Press Release

Charities Take Their Cue from Business

Atlanta, GA - 3/01/2008 -

From The Financial Times
http://www.ft.com/cms/s/0/59b9fbda-e72d-11dc-b5c3-0000779fd2ac,dwp_uuid=d8e9ac2a-30dc-11da-ac1b-00000e2511c8.html?nclick_check=1

By Sarah Murray

Published: March 1 2008 04:05 | Last updated: March 1 2008 04:05

When Karen Beavor and her colleagues started examining purchasing practices across the more than 3,000 non-profit organisations in the state of Georgia, they found they were spending about 8 per cent of their budgets on office supplies and equipment

“That’s a lot,” says Ms Beavor, who is president and chief executive of the Georgia Center for Nonprofits, which aims to improve charities’ use of their resources. “In a for-profit, it’s more like 3 or 4 per cent, and 5 per cent is high. So the question was, ‘what’s going on there?’ ”

Part of the answer is that, for reasons ranging from working cultures to sources of funding, non-profits have been slow to wake up to the benefits of outsourcing and shared services, in procurement, information technology support or recruitment services.

But as leading charities and foundations increasingly adopt strategies used by the private sector, many see potential for the kind of cost-cutting and enhanced efficiency that companies have gained from handing over non-core processes to third-party suppliers.

And that could have profound implications.

Rather than going out and raising more funds, the best way to maximise the impact of non-profits may be to find ways to improve their efficiency. The issue may seem dry and technical, and it lacks the emotive appeal that accompanies much philanthropic work, but it must not be ignored. As Ms Beavor puts it, non-profits need to recognise that inefficiencies in back-office operations lower the return on a donor’s investment.

Having seen the high levels of spending on stationery and office equipment in Georgia, she decided to bring in experts from the private sector. “We called IBM and decided to do an analysis – and we proved ourselves right,” she says. “A lot of organisations were buying everything at full retail and purchasing it through an inordinately large number of vendors. There was absolutely no leverage and very little management of their spend.”

They developed an e-procurement system that was easy for non-profits to access via the web. The system meant that a diverse group of organisations – ranging from colleges, food banks and churches to performing and visual arts groups – could wield collective purchasing power to secure better prices for supplies.

As a result, participating organisations collectively can reduce procurement costs by up to 30 per cent and their associated administrative costs by about 50 per cent.

“That’s a significant amount of savings, which could translate into the equivalent of revenues that they would normally not have,” says Charles Vianey, global business development executive at IBM, who worked with Ms Beavor’s organisation on the project.

But in spite of this evidence, many non-profits appear unwilling to turn over administrative and other functions to others to concentrate on their main mission – serving their communities and addressing social and environmental issues.

Part of the reason lies in the way non-profits obtain their funding. Donors often insist that the bulk of their gift goes directly to the needy or to programmes on the ground, rather than towards paying for functions such as staff training, human resources management or back-office tasks such as improving information technology or accounting systems.

“So what tends to happen is that really important functions become under-resourced and understaffed,” says Ms Beavor. “It’s not necessarily that non-profits don’t feel these things are important but this type of work is expensive and the resources are simply not there because of the way organisations are capitalised.”

The organisations working behind the scenes
Georgia Center for Nonprofits Based in Atlanta, the centre helps the more than 3,000 non-profits in Georgia to become more successful in their missions by offering information and training to improve their management and governance processes. www.gcn.org

BridgespanDeveloped as a non-profit organisation to give it the same financial structure as the groups it serves, Bridgespan offers consultancy services to foundations and non-profits. Within the group, an executive search organisation called Bridgestar helps organisations identify and recruit senior executives though an online jobs board as well as through recruitment advisory services. www.bridgespangroup.org

Accenture Development PartnershipsSet up as a charitable organisation by Accenture, the global consultancy, Accenture Development Partnerships provides consulting services to donors, NGOs and other non-profit groups in developing countries. Accenture sends its consultants around the world to work these organisations and charges fees that – since they do not include profit margin or overheads – are affordable. Consultants work on half their salary while on the project. www.accenture.com/adp

Development Executive Group The Washington DC-based fee-based membership organisation provides online recruiting services and industry intelligence on projects emerging from donor agencies. Members include companies, non-profits and government bodies working on global development projects. DEG now serves tens of thousands of organisations, including about 200 executive members that include large NGOs such as the American Red Cross and Care. www.developmentex.com

Moreover, organisations are resistant to change. “The technology is there,” says Mr Vianey. “But cultural change is often the most difficult aspect of this – and with non-profits, this is very new to them.”

