Managing in turbulent times June 09


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  • Commentary The CC register is the only indicator of start ups/closures we have: however, major changes are likely to reflect administrative effort. There does not however appear to be significant changes in start ups or removals at times of recession. The important point also is that downturns might lead to a redistribution of income – to be frank from the weak to the strong. Some have argued that, at an aggregate level, this will lead to an improvement in efficiency. This however only relates to the public services delivery function of the sector.
  • Commentary The CC register is the only indicator of start ups/closures we have: however, major changes are likely to reflect administrative effort. There does not however appear to be significant changes in start ups or removals at times of recession. The important point also is that downturns might lead to a redistribution of income – to be frank from the weak to the strong. Some have argued that, at an aggregate level, this will lead to an improvement in efficiency. This however only relates to the public services delivery function of the sector.
  • Unemployment might be the biggest single political issue facing the government Public sector funding of the sector will certainly be affected. As unemployment rises and tax receipts fall, and the government continues to maintain public confidence in banks by supporting failed financial institutions, it seems inevitable that future governments will seek to rebalance the public sector balance sheet by slowing down public expenditure.  This will be particularly challenging in the light of increasing need for many public services, including for hospice and palliative care. Consensus forecasts are that growth will return in 2010, though some are saying 2011. I realise it might be easier said than done, but its important to remember that the economy will turn upwards at some point, so charities do need to keep an eye on the opportunities that will shape your future once the upturn begins.
  • Commentary The black bars indicate years with a month or more of recession. Giving does not go down during all recession years. It rose or stayed stable (adjusted for inflation) in 9 of the 15 years on record with at least one month of recession.
  • Dependence upon philanthropic support from individuals: unpaid time, charitable donations (whether actual or promised in the form of legacies) and other charitable purchases; Dependence upon statutory sources of income, whether contract income for the delivery of welfare services or grants from government agencies (including the Big Lottery Fund); Reliance upon philanthropic support from other institutions: grants from trusts and foundations (which implies significant recycling of capital within the sector); Reliance upon investment income, which in turn is a function of the performance of equity markets and property markets.
  • Another potential challenge for the future is that further rationalisation of contracts may bring to the fore potential contradictions with the government's localism agenda, which promotes local and personalised solutions to people's needs, user involvement and co-production. Will niche local providers be squeezed out?
  • Recheck your mission. How are social and demographic changes affecting the number or types of people needing hospices?  How are needs and preferences changing? Should you focus on your core mission or experiment with new ideas? Ensure that their mission and the needs of their users is at the heart of all actions taken in relation to the recession Review the needs of their clients/users/beneficiaries in order to better plan and target the support and services they provide
  • Planning. It's all a lot easier if you can try to stay a step ahead. Scanning the horizon, looking forwards, is an activity that management should both do themselves, and encourage their people to do.  1. What trends are emerging - use 2. Which trends will affect us most? 3. How shall we respond? Ensure they have in place good systems for receiving information about financial performance and can act quickly and decisively to a sudden downturn
  • Closer eye than normal on cash flow and budgets, assets and investments, and fixed costs. Keep downward pressure on costs and keep an active management of investments. Diversifying income streams is essential, whether that's a broader range of grant funds or, preferably, a broader range of income types including earned income and loans Investment in new technologies might help reduce costs in the long term eg recruitment Consider ways in which they can reduce their costs including through making use of bulk purchasing schemes and more effective use of technology Is your financial management system up to the job? Are you able to reforecast every month so that you know exactly where you are?
  • People. In turbulent times, the leadership role of a management team becomes even more important. People's performance right across the org will drop in situations of uncertainty, so its imperative that there is clear communication pitched at the right level of honesty. This should include things the Management Team don't know yet, but are still planning for.  Communications also need to include the positives - the importance of the work and the great stuff that the org achieves.
  • Partnerships. Hospices already work well together. Management teams should continue to look at joint working, both through Help the Hospices and bilaterally, for example to share HR functions. And beyond the hospice movement what other collaborations can be developed to increase resources, reduce costs, or have an even greater impact. Consider whether their missions could be better fulfilled my merging with other organisations
  • Turbulence is a good analogy! The flight will be very bumpy, uncomfortable for the passengers. Many will be frightened – they might not have experienced turbulence before. But turbulence doesn’t imply the plane will crash or that passengers will be hurt – if those who are flying the plane have reliable instruments they can avoid the worst of the turbulence. Moreover, if they communicate with passengers and air traffic control they will manage people’s fears, which themselves might be damaging And, at some point, there will be blue skies ahead...
