2010 AMC Preconference ProgramAMC-Managed vs. Standalone Models:   Evidenced-based Comparisons             Michael T. LoBu...
Table of Contents  Context – The AMC “business case”  General approach common to both studies  Study #1: Operating Rati...
Marketing the AMC-modelCase Studies:                        Feature-set collateral:show how we got all of the           go...
New line of inquiry  What: Head on comparisons between AMC-   managed and standalone organizations  Uses: Conventional m...
Study Limitations  Data – type, reliability & quantity  Metrics – at best, proxies for what really   matters       impac...
Why head on comparisons to         standalone organizations?  Because, there are so many of them!                        ...
… and …    More than half of the business leagues are in     our sweet spot in terms of annual budgetsPotential?         ...
Tale of Two Studies  AMC Managed and Standalone Organizations – A Sibling   Study  May 2009; by: Michael T. LoBue, CAE   ...
General approach common to both  Comparison of two management models:    Organizations ≤ $5M in annual operating revenue...
#1: AMC Managed and Standalone  Organizations – A Sibling Study, May 2009                                 Net Profitabilit...
How samples compare:                                Standalone Organizations          AMC-Managed Organizations           ...
Performance Ratios        Net Profitability – The amount of revenue collected less total         expenses incurred over a...
Performance Ratios, continued     Operating Efficiency – tells us how many dollars in revenue are      generated by each ...
Performance Ratios, continued     Leverage Ratio – is a measure of an organization’s ability to cover its      financial ...
Revenue Profiles  Standalone   organizations derive             Revenue Profiles by Management Model   85% (≤$1M) and 90%...
Expense Profile: Meeting Expenses  AMC-managed organizations spend more   resources on member programs!                  ...
Expense Profile: Insurance (risk)  Not big #’s – but differences are striking:     Organizations between $1M and $5M in ...
Expense Profiles: Infrastructure    Aka: the “Standalone Premium”…14.1%      = 46%30.5%                                   ...
How do organizations compare?  …or, “how are the organizations managed under these   two models similar?”                ...
By primary interest/subject area  While some differences   exist between the two   models (e.g., Business/   Commercial, ...
Summary of OR Comparisons                     ✓           ✓                                 ✓                     ✓       ...
Data supports:  Organizations ≤$5M managed by these two   models are essentially the same in terms of:    Tax status    ...
Analyzing costs using a bell curve  The bell curve is the shape of a “normal distribution of   observations” for independ...
Standalone Infrastructure Costs  Average % of revenue spent by standalone organizations for the   basket of services they...
AMC-Managed Infrastructure Costs  Average % of revenue spent by AMC-managed organizations for the   basket of services th...
Compare Infrastructure Costs  The only valid comparison of this data is that “on average”   standalone organizations pay ...
#2: Are AMC-Managed Organizations Recession Resistant?On October 30, 2009, CEOUpdate publishes shockingresults about their...
So, Are AMC-Managed Organizations           Recession Resistant?YES – at least at theoutset of arecession! The datastrongl...
How samples compare by revenue size  Average standalone in study was more than 2x   larger than AMC-managed organization ...
How samples compare by organization type   Standalone organizations more prone to trades    vs. societies… does this acco...
Surplus profiles by organization type  Societies and trades managed under the   standalone model have dropped proportiona...
Surplus profiles by age of organization  Standalones, on average, were older (42 yrs. vs. 34   yrs.), but 3 out of 4 olde...
Surplus profiles by exemption type  Very consistent with operating ratio comparisons (see   slide #19)                   ...
Summary of Surplus – Deficit Study  The number of standalone organizations operating with a   surplus between 2006 and 20...
So what? • Why do these #’s matter?  Today, claims about the value   of the AMC-model are based   more on faith than evid...
Calls to action  Update firm collateral with findings   (see example)  Add a boilerplate statement   emphasizing one or ...
Further Research Opportunities  L&M is already gathering 2009 990 returns on the study groups   to update the Deficit - S...
