Milwaukee, trying to learn of any overlap in services. Most recently, in 2008, interviewees included a number of Milwaukee County health and human services directors, social service agency supervisors, and foundation grant administrators.

The St. Aemilian-Lakeside management team meets each summer to brainstorm interview questions. (View a sample of questions used during 2008 stakeholder interviews.) Interviews typically are conducted in September. Interview notes are compiled along with employee feedback and any other additional input to inform an annual strategic retreat with the board in October.

New Programs, Strategic Priorities Result

What comes out of those strategic retreats is tangible.

Beginning with the first year of interviews, Zywicki says stakeholders consistently described one of St. Aemilian-Lakeside’s strengths as educating children with challenging needs. Buoyed by such feedback, the organization opened a public charter school in 2004.

Umhoefer says past stakeholder interviews also brought to light concern about the mental health needs of children in the communities St. Aemilian-Lakeside serves. In 2007, the agency responded by launching an initiative to infuse trauma informed care throughout the organization. Recognizing the profound biological, social, psychological, and emotional impact trauma has on individuals and their families, the agency developed practices that better create an environment for maximizing opportunities for change.

In part because of stakeholder interviews, Umhoefer says the agency applied for and received a contract to provide foster care training in Racine County (Wis.) in 2009.

Stakeholders also suggested loud and clear that youth aging out of foster care was a key concern, says John Teevan, St. Aemilian-Lakeside’s immediate past board chair. The organization has since collaborated with its state association, Alliance member the Wisconsin Association of Family & Children’s Agencies, Madison, Wis., and other state and local agencies to lobby for extended benefits for the more than 300 Wisconsin youth who age out each year. These efforts resulted in a draft bill that has support in the state legislature.

“We not only heard them, but we put our energy, minds, and mouths behind the effort,” Teevan says.

While the primary objective of the process is strategic, a series of beneficial secondary effects have also been realized, including the marketing opportunity afforded by face-to-face dialogue.

“One big misconception that we confronted for at least a decade was that we were a residential treatment facility only,” Teevan says. That perception caused a number of stakeholders to refer some services to other agencies. “We were able to turn that perception around.”

Staying Competitive

The stakeholder interviews also educate the board about the needs of children and families that they may not have firsthand experience with.

“It’s a great benefit because you hear what’s going on. You’re getting that on-the-street reconnaissance,” says Roger B. Siegel, current board chair. “To hear it from people versus reading it in the paper—that anecdotal testimonial is very powerful.”

Siegel adds that the interviews provide crucial customer feedback, evidence that St. Aemilian-Lakeside is doing what it says it’s doing. “There’s a real sense of accountability. We want to make sure we’re spending money where it needs to be going.”

Kamradt, who has been interviewed several times, says the process demonstrates the receptiveness of the organization and its board to feedback—both positive and negative. He, along with the overwhelming majority of stakeholder representatives interviewed since the process began, says he enjoys participating.

One reason is due to the feedback interviewers provide to interviewees. When St. Aemilian-Lakeside returns to the same stakeholder in future years, interviewees receive a copy of the previous interview summary as well as a report detailing what the organization has done in response to their prior feedback.

“I think our culture is to be transparent and to get as much participation as possible, at every level,” Zywicki says.

It wasn’t a surprise then when in 2008 the agency expanded its stakeholder interview process to include its own board, asking board members to provide feedback about their goals and priorities for the organization to St. Aemilian-Lakeside’s management team. “They encouraged us to work on our brand identity and make our message clear in a very busy marketplace of ideas,” Umhoefer says.

Zywicki sees the interviews as one component of the strategy to remain competitive. “To survive, you have to be efficient. To be efficient, you have to do collaboration and partnerships.”

Learn more about St. Aemilian-Lakeside.

The Strategic Value of a Shared Understanding of Costs

Is lack of cost data weakening your agency?

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It need not be expounded upon: the funding situation is dire. Without much recourse, nonprofit boards and senior leaders are making extremely difficult decisions about whether to cut staff or scale back programs, and how to survive. Competing priorities, coupled with unstable funding streams, make for challenging decisions about how to distribute limited resources. A report from the Bridgespan Group argues that making these decisions in a rational manner demands an understanding of the true costs behind any given program, service, or branch location. Costs are Cool: The Strategic Value of Economic Clarity by Susan J. Colby and Abigail Rubin examines why resource-allocation decisions present one of the most powerful levers nonprofit organizations can apply in order to achieve the agency’s goals. And yet, while information about revenue—donations, grants, and earned income—is usually solid, knowledge about costs tends to be weak. Knowing the true cost of any given program or service, however, provides insight into effectiveness and efficiency. Cost data can also provide revenue solutions, providing answers about whether too little is being charged for fee-based products or services. Published in 2003, the report’s content proves no less valuable today, particularly given the current economic crisis. The report’s principles extend to times of good financial health as well, providing a tool for asking questions such as, “Should we open another site?” and “Should we expand a particular program?” The following is a condensed version of the full Bridgespan publication, which is accessible through Bridgespan's website.