As a result, service providers and outsourcing companies have largely ignored the charitable sector, while those that exist to serve the private sector are usually beyond the budgets of non-profit organisations.

“The non-profit sector doesn’t have consultancies, banks, or ad agencies,” says Tom Tierney, who in 2000 stepped down as chief executive of Bain & Company, to develop Bridgespan, which assists charities and foundations to use business tools and consultancy services to become more efficient.

Mr Tierney points out that charities and foundations are often forced to rely on ad hoc, pro bono services. “And because the capacity doesn’t exist in a significant amount to serve them, the organisations tend to get mediocre services,” he says.

Nevertheless, a growing number of organisations is stepping in to fill the gap, with services ranging from consultancy and recruitment to technical assistance and office space.

Another consultancy, Accenture, is also providing services to non-governmental organisations and non-profit groups in developing countries through Accenture Development Partnerships. The company sends its top executives to work on projects for up to six months to help organisations improve their efficiency in areas such as supply-chain management or financial controls.

“There’s an increasing desire by non-profits to look at a business approach,” says Gib Bulloch, ADP’s director. “And more organisations are looking at things that work in the private sector.”

One strategy that has successfully cut costs and enhanced efficiency in the private sector is online recruitment. It was with this in mind that Raj Kumar founded the Development Executive Group, an organisation based in Washington DC that provides online recruiting services to the development community.

The organisation has a database of more than 70,000 candidates available for international positions that is used by hundreds of NGOs and public agencies. Individuals can do job searches on the site or post a résumé while member organisations can search the database for appropriate candidates.

In establishing the organisation, which also provides business intelligence to the sector, Mr Kumar aimed to address what he saw as operational inefficiencies in the non-profit sector because organisations were trying to handle everything in-house.

As the non-profit sector tries to squeeze more from its budgets, many are recognising that their efforts can be more effective when they turn to these sorts of organisations to provide the kind of infrastructural, technical and administrative support for which they rarely have dedicated skills and resources in-house.

In some areas, the idea of outsourcing is catching on. Humanitarian agencies, for example, have been relinquishing the old system of relying entirely on stocking their own large warehouses round the world with supplies and are developing systems where, by establishing pre-purchasing agreements with suppliers of drugs, tents, sheeting or blankets, they can order more efficiently.

The falling cost of technology is also making it easier for non-profits to benefit from the kind of outsourcing arrangements long used by the private sector. While in the 1980s and 1990s, the software for functions such as procurement and human resources management had to be run on expensive proprietary systems, web-based technology means that organisations wanting to tap into these services can now do so without making big investments in new equipment.

However, Ms Beavor believes that more must be done to educate both donors and the recipients of their gifts on the importance of boosting the capacity of back-office operations.

“People’s minds need to be broadened about what creates impact,” she says. “It’s about how you use that donation and how much is going to programmes versus administration.”

And as philanthropists become more interested in measuring the impact of their donations and demand more transparency from the non-profit sector on how their money is spent, the pressure to use resources more efficiently will intensify.

“These things are being thought about by the more progressive organisations,” says Mr Bulloch, “because if they don’t, as the spotlight goes on them and people want more accountability and more bang for their buck, they risk becoming obsolete.”

Mr Kumar still sees plenty of room for the growth of outsourcing and shared services designed for the non-profit sector. “It’s not as lucrative a field as it is for the private sector so there hasn’t been development of outsourced services. But I think in the coming years we’ll see more and more.”