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Strategic Alliances Past questions and answers from Richard Jones and David Campbell from live broadcasts aired by the Learning Institute for Nonprofit Organizations collaboration* Other Q & A Topics:
1) Why would nonprofit organizations pursue strategic alliances? Aren’t such arrangements distinctly for profit? It is fair to say that some kinds of strategic alliances are best known in the for profit sector (most notably, mergers and acquisitions) However, strategic alliances are an important tool available for nonprofit organizations to enhance their ability to accomplish mission and goals. For example, nonprofit organizations are always considering resource needs. Alliances are a valuable strategy to increase the resources available to organizations. Other critical organizational needs may also be addressed through strategic alliance. 2) What can I say to Board and staff who fear strategic alliances threaten my organization’s unique community identity? Again, strategic alliances are a tool for accomplishing mission and important organizational goals. The need for a strategic alliance should emerge from an agency planning process. That planning process should help identify the concrete value provided to the organization of a strategic alliance. Ultimately, the importance of a strategic alliance needs to be balanced against the potential threat an alliance presents to an organization’s identity, For example, is the security a potential alliance creates for an organization’s future more important than the potential loss of identity created by the alliance? The answer to that question can only be answered by the organization involved in the strategic alliance. However, it is important to remember that all alliances do not affect an agency’s identity; indeed, some alliances may not affect an agency’s unique identity at all. 3) Many nonprofit organizations in my community are pursuing strategic alliances. How do I know whether my organization would benefit from a strategic alliance? Most important, the simple recognition that strategic alliances between nonprofit organizations are increasingly popular is not a reason for other organizations to pursue strategic alliances. An organization’s decision to pursue a strategic alliance should proceed from that organization’s strategic and organizational planning. Alliances are strategies used to accomplish mission and goals. An organization’s decision to pursue alliances should be based on recognition from planning that alliances are the most effective strategy available to accomplish mission and goals. 4) Over the past several years, a number of organizations in my community have experienced mergers. Some staff have lost jobs. What is the cost of mergers on people? Mergers should grow out of nonprofit organizations’ recognition that merger between organizations is the best way to meet community need, accomplish mission and address key goals. Because, by definition, mergers require organizations to be reorganized, some staff may lose jobs, although that is not the case in all mergers. Ultimately, with non-profit mergers, the key question should be is the community better served with the merger of two (or more) organizations, The loss of jobs, while unfortunate, may be justified in terms of the increased benefit to the community of the new, merged organization. 5) How long does it take to plan and implement a strategic alliance? The planning and implementation of an alliance varies based on the type of alliance and the complexity of its details. The average range, however, for alliances is between six and eighteen months, with mergers and other more, complicated forms of alliance taking longer and coalitions and other less complicated forms taking generally less time. 6) What happens to multiple executive directors and top management staff? Questions regarding the status of executive directors and management staff are normally an issue with types of alliances at the right end of the continuum in which there is a significant change in governance and autonomy, such as in acquisitions, mergers, consolidations and conglomerations. When these types of alliances are pursued, it is important to address questions regarding the long term status of the executive directors early–it is such a critical, personal issue for the key players in alliance negotiations. Alliance processes can break down over this issue, particularly if there is not consensus about it early in the discussions between organizations. To the specific question regarding "what happens," there are a variety of options. In mergers, it is not uncommon for the executive director from one of the partner organizations to remain as executive director of the new merged organization. In such cases, the other executive director(s) either assumes another senior leadership position within the organization or leaves to pursue other opportunities. With other senior staff, there is often an assessment by those responsible for implementing the merger as to whether the positions senior staff hold need to be continued, modified or discontinued in the new organization. (Remember, mergers result in new organizations that require varying levels of reorganization.) That assessment determines whether senior staff stay with the new organization. It is not uncommon for mergers to create new roles for valued senior staff, different from those they held previously, based on the strengths that staff member brings to the organization. It is not uncommon for funders to encourage organizations to ally. The reason for that is funders, particularly public funders and systematic funders like United Way, have a responsibility to create systems of services. They view the funds they give to organizations as their strategy for creating and implementing a system of specific community services. It is in their interest to insure that those funds are used as cost effectively as possible. Funders urge organizations to pursue alliances as a strategy to use limited resources more effectively. If organizations are encouraged by