by Molly Penn
Toward the end of strong economic markets, like the period we just came through, funders begin to feel there are just too many worthy organizations to support and begin to hint or overtly suggest that some organizations consider merging.
Before jumping to mergers as a solution, we’d like to unpack here some of the ways that alliances (of which there are many forms, mergers being only one) can be used strategically to support your mission delivery. The important thing here is to keep your mission delivery at the forefront of your rationale, and to summon the personal humility that brought you to nonprofit work in the first place.
What Are Alliances and How Are They Used?
As we mentioned above, alliances can take many forms. In this section we’ll detail some of the most common forms of alliances and why organizations might want to use them.
Collaborations can be informal (for example, you might think of this as participating in an advocacy coalition as an informal member.) or more formal (for example, agreeing to give another organization access to your constituents so they can deliver a particular service to them). The best uses of collaborations are to broaden access to services for your constituents without having to incur the cost of adding programming or expertise beyond your core mission.
Joint Venture or Partnership
Think of these as more formal versions of collaboration. Partnerships might entail shared programs between two (or more) partner organizations, or entering into agreement to purchase shared services such as grant writing or audit services to achieve economies of scale. There are many different forms of partnership, as this is a common tool for strategic alliances.
Management Service Organizations
This is a form of agreed upon consolidation of “back office” (i.e. non-programmatic) services, such as accounting/finance, HR, fundraising, planning, etc. Two or more organizations might agree to create a new entity that consolidates the back office services for the member organizations, or might agree to consolidate those services in one of several organizations and enter into partnership agreements for those services. The idea behind MSOs is to achieve economies of scale by reducing the administrative overhead costs.
Parent-subsidiary relationships can be quite strategic as a form of alliance. You might consider this as a first step toward an eventual merger process, where the parent organization takes on the other organization as a subsidiary. This maintains some degree of legal separation but ensures the two organizations are operating towards common purposes. Parent corporations are also often used to purchase real estate while shielding the parent organization from risk. We’ve also seen them used to create a for-profit entity that generates profits which are upstreamed to the parent organization to support their social mission work.
Mergers, Acquisitions and Asset Transfers
This is the final stop along the continuum of strategic alliances. Mergers are when two or more organizations decide to merge, and usually entail dissolving those corporations and creating a new, merged corporation. Acquisitions typically entail one stronger organization absorbing another organization to preserve and incorporate its work and broaden or strengthen the mission. Asset transfers indicate that one organization that has been struggling financially and waits too long to entertain an alliance, ultimately having to dissolve by transferring its assets to another organization.
As you can see, there are many forms of strategic alliances that can improve your ability to deliver on your mission. We’ve covered some of the most common here, though there are even more forms than we have room to describe.
How Do You Know You’re Ready for an Alliance?
Take heart – the first step is that you are reading this post and doing your homework. That means you are thinking about it. Before getting serious though, it is useful to remember that any kind of alliance involves negotiation with your partner(s). Therefore, the place we advise organizations to start is by doing some critical self-reflection to take stock of your assets. There are three tools we suggest that organizations use as part of this self-reflection:
1. A SWOT analysis
Start with an analysis of your strengths, weaknesses, opportunities and threats. This doesn’t have to be an exhaustive, researched based assessment, but following the rigor of a SWOT analysis and getting various stakeholders involved is key to it being a good starting place.
2. An asset mapping template
We put together a tool for this to encourage you to consider all of the various kinds of assets you would be bringing to any negotiating exercise (financial, expertise, brand & goodwill, funding relationships, advocacy strength, etc.). Many of these can be invisible or unquantified (such as brand & goodwill) but it is important to take stock even of the assets you can’t “count” easily as they are part of your inherent value.
3. McMillan Matrix
This is a tool for evaluating each of your programs in terms of several factors: (i) how easy or hard is it to get resources to support the program; (ii) how many similar kinds of services are available to your constituents; (iii) how well positioned is your organization competitively speaking; and of course (iv) how well the program fits your mission. Just google it to find a sample.
Once you have undergone a rigorous self-analysis, you are ready to entertain the possibility of pursuing a strategic alliance of some kind.
Set Your Goal for the Alliance
It is important to start the process by getting very clear about what you are trying to achieve through an alliance. We created the below “cheat sheet” to help you determine which form of alliance will best accomplish your goals.
How to Pursue a Strategic Alliance
These can start in several different ways, but in the end it is all about networking. You probably know other organizations in your community or mission space. It’s important to do some sleuthing about how well they are doing (look at their 990s as a starting point). Then you can reach out and ask their CEO or board member to meet with you to explore potential synergies between your two organizations. This kind of conversation can start with more or less explicit reference to wanting to pursue an alliance, depending on your relationship with them. From there, the conversations will naturally progress and get more serious unless they hit a snag which indicates an alliance is not possible or unlikely. In that case, continue to work your networking list and go to the next organization.
If and when you arrive at an agreement between you that you would like to pursue some sort of joint venture, parent corporation or merger, it can be helpful to retain a neutral process facilitator to guide the negotiations to ensure trust is maintained and negotiations are productive.