Suggested reading(The) Effective ExecutiveBy: Peter F. Drucker© 1966Hard Facts Dangerous Half-Truths & Total NonsenseBy: J...
Contact Information:                  Michael T. LoBue, CAE                  President, LoBue & Majdalany Management Group...
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Amc model vs standalone-lo bue

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Presentation at the ASAE Annual Meeting 2010 at the AMC Pre-Con event. LoBue presents findings of his comparative studies, examining the performance of associations managed by AMCs vs. direct staff hired model (standalone).

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Amc model vs standalone-lo bue

  1. 1. 2010 AMC Preconference ProgramAMC-Managed vs. Standalone Models: Evidenced-based Comparisons Michael T. LoBue, CAE President LoBue & Majdalany Management Group August 21, 2010
  2. 2. Table of Contents  Context – The AMC “business case”  General approach common to both studies  Study #1: Operating Ratio Comparisons  Study #2: Surplus – Deficit Analysis  So What? What good are these results? 2 August 21, 2010
  3. 3. Marketing the AMC-modelCase Studies: Feature-set collateral:show how we got all of the good to describe the AMCclient’s ducks in a row… service model…   Provide specialized staffing services   Overhead costs, like occupancy, are shared across numerous client organizations   Access to typical capital goods …but enumerating our services, or how we deliver them, only…but generally lack sufficient implies what the receivedinformation that allows audience benefits might be for theto know if the spectacular results organization or their governingapply to their situation. board. 3 August 21, 2010
  4. 4. New line of inquiry  What: Head on comparisons between AMC- managed and standalone organizations  Uses: Conventional metrics for organizational performance  Goal: To establish a baseline of credible, evidence-based distinctions between these two leading management models for membership- based organizations 4 August 21, 2010
  5. 5. Study Limitations  Data – type, reliability & quantity  Metrics – at best, proxies for what really matters impact and performance outside the organization “But the organization is an abstraction. Mathematically, it would have to be represented as a point – that is, as having neither size nor extension. Even the largest organization is unreal compared to the reality of the environment in which it exists. “Specifically, there are no results within the organization. All the results are on the outside.” ‡ ‡ “The Effective Executive”; Peter F. Drucker, © 1966; pg. 13 5 August 21, 2010
  6. 6. Why head on comparisons to standalone organizations?  Because, there are so many of them! 89,409 6 August 21, 2010
  7. 7. … and …   More than half of the business leagues are in our sweet spot in terms of annual budgetsPotential? More than 50% are ≤$5M 7 August 21, 2010
  8. 8. Tale of Two Studies  AMC Managed and Standalone Organizations – A Sibling Study May 2009; by: Michael T. LoBue, CAE   Compares the operating ratio studies by ASAE (13th Edition) and AMC Institute (2007 Client Operating and Financial Benchmarking Survey Report)  Are AMC-Managed Organizations Recession Resistant? April 2010; by Michael T. LoBue, CAE   Compares surplus and deficit trends of two groups of organizations by examining 990 returns for 2006, 2007 and 2008 8 August 21, 2010
  9. 9. General approach common to both  Comparison of two management models:   Organizations ≤ $5M in annual operating revenue   AMC-managed organizations are “full management”  Used existing data from known sources:   13th Edition of ASAE OR Study (© 2007)   Institute’s 2007 Client Operating and Financial Benchmarking Survey Report   990 returns for FYE 12/31 for 2006, 2007 & 2008 9 August 21, 2010
  10. 10. #1: AMC Managed and Standalone Organizations – A Sibling Study, May 2009 Net Profitability Operating Efficiency Leverage Revenue Profiles Expense Profiles13th Edition ASAE Operating 2007 Client Operating &Ratio Study Organization Profiles: Financial Benchmarking Tax Status Survey Report Member Type Geographic Scope Primary Interest/Subject Area 10 August 21, 2010