their funders to create alliances, but those organizations choose not to pursue alliances, they risk alienating their relationship with that funder. If an organization forgoes an alliance following such encouragement, that organization has effectively refused to create the system of community services the funder has identified it needs to carry out its mission. As such, a funder may choose to defund that organization and work with another more willing to create the system of community services the funder wants to create. Of course, an organization can, at any time, express to its funders concerns about creating alliances and urge funders to pursue alternative courses of action as means of accomplishing goals. That kind of pressure can be effective, depending on the circumstances. In our program, we emphasized the importance of alliances as a strategy to accomplish goals. Hopefully, the decision to pursue an alliance is derived from either organization’s strategic plans or annual organizational goals. As such, what alliances to choose and the form they take must proceed from prioritized goals. There may be two ways to resolve the problem you suggest here. First, you should determine whether any one of the three alliance types and partners you selected can also accommodate the other goals you have prioritized. If so, you should pursue that alliance. Second, if no one form or assortment of partners can best meet all the goals you have established, then prioritize the goals you have established and pursue the goal which is most important to your organization. In the end, your observation about the time consuming nature of alliances is accurate, and you need to be careful you have the time and resources to carry out even one effectively. There are several strategies for accomplishing these goals, however, as your questions implies, maintaining support, resources and loyalty following acquisition is a particularly difficult challenge. It is a challenge often because acquisition, as a form of alliance, often occurs after boards and staff have become weary over time with attempts to maintain the independence and solvency of an organization with limited resources. Following acquisition, those who supported the acquired organization may view their work as completed and leave administration and other essential support activities to the acquiring organization. The primary strategy we would recommend for maintaining loyalty, resources and support would be to provide meaningful ways in which the unique things the acquired organization meant to the community could be maintained and presented to the community. The development of formal mechanisms for involving those who were involved with the acquired organization could also sustain loyalty and support. For example, strategies such as creation of a fund raising advisory committee to support the activities the acquired organization performed or celebrating a noteworthy community event associated with the acquired organization could both cultivate ongoing loyalty and support. Your question itself suggests an answer. Indeed, you identify many of the important reasons why there is some ambivalence among nonprofit professionals about strategic alliances. Alliances are strategies to accomplish important goals that cannot be accomplished singly. Alliances are pursued because funders and organizations view them as the most effective approach to accomplish what they agree needs to be accomplished. If there is disagreement about alliances as a strategy, the reasons why alliances would not accomplish what funders or others suggest need to be clearly articulated. Ways in which that conversation takes place should include a candid assessment of the benefits and drawbacks of alliances as strategies to address funder identified goals. However, it is clear that the current funding environment increasingly favors alliance as a strategy. As such, suggesting reasons why not to ally is not likely to be an easy path. Selection of an alliance partner often looks more difficult up close than it does from afar. In the end, the most important question to ask when considering a partner is: Partnership with what organization or organizations will best enable my organization to accomplish its key goals? In your case, determine whether one or both of the hospitals would most effectively address the goals you have established for your alliance. A comprehensive answer to would, perhaps, not be as helpful as some general guidelines. Let me suggest a couple of variables operative within the alliance continuum that allow you to evaluate each type’s effectiveness. Decision Making Authority. Each alliance type varies in the amount of decision making authority it requires organizations to give up. Alliance types on the left side of the continuum give up less decision making authority (joint sponsorship, federation) than do alliance types on the right side of the continuum (joint venture, merger). In a merger, decision making is often top down and allows a leader singular authority. In a joint sponsorship, decision making is likely to be shared with one or more other organizations, and is accomplished by consensus. Some suggest that the benefit to singular authority is that it enables faster decision making than shared decision making. The downside of singular decision making may be that one of the merged organizations may lose a "say" in the decisions of what was its organization and there may be less consensus about those decisions. Joint sponsorship, or other left side of the continuum alliances, would never lose the capacity to make decisions either about the joint sponsorship or that organization’s operations overall. Rather, all partners would have a say and decisions would be made by consensus or some other pre-determined mechanism. Scope of Alliance Activity. The kinds of organizational activities in which alliances are involved grow as you move from left to right on the alliance continuum. That means that the scope of what you can accomplish through an alliance is greater at the right end of the continuum than the left. For