The Times Are A-Changin’

“The times they are a-changin’.”  — Bob Dylan

 

Almost all baby boomers remember the song Dylan wrote and performed regarding change. Little did we know that our generation would, in fact, experience the most rapid change that has occurred in any generation in recorded history.

 

While the world has become a global village as a result of technology and innovation, it is obvious that further change is yet to come. Keep in mind that the vast majority of individuals do not embrace or seek out change. The “status quo” is, in many ways, a comfort zone that we would like to continue.

 

Depending upon your perspective, the changes occurring in the nonprofit sector are viewed as either opportunities for future success, or threats to the very existence of the organization’s mission and purpose. Remember, as you read this column, those industries that have experienced fundamental change in our lifetimes:

 

 

 

-    Banking                                 

 

-    Airlines                                 

 

-    Automobiles                         

 

-    Communications                   

 

-    Health care

 

-    Legalized gambling

 

-    Manufacturing

 

-    Professional sports

 

-    Retail

 

-    Technology

 

-    Telecommunications

 

 

 

It truly has been an amazing and remarkable ride these last six decades. Nonprofit organizations have been experiencing change to varying degrees. Consider the hospital industry. The technology and related cost of health care has resulted in fundamental structural change in service delivery. Our most recent reminder was the closing of Lee Memorial Hospital in Fulton.

 

There are many other examples of change to consider:

 

 

 

-    The federal government, through tax reform, considering a cap on charitable contributions from individuals, with 28 percent as the most recent proposal.

 

-    An increased focus on administrative and cost efficiencies demonstrated by nonprofit organizations.

 

-    Governor Andrew Cuomo focusing on excessive executive compensation in nonprofit organizations.

 

-    The expectations for quality and efficiency by both consumers as well as charity watchdog organizations like Charity Navigator.

 

-    Perhaps most challenging of all, the demand for sophisticated information technology, regulatory compliance, and measurement of service outcomes.

 

 

 

The remainder of this column provides my latest “Top Ten List,” with all due respect to both David Letterman and ESPN’s Sports Center. The following areas must be evaluated by every nonprofit organization facing both known changes as well as implementation of changes yet to be identified.

 

I strongly recommend that each of the following areas be “graded” by your board, management team, and supervisory staff in your organization. The most effective approach is to grade your organizational readiness on a scale of 1-10, with 10 being the best, in each of the following areas:

 

 

 

1. Organizational culture and readiness for change. A fair reference point in this area is whether you believe your nonprofit is more like Google than Eastman Kodak.

 

2. Board attitude and commitment to change. Focus on whether your board leadership demonstrates change attributes similar to the American Red Cross (e.g., disaster relief) or are they more reflective of religious institutions steeped in tradition and resistance to change?

 

3. Effective change-management processes. In my experience, many nonprofit organizations do not consider change management as a procedural matter that needs to be addressed in an organized and systematic manner. Rather, episodes of change (i.e., IT software conversion) tend to be addressed on an individual case-by-case basis.

 

4. Executive leadership. Leadership without biased and predetermined agendas is an absolutely critical element necessary for an organization to effectively embrace changes in the organization.

 

5. Staff buy-in and support. Since most nonprofit organizations devote more than 70 percent of total costs to staff salaries and fringe benefits, personnel drive or destroy the restructuring necessary for effective change implementation.

 

6. Administrative efficiency and quality-service outcomes. There is a reason why Governor Cuomo has issued an executive order that caps administrative costs for Medicaid service providers at 15 percent or less by 2015. Smaller organizations have a particular challenge in this area.

 

7. Program synergies/willingness to collaborate. Outsourcing administrative support functions and non-core competencies represents the first step towards reaching out to other organizations along the continuum from autonomy to acquisition.

 

8. Financial stability. Response to government or market reform in a particular nonprofit service sector requires the organization to have a solid foundation from a financial standpoint.

 

9. Market demographics and geographic footprint. There is no question that government, as well as certain philanthropic foundations, view larger organizations as being more effective in delivering cost-effective, quality services.

 

10. Adequate bank financing and credit facilities. Cash flow and access to capital will position your organization for long-term success. This can best be accomplished by solid financial management, emphasis on private-sector fundraising, and diversification of revenue sources.

 

 

 

Most government-funded nonprofits should perform an organizational assessment using the criteria described above. Strategic positioning of your organization involves discussion and debate between and among board and management team members. A candid assessment of your organization’s strategic position will result in an effective approach to overcoming the hurdles to success as the nonprofit sector restructures and reinvents itself.

 

 

 

Gerald J. Archibald, CPA, is a partner in charge of the management advisory services at The Bonadio Group. Contact him at (585) 381-1000, or via email at garchibald@bonadio.com