  11. 11. How samples compare: Standalone Organizations AMC-Managed Organizations ASAE 13th Edition ORR AMC Institute SurveyTotal Orgs in Studies 660 317Size of Pool Solicited 8,000 1,134 (8.25%)* (28%)*$1M or Less 74 (1) 235 (16%)* (76%)*$1M to $2M 73 (2) 45 (15%)* (14%)*$2M to $5M 110 (3) 25 (22%)* (8%)*$5M or More 310 6 (47%)* (2%)* * Percent of Sample (1)  Page 47 of ASAE OR Report (2)  Page 73 of ASAE OR Report (3)  Page 93 of ASAE OR Report 11 August 21, 2010
  12. 12. Performance Ratios   Net Profitability – The amount of revenue collected less total expenses incurred over a period of time (e.g., one year).5.2% isn’texciting, but it is 8.4% is 22%10x’s greater than greater than 6.9%what standalone andorganizations ≤ 55% greater than$1M produced! 5.4% From page 11 in report 12 August 21, 2010
  13. 13. Performance Ratios, continued   Operating Efficiency – tells us how many dollars in revenue are generated by each dollar of assets employed in running the organization AMC-managedSlight advantage by orgs >$1M areAMC-managed, but enjoying 38% betterprobably not OE performance;material plus 75% of the AMC- managed organizations are at or above where only 50% of the standalone orgs are… From page 12 in report 13 August 21, 2010
  14. 14. Performance Ratios, continued   Leverage Ratio – is a measure of an organization’s ability to cover its financial commitments – this is a good proxy for a risk profile – lower is more desirable.Slight advantage byAMC-managed, butprobably notmaterial From page 13 in report 14 August 21, 2010
  15. 15. Revenue Profiles  Standalone organizations derive Revenue Profiles by Management Model 85% (≤$1M) and 90% ($1M-$5M) of revenue from 3 sources.  AMC-managed organizations are less dependent on these three sources.  Conclusion: An organization with a more varied revenue profile is less at risk during volatile times. 15 August 21, 2010
  16. 16. Expense Profile: Meeting Expenses  AMC-managed organizations spend more resources on member programs! 16 August 21, 2010
  17. 17. Expense Profile: Insurance (risk)  Not big #’s – but differences are striking:   Organizations between $1M and $5M in revenue operate at twice the risk of AMC-managed organizations…   …for organizations ≤$1m, the AMC-managed model is 16% less risky 50% less risky? 16% less risky? 17 August 21, 2010
  18. 18. Expense Profiles: Infrastructure Aka: the “Standalone Premium”…14.1% = 46%30.5% 18 August 21, 2010
  19. 19. How do organizations compare?  …or, “how are the organizations managed under these two models similar?” 19 August 21, 2010
  20. 20. By primary interest/subject area  While some differences exist between the two models (e.g., Business/ Commercial, Education and Healthcare/Medical), each management model has a strong presence across the range of organizations by Interests/Subject Areas 20 August 21, 2010
  21. 21. Summary of OR Comparisons ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ 21August 21, 2010
  22. 22. Data supports:  Organizations ≤$5M managed by these two models are essentially the same in terms of:   Tax status  $Member type   Geographic scope  $Interest area  Organizations ≤$5M managed by AMCs:   Generate greater surpluses   Generate greater revenue from each $ of asset in running the organization   Operate under a lower risk profile   Have a more diverse revenue profile   Spend a higher percentage on meetings and member programs   Spend about a 1/3 less for infrastructure 22 August 21, 2010
  23. 23. Analyzing costs using a bell curve  The bell curve is the shape of a “normal distribution of observations” for independent, random variables, like the percent of revenue organizations spend on infrastructure services Mean, Mode and Median values are the same % of revenue 23 August 21, 2010
  24. 24. Standalone Infrastructure Costs  Average % of revenue spent by standalone organizations for the basket of services they could obtain from an AMC is 44.6% % of revenue 24 August 21, 2010
  25. 25. AMC-Managed Infrastructure Costs  Average % of revenue spent by AMC-managed organizations for the basket of services they would have to shoulder on their own is 30.5% % of revenue 25 August 21, 2010