example, a merger allows a new organization to review all organizational operations and reform them based on what the needs of the new organization are. In contrast, the activities and decision making associated with joint sponsorship are restricted to the particular project that is being joint sponsored. Scope is neither good nor bad; it is simply a defining aspect of the alliance. Alliances are not restricted to intra-sector activities. That is an important starting point. Organizations which have identified the need to pursue an alliance must look at the universe of possibilities before they determine what partner would best meet their needs. Nonprofit organizations generally look to other nonprofits as alliance partners, however for profit organizations may also be appropriate for alliance. The example you suggest is a good one. However, it would be atypical for a for profit institution to provide in-kind services without getting something in return from the nonprofit organization. Kinds of for-profit/nonprofit alliances include marketing tied to nonprofit organizations and for profit service providers, such as hospitals, linking with nonprofit organizations to provide outpatient or other needed social services. The assessment tool provided in the participant packet provides some assistance with particular assessment activities. However, organizations considering merger should follow a disciplined planning process in which formal assessment questions are analyzed. Those questions must include fund raising as well as other critical aspects of organizational operations. For example, an effective merger planning process would consider explicitly whether and why merger would improve fund raising capacity. The way in which such an analysis would take place would include activities such as a comparison of fund raising staff and fund raising activities, an analysis of the fund raising market in the community and, with those data, an assessment whether fund raising could be conducted more effectively as one organization rather than two or more. An alliance planning process should follow the same format regardless of whether the partners are both nonprofit or one is from the for profit sector. However, if a nonprofit and a for profit organization choose to pursue an alliance type on the right side of the continuum, in which a new organization is created or governance is altered, there are special issues to look out for. In particular, organizations involved in these types of alliances must be mindful whether the alliance affects the tax status of the nonprofit organization. Or, if organizations enter into a for profit joint venture, organizations should consult legal counsel to establish a more complete understanding of the tax consequences of that decision, both on the joint venture and on the participating organizations. Again, you suggest a good answer in your question itself. Alliances can be very threatening to organizations. Many board and staff are invested in organizational identity and autonomy, particularly if they have devoted careers to advancing the mission of particular organizations. There are several factors that tend to change thinking about alliances. First, as you suggest, exposure to alliances that have worked help staff and board appreciate the value alliances add to organizations and the community. Once an organization has been involved in a successful alliance, there may be less reluctance to pursue an alliance in the future. Second, obvious threats to an organization’s future also lead to consideration of an alliance. If an organization recognizes that its survival is threatened due to its inability to generate the resources it needs, then it may be increasingly open to considering alliances as a strategy to sustain the organization and its mission even if that means relinquishing considerable autonomy. Finally, general education about the value of alliances and their utility in addressing challenging organizational problems is helpful in getting organizations to think positively about alliances. Faith based organizations face challenges that may best be addressed through alliance. Indeed, in recent years, religiously affiliated hospitals and social service organizations have pursued strategic alliances as frequently as have non-sectarian organizations. In all alliance assessment processes, particularly those toward the right side of the alliance continuum, consideration of mission compatibility is a critical first step. Organizations considering alliance need to consider whether their missions are compatible, and, to what extent mission compatibility is critical to the success of the alliance. If the missions of two potential partners organizations are not compatible, then it would be difficult, if not impossible for them to engage in alliance building activities in which one or both relinquish significant autonomy. In faith based organizations, the faith based interpretation of mission may be more concretely understood than it is in organizations lacking such an affiliation. As a result, the assessment of mission compatibility may be more important and critical to success in religiously affiliated organizations involved in alliances. It is more likely to be clear that there is not mission compatibility and what the implications of that incompatibility are with faith based organizations than there is with those that are not faith based. We have come across several very successful alliances involving faith based organizations. Alliance leadership can arise at the board or staff level. If there is an uneven commitment to the alliance between board and staff, there are a variety of types of activities which can be pursued to increase organizational buy-in. Those include joint activities involving board members and senior staff of the potential partner organizations, board/staff retreats, with a clear alliance oriented purpose and involvement of external stakeholders to provide perspective and advice. The purpose of such activities, of course, should be to generate at least low level consensus about the direction in