  • Managing in turbulent times June 09

    1. 1. Managing in turbulent times: problems, opportunities and responses in the downturn Northamptonshire Conference for the Third Sector February 2009 Karl Wilding NCVO Research Team January 2009 Contact: [email_address]
    2. 2. The Nice Decade
    3. 3. The growth in charity numbers, 1960-present
    4. 4. <ul><li>The UK and global economy is clearly in trouble: </li></ul><ul><ul><li>UK unemployment expected to hit 3 million </li></ul></ul><ul><ul><li>Housing market correction </li></ul></ul><ul><ul><li>Equity markets in decline </li></ul></ul><ul><ul><li>Banking and credit crisis </li></ul></ul><ul><li>But action to stop recession turning to depression: </li></ul><ul><ul><li>Monetary policy: inflation falling rapidly (lower costs) </li></ul></ul><ul><ul><li>Fiscal policy: increased government spending (boost demand) </li></ul></ul><ul><ul><li>Bank rescue: availability of credit </li></ul></ul><ul><li>Growth again in 2010? </li></ul><ul><ul><li>ITEM Club forecasts growth in 2010… </li></ul></ul><ul><ul><li>… but consumer spending negative till 2011 </li></ul></ul><ul><ul><li>Long term impact on public finances </li></ul></ul>The end of the Nice Decade
    5. 5. <ul><li>Income streams do not necessarily decrease in economic downturns </li></ul><ul><ul><li>Individual charitable giving may be resilient… </li></ul></ul><ul><ul><li>… but lag and redistribution effects likely </li></ul></ul><ul><ul><li>Statutory funding: fiscal stimulus in some areas (advice; worklessness), but cutbacks in others (spending that isn’t ‘frontline’?) </li></ul></ul><ul><li>But real concerns over other income streams: </li></ul><ul><ul><li>Legacies, investment income: follow asset prices downwards </li></ul></ul><ul><ul><li>Corporate giving: related to business cycle </li></ul></ul><ul><ul><li>Foundations: medium term fall, short term refocus </li></ul></ul><ul><ul><li>Social enterprise: still a viable model? </li></ul></ul>Charities: previous recessions
    6. 6. Inflation adjusted total giving (US) Source: Giving USA Using one definition of a slowdown, giving grows an average of 0.8% in years with a slowdown
    7. 7. Foundation Giving, 1997-2007 (US) Source: The Foundation Center , Foundation Growth and Giving Estimates , 2008. Figures estimated for 2007. Dollars in billions (inflation adjusted) Total Giving During Recession Years: 1975; 1980; 1981–1982; 1990–1991; 2001–2002.
    8. 8. The Sector’s income sources Statutory sources & Lottery: 36% The public (giving and purchases): 37% Other VCOs: 11% Private Sector: 4% Interest & Dividends: 12%
    9. 9. How did government respond in 1991-93? Local Government Central Government Commentary A majority report no change in attitude of government to the sector – but where there was a response the most widely cited response was a funding cut.
    10. 10. <ul><li>A reduction in income streams and asset values </li></ul><ul><ul><li>Particular nervousness – real or otherwise – re local government, esp in 10/11 </li></ul></ul><ul><ul><li>Opportunities for asset purchase </li></ul></ul><ul><li>Cashflow and reserve levels </li></ul><ul><ul><li>Many organisations poorly capitalised </li></ul></ul><ul><li>Increasing levels of demand </li></ul><ul><ul><li>Many indicators of social malaise worsen in recessions </li></ul></ul>Current/anticipated impacts
    11. 11. <ul><li>Easing labour markets </li></ul><ul><ul><li>Less pressure on staff costs; skills shortages ease </li></ul></ul><ul><ul><li>Greater demand for ‘skilling-up’ via volunteering (but capacity to manage this) </li></ul></ul><ul><li>Reconfiguration of the sector </li></ul><ul><ul><li>Weaker organisations will close, creating opportunities for others </li></ul></ul><ul><ul><li>Mergers and collaboration become more necessary </li></ul></ul>Current/anticipated impacts
    12. 12. <ul><li>Purpose: focus on your mission </li></ul><ul><li>Planning: think ahead </li></ul><ul><li>Pennies: financial management </li></ul><ul><li>People: human resources </li></ul><ul><li>Partnerships: strategic relationships </li></ul>What next? Five Ps to address
    13. 13. <ul><li>Focus and refocus </li></ul><ul><ul><li>Concentrate on your core activity </li></ul></ul><ul><ul><li>Innovate: don’t do different things, but do things differently </li></ul></ul><ul><li>Reconsider your users & their needs </li></ul><ul><ul><li>Ensure your services are relevant and user-oriented </li></ul></ul><ul><li>Other player analysis </li></ul><ul><ul><li>Check who else is meeting their needs </li></ul></ul><ul><li>Refine your story about the gaps you fill </li></ul><ul><li>Purpose: focus on your mission </li></ul>