  26. 26. Compare Infrastructure Costs  The only valid comparison of this data is that “on average” standalone organizations pay >46% premium to own their resources 1st Quartile 3rd Quartile % of revenue 26 August 21, 2010
  27. 27. #2: Are AMC-Managed Organizations Recession Resistant?On October 30, 2009, CEOUpdate publishes shockingresults about their analysisof “more than half of thenational associations…”WOW! The number ofassociations operating at adeficit on 12/31/08 was“DOUBLE the rate of thepast two years.” 27 August 21, 2010
  28. 28. So, Are AMC-Managed Organizations Recession Resistant?YES – at least at theoutset of arecession! The datastrongly suggeststhat AMC-managedorganizations arebetter able to handlea recession thantheir standalonesiblings! 28 August 21, 2010
  29. 29. How samples compare by revenue size  Average standalone in study was more than 2x larger than AMC-managed organization 29 August 21, 2010
  30. 30. How samples compare by organization type   Standalone organizations more prone to trades vs. societies… does this account for differences? doesn’t appear to matter 30 August 21, 2010
  31. 31. Surplus profiles by organization type  Societies and trades managed under the standalone model have dropped proportionally 31 August 21, 2010
  32. 32. Surplus profiles by age of organization  Standalones, on average, were older (42 yrs. vs. 34 yrs.), but 3 out of 4 oldest were AMC-managed orgs 32 August 21, 2010
  33. 33. Surplus profiles by exemption type  Very consistent with operating ratio comparisons (see slide #19) 33 August 21, 2010
  34. 34. Summary of Surplus – Deficit Study  The number of standalone organizations operating with a surplus between 2006 and 2008 dropped 45%, whereas the number of AMC-managed organizations operating with a surplus over the same period dropped only 3%.  The profile of AMC-managed to standalone organizations supports the findings of the 2009 OR study – there’s basically no difference between organizations regardless of their management models – apart from AMC-managed organizations enjoying greater operational benefits. 34 August 21, 2010
  35. 35. So what? • Why do these #’s matter?  Today, claims about the value of the AMC-model are based more on faith than evidence! Like a building without a foundation…  These results are important because they substantiate claims of value and results ? ? delivered. 35 August 21, 2010
  36. 36. Calls to action  Update firm collateral with findings (see example)  Add a boilerplate statement emphasizing one or more of the results  Educate other association service professionals you know (e.g., lawyers, accountants, consultants, etc.) about these findings and the AMC-value proposition 36 August 21, 2010
  37. 37. Further Research Opportunities  L&M is already gathering 2009 990 returns on the study groups to update the Deficit - Surplus study  ASAE & The Center’s new Form 990 Online Database – help get AMC-managed organization data included!Questions / Areas of Exploration:HR Comparisons – tenure, professional certifications, benefit packages, etc.Professional Development – comparison of two modelsFTE Assignments – comparison of two modelsStandalone ROI – What justifies the 46% premium a standalone would pay vs.using an AMC? 37 August 21, 2010
  38. 38. Suggested reading(The) Effective ExecutiveBy: Peter F. Drucker© 1966Hard Facts Dangerous Half-Truths & Total NonsenseBy: Jeffrey Pfeffer & Robert I. Sutton© 2006How to Lie with StatisticsBy: Darrell Huff© 1954 38 August 21, 2010
  39. 39. Contact Information: Michael T. LoBue, CAE President, LoBue & Majdalany Management Group Phone: +1.415.561.6111 E-mail: lobue@lm-mgmt.com Website: www.lm-mgmt.comSpecial thanks and acknowledgement to the following for their assistance incontributing data and guidance: Rick Cristol, John Dee, CPA, Bryce Denton, SteveDrake, Taylor Fernley, Jay Hauck, Esq., CAE, Jaime Nolan, CAE, John Ruffin, CAE,Greg Schultz, and Gregg Talley, CAE; and to Francine Butler, PhD.And a special thanks to Ms. Cheryl McKinney for assisting in the creation of the bellcurves used in this presentation.August 21, 2010
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