Strategic Restructuring Presentation

Strategic Restructuringfor NonprofitsNational Alliance for Media Arts and CultureMay 28, 2010
with
Bob Harrington
Director of Strategic Restructuring Practice
5900 Hollis Street, Suite N Emeryville, CA 94608 www.lapiana.org

About Us
2
La Piana Consulting © 2010
Practice Areas
Strategy
Leadership
Strategic Restructuring
Consulting Services
Trainings and Workshops
Research Initiatives

Agenda
Overview of Strategic Restructuring
Why Strategic Restructuring?
Strategic restructuring process
Assessment
The Negotiations Process
Implementation
Funders and Strategic Restructuring
3

What is Strategic Restructuring?
Continuum of partnership options for nonprofits
Use of partnerships to more effectively achieve an organization’s mission
Different from collaboration: change in the locus of control
Valuable tool for managers and consultants
4

See Handout A
Administration
Management Services Organization
Contracting for services
Exchanging services
Sharing services
Administrative Consolidation
Collaboration
Information sharing
Program coordination
Joint planning
Parent /Subsidiary
Corporation
Corporate Merger
Single focus or program
Multi-focus or program
Integrated system
Joint Programming
Joint Venture
Program
Greater Integration
Contract or MOU
Change in Corporate Structure
Greater Autonomy
The Partnership Matrix
5

Examples of Administrative Collaboration and Consolidation
6
See Handout B

Research on Collaboration and Strategic Restructuring
2000-2003 Data
Landmark Study of 192 respondents from the nonprofit sector
“Strategic Restructuring: Findings from a Study of Integrations and Alliances Among Nonprofit Social Service and Cultural Organizations in the United States”
Kohm, La Piana, and Gowdy, June 2000
http://lapiana.org/Research-Publications/Initiatives/Strategic-Solutions.html
2008 Data
644 nominations received
Statistical analysis
Searchable database of 173 nominations
http://www.thecollaborationprize.org/
7

Why Do Nonprofits Consider Strategic Restructuring?
Internal decision to increase efficiency/efficacy of organization (83%)
Increased competition for funding (60%)
Increased overhead expenses (47%)
Pressure from funders was mentioned least often (30%)
Source: Strategic Restructuring study; Kohm, et al.
8

Why Do Nonprofits Consider Collaboration? 2008 Data
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Why Do Nonprofits Consider Collaboration, cont. 2008 Data
Achieve administrative efficiencies
10

Strategic Partnership by TypeThe Collaboration Prize Data: Top 176 nominations
2008 Data
Other (coalitions, confederations, etc.)
Not specified
Joint Programming
Administrative Consolidation
Joint Programming and Administrative Consolidation
Merger
11

Roadblocks to Strategic Restructuring
Autonomy concerns
Lack of trust
Self-interest
Organizational culture
12

Collaboration and Strategic Restructuring by Field 2008 Data*
13
176 nonprofit collaborations, alliances and mergers
*2010 Collaboration Prize database, the Lodestar Foundation

Current Trends in Strategic Restructuring
Mergers and collaborations as a competitive strategy
Increased interest and activity across the sectors
Dramatic increase in mental health and social services
Increased interest among national organizations
Increased interest in administrative consolidation
Funder interest in multi-organization partnerships or mergers (e.g. not 2 but 5 organizations merging)
14

Other Reasons Why Nonprofits Consider Strategic Restructuring
Economics
Opportunities
Leadership challenges
A tired board
To better serve the community
Reasons specific to each nonprofit
15

Critical Success Factors
Alliance and Integration Study*
Staff / board member championed the alliance (80%)
Positive past experiences with collaboration (74%)
Board support / encouragement (73%)
Organization risk-taking / growth orientation (70%)
Positive board-executive relations (64%)
*Source: Strategic Restructuring study; Kohm, et al.
16

Other Success Factors
Mission focus
Flexibility in pursuing mission
Not in an immediate crisis
A lack of divisiveness
Clarity regarding desired outcomes
Positive relations with potential partners
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The Strategic Restructuring ProcessAssessment
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Self-Assessment
Motivators
Desired outcomes
Critical issues
Organizational factors or “red flags”
Financial assessment
19

Partner Assessment
Level of trust
Past experiences
“Usable” skills and assets
Cautions and challenges
Mission and program compatibility and complementarities
Financial condition
20

Competition and the Market
Which organizations are most related to you?
Offer same/similar programs and services
Have geographic or “consumer” overlap
Seek funding from the same sources
Compete for media attention, staff, or board members
What’s the overlap?
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The market, your current place in it, and how you got here
Other organizations in the market—their strengths and weaknesses (with an eye toward potential partners)
The forces—social, economic, technological, political—that have created your current position in the market
22
Are you aware of. . .?

The Strategic Restructuring ProcessNegotiation
23

24
The Negotiations Process
See Handout C
Integration
Corporation A
Board of Directors
Corporation A
Board of Directors
Negotiations Committee
Joint Legal
Counsel
Decision
Corporation B
Board of Directors
Process
Corporation B
Board of Directors
Due Diligence
Determine potential problem
Disclose information
Analyze
Identify Issues
Negotiate financial and legal issues
Record agreements
Communicate progress to constituents

Issues to be Negotiated in a Merger
Governance
Financial
Human resources
Capital
Programmatic
Communications
25
See Handout D

Due Diligence
See Handout E
Documents to review:
Organizational
Tax
Insurance
Personnel
Financial/Funding
Capital/Real Estate
Others?
26

Financial Impact and Analysis
Financial Comparison
Statement of Financial Position
Statement of Activities
Analysis of financial health
Human Resource Comparison
Budget Development
Projection for combined budget
Cost/savings analysis
Donor Comparison
27

The Strategic Restructuring ProcessImplementation
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Implementation Options
Assets and Liabilities
Corporation A
Surviving
Corporation A
Disappearing
Corporation A
Surviving
1
Corporation B
Disappearing
Corporation B
Disappearing
Corporation B
Dissolving
Assets
2
3
Corporation C
New
29

Management Services Organization Relationship
30
Before
Corporation A
Corporation B
Corporation C
Corporation D

Management Services Organization Relationship
31
After
Corporation A
Corporation B
Corporation C
Corporation D
New
(MSO)
New
(MSO)

Parent-Subsidiary Relationship
Before
32
After
Corporation A
Corporation B
Corporation A
Corporation B
controls

Integration
Areas to be integrated:
Culture
Board of Directors
Management
Staff
Program
Communications and Marketing
Systems
Finance
Fundraising
Human Resources
Technology
Facilities
33

Challenges in Integration
Lack of a merger “champion”
Scarce resources (time and money)
Culture clash
Board and staff development
Creating reasonable expectations
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Why Merger Integration Can Fail
Mergers do not fail because organizational leaders can’t integrate financial systems or IT.
Mergers fail because people tend to hold on to their individual cultures and identity rather than create a new organization.
35

Feasibility Studies
The consultant’s full-employment act.
May be needed for an administrative consolidation and/or MSO but not for most mergers.
Can make things worse.
36

Relating to Funders
Foundations support strategic restructuring!
Organizations should go to funders with whom they normally work or those involved in organizational effectiveness.
Consider a two-phase proposal process that includes negotiations and integration.
37

Questions?
38

Thank You!
Contact Bob at
harrington@lapiana.org
For more information, visit
www.lapiana.org
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Strategic Restructuring Presentation

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