    14. 14. <ul><li>Scan the environment </li></ul><ul><ul><li>Maintain awareness of local and wider issues that will shape your organisation (eg PESTEL) </li></ul></ul><ul><ul><li>Ensure your internal management information supplies what you need </li></ul></ul><ul><li>Prioritise opportunities and threats </li></ul><ul><ul><li>What’s most important? What’s most uncertain? </li></ul></ul><ul><li>Plan your response </li></ul><ul><ul><li>Consider alternative scenarios…and plans to get there </li></ul></ul><ul><li>Make changes </li></ul><ul><ul><li>Ensure your plans are a living document </li></ul></ul><ul><ul><li>Ensure a clear link between plans and budgets </li></ul></ul>2. Planning: think ahead
    15. 15. <ul><li>Income </li></ul><ul><ul><li>Look to diversify income streams </li></ul></ul><ul><ul><li>Upsell and cross-sell to existing customers </li></ul></ul><ul><ul><li>A bad time for donor prospecting </li></ul></ul><ul><ul><li>Plan for a range of income scenarios </li></ul></ul><ul><li>Expenditure: do more with less </li></ul><ul><ul><li>Understand your costs and systematically identify opportunities for savings (which may require investment) </li></ul></ul><ul><ul><li>New technologies might help: recruitment, publishing </li></ul></ul><ul><ul><li>Identify joint purchasing opportunities </li></ul></ul><ul><li>Monitor cash flow: retain cash </li></ul><ul><li>Reforecast frequently </li></ul>3. Pennies: financial management
    16. 16. <ul><li>Leadership is more important than ever </li></ul><ul><li>Clear communication, with honesty </li></ul><ul><ul><li>Although staff are used to uncertainty they still want reassurance </li></ul></ul><ul><li>Ensure the staff and board are working together </li></ul><ul><li>Look at your skills mix </li></ul><ul><ul><li>Many managers have not experienced a recession </li></ul></ul><ul><li>Take advantage of the labour market </li></ul><ul><ul><li>Many will look for volunteering opportunities </li></ul></ul><ul><li>Celebrate success </li></ul><ul><ul><li>Maintaining morale is crucial </li></ul></ul>4. People: human resources
    17. 17. <ul><li>Ensure funders and partners know your position…and you know theirs </li></ul><ul><ul><li>Funders are ready to help, but not if its too late </li></ul></ul><ul><ul><li>Counterparty risk: are suppliers and partners robust? </li></ul></ul><ul><li>Explore collaboration/merger </li></ul><ul><ul><li>Be clear who the candidates are </li></ul></ul><ul><ul><li>Identify the nature and scale of efficiencies </li></ul></ul><ul><ul><li>Merge/collaborate from a position of strength </li></ul></ul><ul><li>Demonstrate value for money </li></ul><ul><ul><li>If you havent done already, now is the time to invest in proving your efficiency and effectiveness </li></ul></ul>5. Partnerships: strategic relationships
    18. 18. Conclusions <ul><li>The sector is entering the recession in a strong position </li></ul><ul><li>Income streams do not necessarily decrease in economic downturns </li></ul><ul><li>Redistribution of income might be the biggest impact? </li></ul><ul><li>Charitable giving and government contracts/grants are critical: these are not closely correlated with the economy </li></ul><ul><li>The sector is poorly capitalised and relatively unable to deal with falls in income/cashflow problems </li></ul>
    19. 19. Conclusions <ul><li>Impact will be variable: by size, by sub-sector, by geography </li></ul><ul><li>The largest organisations are more capable of resilience </li></ul><ul><ul><li>Reserves greater </li></ul></ul><ul><ul><li>Diverse income streams </li></ul></ul><ul><ul><li>Brand recognition </li></ul></ul><ul><li>Smaller or less established organisations (though not micro?) are the ones more likely to suffer hardship </li></ul><ul><li>Reconfiguration of the sector likely </li></ul>
    20. 20. Planning for the future <ul><li>Expect two years contraction: plan for now, but plan for the upturn </li></ul><ul><li>There is a lag: and therefore enough time to plan </li></ul><ul><li>Don’t just focus on risks: look for opportunities </li></ul><ul><li>Negative impact isn’t uniform: it doesn’t have to be you </li></ul><ul><li>Collaboration and merger are options…but not as a response to crisis, so plan now. </li></ul>
    21. 21. NCVO can help you manage the downturn <ul><li>Make better decisions by getting intelligence on your environment with NCVO Third Sector Foresight: </li></ul><ul><li>Develop your strategy and highlight your impact with NCVO Strategy and impact: / </li></ul><ul><li>Reduce your costs by accessing NCVO’s range of brokered goods and services with NCVO Discounted Services: </li></ul><ul><ul><li> / </li></ul></ul><ul><li>For practical advice and guidance see: </li></ul><ul><ul><li> </li></ul></ul>
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