 

For most nonprofit organizations, the art of making tradeoffs is a condition of survival as well as a key element of success. The consequences of these tradeoffs are visible daily: in the activities a nonprofit offers, the programs it supports, and the initiatives it pursues.

... it is worrisome that the financial system in many nonprofits isn’t designed to support either short-term or long-term strategic decision making. Specifically, most financial systems don’t contribute to organizational knowledge about the true, all-in costs of providing services, running programs, and otherwise operating the organization.

Accordingly, it is worrisome that the financial system in many nonprofits isn’t designed to support either short-term or long-term strategic decision making. Specifically, most financial systems don’t contribute to organizational knowledge about the true, all-in costs of providing services, running programs, and otherwise operating the organization.

Lacking this information, nonprofit executives often end up having to make important resource-related decisions on the basis of intuition, the skills and knowledge of the program staff, or the preferences of the organization’s funders. As a result, they run the risk of undermining their organization’s mission by failing to allocate resources to the programs and services that have the greatest impact.

True Costs Inform Individual Resource-Allocation Decisions

To make resource-related decisions in a way that maximizes an organization’s impact and promotes its mission, nonprofit leaders need to have a clear picture of the costs of operating their programs and services.

The economic clarity that full cost data creates can provide invaluable input to decisions about how to allocate resources among programs and across them, whether to expand into a new location, and where to set the level of funding required to sustain the organization’s operations.

Which programs to fund? The most basic resource-allocation decisions relate to funding multiple programs in a single department. For example, one of Bridgespan’s clients provides a variety of counseling, adult education, youth, and economic development services. An analysis of its costs showed that within the economic development department, the employment-services program and the resume-services program were incurring the same expense; it was costing the same amount of money to place a client in a job as it was to help her prepare a resume.

Full and accurate cost data can be equally illuminating when an organization’s leaders are wrestling with the best way to divide resources among multiple sites.

Because having a job provides clients with greater economic self-sufficiency than simply having a resume on hand, the organization decided to focus its resources on the employment-services program instead of growing the resume-services program as it had originally planned.

Full and accurate cost data can be equally illuminating when an organization’s leaders are wrestling with the best way to divide resources among multiple sites. This was the situation confronting a nationwide educational organization with seven regional affiliates. Because the organization’s existing accounting system reported all its financial information on a line-item basis, regional cost data had never been collected.

When this data was gathered and analyzed, the organization learned that the cost of training teachers varied greatly by locality. These findings prompted a re-evaluation of the regional offices, which led to both the allocation of additional resources to efficient regions and the initiation of efforts to help the other offices learn from their peers and become more cost-effective.

Should we expand to a new location? Opening a new site brings the potential advantage of increased efficiency, because some of the organization’s costs (such as fundraising, marketing, and human resources) can be shared between locations, lowering the cost for each by creating economies of scale.

On the other hand, many costs cannot be shared: the unique start-up costs required to establish a program in a new region, for instance, as well as site-specific costs such as rent, direct labor, and materials. Understanding the mix of costs that will recur at the new location and costs that can remain at the original site (and thus be leveraged by the new operation) is essential in evaluating the full cost of replication.

Such understanding was invaluable for the leaders of one West Coast organization that runs a successful workforce-development program. Many voices urged the organization to expand, including one funder that was particularly enthusiastic about seeing the training program established in a new geographic region.

After careful assessment, however, the staff decided against the expansion. The decision was informed in part by an examination of the organization’s cost structure, which showed that overhead costs constituted a significant portion of its total operating costs. As long as these costs were divided among several existing programs, the organization could absorb them without compromising its viability. But if one program had to carry them alone, as the training program would have to do if it were replicated in the new location, the burden was unlikely to be sustainable.

Coupled with an understanding of the risk of starting a long-term program with guaranteed short-term funding and a determination that the economic climate wasn’t right for expansion, this analysis convinced the organization that replication would not be a prudent decision.

... a growing number of organizations also provide products or services that serve as sources of earned revenue. Given nonprofits’ natural inclination to charge as little as possible for these products and services, the prices are often set at levels that fail to cover the actual costs.

How much should we charge for products or services? In addition to contributed revenue, a growing number of organizations also provide products or services that serve as sources of earned revenue. Given nonprofits’ natural inclination to charge as little as possible for these products and services, the prices are often set at levels that fail to cover the actual costs.

This was the case for a nonprofit that offers affordable classes on technology-related subjects. The organization charges fees for the classes, and its management had always believed them to be a source of earned, not just additional revenue.

