Professor Emeritus of Strategy
Clinical Professor of Management & Organizations
For more on nonprofit consolidation, listen to this month’s Insight in Person podcast.
In recent years, nonprofit organizations seeking to get more bang for their buck have sought ways of working with other organizations. Whether they want to serve a wider geographic area, take advantage of economies of scale, reduce overlaps in coverage, or coordinate service delivery, many nonprofits are looking to consolidate—which can range from simple partnerships on programs, to alliances on service delivery, to joining back office operations, to full-on mergers—to grow the impact of their missions.
But though consolidation can prove fruitful, it can also have its pitfalls. What should nonprofits consider before deciding to join forces?
“Not every nonprofit organization should be thinking about consolidation,” says Nicholas Pearce, a clinical professor of management and organizations at the Kellogg School and an expert in nonprofit management.
Pearce identifies three elements of organizational culture—purpose, principles, and practices—as critical factors in the success of potential mergers.
“When you’re talking about bringing two organizations together,” he says, “it’s critical that they’re operating on the same principles, that they have the same greater good in mind, and that the practices and the day-to-day lives of the organizations are not so incompatible that the people would be in constant conflict over not just what exactly they do, but how they do it and why they’re even doing it.”
“One thing that leaders ought to be thinking about as they consider consolidating is who’s on the bus,” Pearce says.
“One thing that leaders ought to be thinking about as they consider consolidating is who’s on the bus,” Pearce says. Are the two organizations’ skillsets complementary, as opposed to overlapping? If so, consolidation may be an easier sell.
“People are not going to have a fight over who gets to do this particular function if there’s only one person who knows how to do it well. Where you find the best consolidations are where people are not afraid of whether or not they’re going to lose their job, or they’re not having to fight for turf, but where there is a clear understanding of shared value.”
Open Books and Chicago Literacy Alliance founder Stacy Ratner has been intimately involved in nonprofit consolidation, both in the merger of Book Worm Angels into Open Books and in the founding of the Chicago Literacy Alliance, an umbrella organization that coordinates the efforts of more than 80 participating organizations.
During the 2013 merger with Book Worm Angels, Ratner found herself constantly convincing the various constituencies that the merged organizations would not threaten either program’s effectiveness—that resources or effort devoted to one program, in other words, would not come at the expense of the other.
“Funding is a question that everybody had coming in,” Ratner says. “The Open Books board said, ‘This is a very lovely program, it’s very easy to understand. Are we going to find that we raise money and all of it is earmarked for Book Worm Angels and it cannibalizes our funding stream?’ The board of Book Worm Angels said, ‘You have all these other great programs and they’re so easy to understand. What assurance do we have that you will fund the Book Worm Angels program as it is?’”
Cheerleading is also important. “I think that the job of anyone who is in the top leadership position at an organization in the nonprofit world is: How do you keep everybody excited and engaged and really into what you’re doing, and enthusiastic about it?” Ratner says, particularly over the course of a merger, which can be a long and contentious process. “When you’ve finally convinced board A or board B that this is a great idea and they’re totally behind it, something happens and one of the other boards falls off the side. So building trust was important.”
Operations, too, need to be rethought entirely. Ratner explains that everything from how to process all the books that Book Worm Angels had amassed, to coordinating how to distribute these books to schools, to deciding how to move around (or eliminate) personnel needed to be considered.
Don Haider, a clinical professor of social enterprise at the Kellogg School and a veteran of more than thirty nonprofit boards of directors, advises organizations looking to approach the question of mergers strategically.
“Merger should be more of a proactive than a defensive strategy,” Haider says. “For a lot of organizations it isn’t the answer to their particular problem. They ought to go through a strategic analysis to find the organizational problem, or the market problem, or the clientele problem, or the funding problem, before they go down this road and say, ‘Hey, merger is the answer.’”
Haider identifies times organizations may find right for a merger. Major disruptions like when a funder backs out or when an executive director is leaving can act as a window of opportunity for revamping through a merger. Longer-term shifts—such as when the number of people an organization serves is declining, or if the board is lethargic, indifferent, or not buying into the mission—may also be good times to put the organization into new hands.
Artwork with Yevgenia Nayberg.