which a potential alliance is heading. Persuading a risk averse organization’s board of trustees to proceed with a strategic alliance is not an easy task. The challenge is to deepen the volunteer leadership’s understanding of the challenges the organization faces and the importance of alliances as a strategy to meet those challenges. If staff have been unsuccessful generating board interest in alliances, then perhaps utilizing respected third parties might be an effective strategy. For example, if faced with flat funding, why not invite key funders to meet with the board president or executive committee to discuss the long term funding picture for the organization or the funder’s perspective on the organization’s work. Such a discussion might also focus on strategies (like alliance formation) to improve the organization’s long term outlook. Also, conducting a strategic planning process, again utilizing outside facilitators who meet with community stakeholders to assess the organization’s long term niche, might also help persuade trustees of the need to pursue an alliance. Ultimately, reluctant trustees need to be provided with information that suggests that alliances either advance the organization’s strategic position and represent the direction in which they would like the organization to go; or trustees need to appreciate that without alliance an organization’s future is seriously threatened. To the extent you can craft strategies that accomplish these goals you will help change their thinking about alliances. Please also visit the Frequently Asked Questions section of the Strategic Solutions web site. 20) What is the name of the book Darlyne Bailey mentioned (also publisher, date of availability)? The name of Dean Bailey's book is Strategic Alliances Among Health and Human Service Organizations: From Affiliations to Consolidation. It is published by Sage and will be available early this summer. 21) How important is it to have an outside involved in facilitating the alliance process? Organizations creating alliances utilize outside consultants for two important reasons: expertise and neutrality. Alliance formation is a complex, specialized activity. Some organizations find it useful to retain a consultant who has expertise in the creation of strategic alliances. Such individuals can be tremendous resources in working through the complicated issues alliances raise. Consultants who have been involved in alliance formation elsewhere know what kinds of processes organizations need to undertake to create successful alliances. They can craft an exploration process that meets the needs of any group of organizations interested in alliance formation. In addition, as noted in the program, alliance formation asks organizations to give up some independence to become part of the alliance. That process can lead to conflicts between alliance partners. Sometimes, leaders in alliance formation are perceived as too closely identified with one or more of the alliance organizations. They may be perceived as making decisions that favor one organization over another. Outside consultants are usually seen as neutral and can facilitate negotiation of those complicated issues. Their input in deciding such issues is likely to be viewed as independent and not self-interested. Ultimately, every alliance is different. The need for a consultant is likely to depend on whether the partners have confidence in their ability to create an alliance formation process that meets the needs of the partners and the level of trust they share. 22) At what point does the board of directors become involved? Trustee involvement in strategic alliances depends on the type of alliance an organization is creating. In high-end alliances, such as mergers, trustees become involved fairly early in the process. That's because mergers immediately involve governance and other issues that are clearly the responsibility of the board. Organizations involved in mergers are likely to face questions regarding mission, ongoing independence, the status of senior staff and governance structure. High-end alliances usually begin with executive director and board discussions regarding merger (or other alliance forms) as a strategy. Staff may do some preliminary exploration, but once sincere interest in the merger is identified, board leaders become critically involved in the exploration and negotiation processes. With lower-end alliances, such as federations, networks or coalitions, ongoing board involvement is less critical than high-end types. That's because there is less organizational independence at risk and the issues of consequence are not those for which the board has ongoing operational responsibility. However, if alliance is being pursued as a strategy, it is advisable for executive staff to provide regular and consistent updates to board members about progress. It is important to surface early whether trustees have any concerns regarding the ongoing development or participation of the organization in alliances. 23) Where does the liability lay when two organizations form an alliance? We would like to form an alliance with a local organization, but they are afraid that they would then be liable legally for anything that we did. I am not an attorney and cannot claim to speak for all the legal implications of alliances. However, my experience has been that there are legal protections organizations can establish when they create alliances. Alliances can purchase liability insurance and create independent governing structures to insulate independent organizations from the financial consequences of alliance participation. Fear of legal liability should not be an immediate deal breaker in determining whether to create an alliance. The options and legal implications of alliance formation should be fully explored with legal counsel before you make a decision not to proceed with am alliance.
*Responses were transcribed by Prof. Andrew Lewis from the live broadcasts produced by the Learning Institute for Nonprofit Organizations collaboration. |
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