Shared Services in the Not for Profit (NFP) Sector – a Missed Opportunity?
Shared Services (and outsourcing) in the NFP sector (NGO’s, Charities, and similar institutions) is a huge potential market as very few NFPs have transformed their processes and services taking into account the concept of shared operations. Even with larger charities such as United Way, Save the Children, or World Vision there has not been a tendency to embark on process improvement changes that include shared services centres (SSC). What makes this sector different than other industries which have embraced SSC and outsourcing?
Having done work with the NFP sector for many years and have encouraged the larger organisations to consider the use of a shared service operation I can see the unique challenges to this sector.
The first challenge is the continuity of funding year on year. Most charities have limited funds that are guaranteed each year, and if they do have these types of resources, they are almost always tied to a programme that is focused on delivering the charitable results. For example, if you are Save the Children and you are running a pre-school education programme for a community, the funding most likely is for multiple years, but it can only be used for that purpose. It is known as “tied funding” since the money is linked to a particular outcome or deliverable. Therefore, setting up a shared service operation which has to have the bills paid each year could prove challenging for one or all members of the same charity that are utilising the shared service.
The second challenge is governance. Even for well-known global charities like the Red Cross or YMCA, there is not a corporate HQ that dictates what each country does for areas such as back office operation (HR, Finance, IT). And even if they do encourage a standard in areas such as IT if the local country is funding it out of grants and donations from the local community it is tough to force them to conform to a global set of procedures, processes or infrastructure. Without the ability to have a governance structure that can instil consistency and standards a shared service operation will fail.
The third area is funding the change. If you have done an SSC programme, you know that there is a funding curve required to achieve the savings. Even with the best ROI in the world for moving HR or finance into an SSC there is a cost associated with making the change. It is extremely challenging for NFP to get sufficient untied funding in a single year to make the type of investment required to save money in the longer term.
And finally, there are thousands of smaller NFP that would find it hard to create a business case for shared services or to outsource, similar to an SME in the commercial world. For example in Australia there are over 54,000 economically active (e.g. they have paid staff and didn't just rely on volunteers) registered charities. That is one for every 450 citizens of the country, and a significant number of them have < 50 employees. There could be an argument that there are too many NFP, but that is a subject of a different debate. With this size of an organisation, SSC does not provide an economic return.
The one exception to the above is IT such as website development and maintenance, SEO, office systems and networks. Many NFP’s have outsourced these activities as they cannot economically maintain staff with the right mix of skills and experience to keep their core IT operating, compliant and attractive to the volunteers and donors.
With the need to continually address the cost of operations and the percentage of donations that go to the “cause” versus paying staff and running the back office, there is pressure on NFP’s to look at how they can save money. There are some potentially creative solutions available and some white space in the markets to establish an SSC/Outsourced operation that is focused on the NFP space.
One example of an innovative solution, again from Australia, is the establishment of a Social Enterprise that provides services to NFP (if you want a definition of Social Enterprise there is a good one here). The Salvation Army has done this for legal services. They have set up Salvo Legal that is a for-profit organisation, that does legal work at “good rates” for charities and other organisations, and then the profits generated go back to the Salvation Army to support their chosen cause.
A market opportunity exists for an organisation to set up a Social Enterprise that is a shared service operation for HR, Finance, IT, Procurement or even broader. There would be many challenges, but the rewards of helping to reduce operational costs in “for purpose” organisations would be more than just financial.
If you are an NFP and want some additional resources this might be interesting, Collaboration 101 in the NFP sector.