However, a close examination of the organization’s cost structure showed that the classes were actually a net drain on resources. Accurate cost data (along with market data and program knowledge) allowed the staff to ask—and answer—concrete questions about class size, cancellation policies, and the types of classes to offer.

Costs from a Strategic Perspective

Striking as the effects of understanding true costs are on individual decisions, the impact on an organization’s strategy can be even more powerful. Accurate cost data also makes it possible to look at program finances from a strategic perspective, to assess the flow of funds within the organization as a whole.

With a full understanding of all their programs’ costs, decision makers acquire a clear view of how, precisely, the organization’s scarce resources are being allocated. They can identify which programs are covering their own costs or even generating surplus funds, and which ones require subsidies. As a result, they can determine whether scarce resources are being used in the ways that most effectively advance the organization’s mission.

The calculations themselves are relatively straightforward. Since nonprofits generally have fairly accurate data for their programs’ earned and contributed revenues, once they have a comparably strong understanding of their full program costs, they can match program revenues to costs in order to determine each program’s net contribution.

The value of these calculations lies entirely in their ability to highlight situations in which program economics are out of line with mission-driven priorities.

This approach makes the economics of the organization transparent; it also represents a considerable departure from the way in which nonprofits historically have considered their program finances.

Many nonprofit executives still think about the revenue side of their organization separately from the cost side; and as long as total revenues are sufficient to cover total expenses, they tend not to calculate whether individual programs are “earning” or “losing” money.

This approach is all the more attractive for the many nonprofits in which costs historically have been bundled into financial categories that basically tell you nothing about what the costs actually do. Capturing and allocating full cost data properly is difficult enough when it’s done from the start. Recasting historical data (which often consists of people’s time) is truly hard to do.

The value of these calculations lies entirely in their ability to highlight situations in which program economics are out of line with mission-driven priorities. Cognizant of which programs contribute positively to the organization and which represent a net drain on its resources, decision makers can examine the flow of funds within their portfolio of services to make sure that their allocations are supporting—and not undermining—the organization’s desired impact and focus.

But nonprofits have varying motivations for the activities they undertake. While many programs may be intended to both further the mission and contribute to financial sustainability, in practice each will favor one more than the other. Recognizing and being explicit about which programs serve which purpose allows organizations to ensure that their activities strike the balance they desire.

A matrix that incorporates both mission alignment and financial contribution makes this framework concrete.

Strategic Value of Cost Calculations

The value of cost calculations lies entirely in their ability to highlight situations in which program economics are out of line with mission-driven priorities. A matrix that incorporates both mission alignment and financial contributions makes this framework concrete.

Once all programs have been evaluated qualitatively and quantitatively, leadership is better positioned to make strategic decisions. Returning to the matrix, the organization can classify programs according to the quadrant with which they correspond and then identify opportunities for each one’s future strategic direction.

Making Full Cost Data Routine

Nonprofit financial and reporting systems, the culture of many nonprofit organizations, and the funding environment in which nonprofits operate all work to obscure true cost information or make it unnecessarily difficult to obtain.

As an initial obstacle, most nonprofits have only rudimentary financial systems, and the standard accounting packages on which they tend to rely are seldom conducive to tracking and understanding the true costs of operation. Introducing more fully developed financial and accounting systems into nonprofits is an obvious first step to strategic cost management.

The culture of nonprofits also works against economic clarity. For many nonprofits, focusing more than a modest amount of money and attention on understanding such traditionally commercial matters as costs represents a diversion of valuable resources from activities that further the organization’s mission.

Additionally, even though staff labor costs (people’s time) represent many nonprofits’ single biggest cost, the culture in most of these organizations isn’t conducive to tracking how employees spend their time, so that those costs can be allocated to the relevant activities and programs. Unlike law or consulting, where employees are accustomed to documenting their time in order to assign it to clients, nonprofit employees are not only unlikely to be familiar with such recording systems but also may resist any efforts to quantify the cost of their activities.

Lastly, the capital market in which nonprofits operate pushes against economic clarity in a variety of ways. Many funders prefer to support programs and projects rather than overhead expenses such as fundraising and administrative costs. They also tend to prefer providing seed money to support new programs rather than sustaining existing ones.

Looking Ahead

Competitive forces of many kinds shape the world that nonprofits inhabit. Within the sector itself, more organizations are competing for scarce resources such as funding and staff. Nonprofit start-ups appear with startling regularity. For-profit businesses continue to enter the marketplace in growing numbers in industries such as health care and education.

To participate successfully in this new environment, nonprofits must be able to articulate coherent, well-structured strategies that will allow them to deliver on their chosen mission. Economic clarity is an invaluable—and essential—input to this work. For today’s nonprofits, accurate cost information may prove to be priceless.

For the full report go to Bridgespan’s Learning Center on Developing Strategy.