We love how people have so many options for finding fresh produce today – from growing your own vegetables in your backyard to frequenting the farmers’ market (traditional or mobile) to buying shares of local farms to shopping at chain grocery stores. There is a wide spectrum of options to fill our dietary needs. In the same way innovations have diversified how we shop for food, so too have we maximized operational efficiencies at nonprofit organizations. Along the spectrum between self-contained organizations that house every functional department and those that merge with other organizations lie organizational models to collaborate in ways that increase efficiency and maximize impact. One of these options is shared services. Shared services are much like outsourcing in that nonprofit organizations contract with other entities to provide specific services; however, shared services have the added dimension of clustering similar organizations to capitalize on synergies from collaboration.
Types of Shared Services Models
- Sharing Physical Resources: Some nonprofits have shared physical space to increase operational efficiency. The Children and Family Services Center of Charlotte (CFSC) and the Nonprofit Innovation Center (NIC) at the Sierra Health Foundation are great examples of this type of collaboration. Nine North Carolina nonprofit organizations saved a combined $1 million a year and continued to pay below-market-rate rents for occupancy and a host of subsequent services, simply by locating in the same building. NIC’s health-focused agencies realized benefits from increased information-sharing and reported a significant increase in pride because their clients had professional environments to visit. CFSC also reported 62 such project collaborations.
- Sharing Services: Other nonprofits have come together to share administrative services like information technology, finance, human resources, and marketing in order to realize similar efficiencies. Community Service Partners (CSP) serves six nonprofits that work with individuals with disabilities in Chicago. In the first year of this collaboration, all the nonprofits in CSP integrated the same information technology platform, which saved $100,000, plus an additional $96,000 from other efficiencies. CSP is on track to realize $3 million in savings over the next five years, and all members have already doubled their return on investment.
Tips for Embarking on Shared Services Models
As the shared services model gains momentum across the country, many nonprofits have shared best practices for starting this type of collaboration. Here are the most common trends:
- Enlist a third-party to facilitate the process: Having a neutral third-party that has no affiliation with any of the organizations greatly helps facilitate honest conversation about each organization’s commitment to shared services, capacity, responsibilities, and concerns.
- Find a lead funder to subsidize start-up costs: A vast majority of the shared service collaborations in the nonprofit sector have a lead funder that subsidizes the start-up costs. Shared services collaborations come in many forms and have diverse financial models – some utilize excess capacity of one organization, some form a cooperative, and others hire an intermediary to provide services. Collaborations that share physical office space generally have the highest initial costs when they acquire buildings.
- Build a robust financial model to assess the viability of cost savings: Ensuring that the collaboration will generate savings requires a robust financial model that includes a realistic estimation of start-up and operating costs. It may take two to three years to realize savings, and that often requires a critical mass, so it is important that the model includes the number of nonprofit participants the collaboration needs to reach that critical mass.
Shared services can be a great way for smaller nonprofits to reap the benefits of larger institutional players in the sector while achieving savings they can reinvest in the programs that help those they serve. Please tell us about your shared service success stories and any practical insights you have gained along the way. Stay tuned for next week’s blog, which will review Malcolm Gladwell’s latest book, David and Goliath.