Ordered List

Saturday 11 April 2009

In my previous post on whether Partnerships and Collaboration might save the third sector, I suggested that one reason why small charities are failing is the nucleation of the sector caused by self interest in raising funding. However, beyond a point they all have the same collective goal, which is to effect positive social change. Unlike businesses which are just out for themselves, this commonality of higher purpose means that charities and social enterprises are perfectly placed to cooperate and collaborate to survive.

I see 3 forms of partnership that are immediately viable for most small social organisations, none of which are being fully explored
  1. Sharing operational costs and services
  2. Collaborating with competitors to develop better and larger scale joint-propositions
  3. Developing complementary partnerships with non-competitors to reach new audiences

Type 1: Shared Services

One of the biggest problems that small organisations have, especially when transitioning into the mid-sized space, is covering the cost of operational overheads
  • Physical space
  • Human Resources and Payroll
  • Finance and Accounting
  • Marketing & PR
You've got 3 options here.
  1. Outsource all these activities, but not to multiple consultancies or commercial companies like some charities do, but to some kind of Shared-Service Centre dedicated to centralising and performing activities that don't really need much flexibility in decision making - like for example Payroll, Production of marketing materials, Execution of marketing campaigns, Street Fundraising, and Raising awareness through Social Media.

    A few years ago when I was consulting to Public Sector, there was a huge drive to get local governments to band together and exploit shared service centres for exactly these reasons. Improved efficiency and effectiveness.

    However, unless I'm missing something, I don't think anything like this exists for the social sector, which means that right now there's a gap in the market. I suspect that the reason for this is not that there isn't a viable business model here, but that no-one's really invested time in taking the idea to execution. I'm sure this service could be set up as a Charity so that fees do not become prohibitive, and I don't imagine it would be too hard to raise government funding to set it up either.

    A point to note here is that one of the issues with outsourcing or sharing back office functions in the UK lies in tax (thanks Cliff for pointing this out). The Government actively encourages charities to collaborate to reduce cost, but the VAT system penalises those that do. If one charity supplies services to another it has to charge VAT on the supply, and the charity paying for the services cannot recover this. Apparently there is a lobby to get the Government to address this disincentive to efficiency but extending the Charity VAT exemption appears to be a no go zone for Treasury. All things considered however, I'd still suggest that even with the 15% VAT, charities could see benefits from sharing/outsourcing their operational costs.

  2. The other option is to set up a collective of local charities and social enterprises, and for the collective to either share resource, or co-fund and set up an equivalent shared service centre with dedicated teams that perform these functions. These organisations will gain from efficiencies in use of space, resource, and shared best practice and if they take a risk and trust each other the way they should, it will simultaneously create a space for cross-fertilisation of ideas.

  3. If you're starting up a social organisation, or are about to grow/scale yours, plan your restructure to split out your operational functions. Create a new revenue stream by using your team to offer these services to other smaller charitable and social organisations. It requires some strategic thinking and sensible management, but is neither as difficult or as complicated as it sounds. You may even be able to raise funding to offer this service.

Type 2: Joint Offerings with Competitors

Any social issue you're trying to address will have other organisations that do similar things to you. Typically you're going to compete with them for the pots of funding out there. However there really is little or no reason for this. If you're all working together to effect the same greater good, you've immediately got a clear commonality of purpose. If you collaborated and pooled your skills and resources you might be able to achieve much bigger things.

A collaborative network of organisations driving towards the same goal is significantly more powerful than a disparate group of small entities all pulling in different directions. Imagine how much more funding you would attract as an industry, rather than as single companies.

So instead of pumping money into Marketing and PR and networking to make your profile stand out from the competition, you should be putting your energies into building relationships and working protocols with other organisations like yourselves so you can set up joint propositions and pitch for bigger funding.

This is not a short-termist approach. It takes time and needs learning. Start by building relationships and connections with your 'competitors', and create forums or events where you talk and find out about each other. Focus on building trust. Find one other organisation that does what you do, and then pitch for larger projects and funding together. Evaluate and learn from your experiences, and then grow your network. At some point you will have created the basic framework that allows you to rapidly add new connections, and to help them slot in easily.

Be aware that there will be challenges you should expect to face, including

  • Trust
  • Personal and organisational egos
  • Contractual and legal definitions around distribution of finance and delivery of outputs
  • Programme management challenges across organisational boundaries
  • Quality control

Type 3: Complementary Partnerships

There are two sub-types here. One is complementary partnerships in a causal chain and the other involves partnerships to improve the impact and quality of services offered.

  1. Full Chain (End-to-End) Partnerships are particularly useful for organisations that offer niche services, or focus on a particular aspect of a bigger social problem. What typically happens, is that as niche organisations grow, they keep trying to add the offerings that are needed to create the broad impact they really want, instead of looking for ways to plug the gaps more efficiently.

    Taking the issue of youth social exclusion for example, the journey from exclusion to successful reintegration within the system involves transition through and from social care, into learning, and finally successful employment and stability. The learning bit alone involves literacy, numeracy, life skills, specialist skills, and entrepreneurial skills and ranges from drop-ins to accreditation. A plethora of organisations exist that support different bits of the chain, and yet they often work in isolation from each other, or try and grow to cover the entire spectrum.

    A better approach is to identify and build relationships with organisations that aren't your direct competitors. Similar logics and challenges apply as in the previous point, but this is easier because you don't have a history of direct competition. Plugging each other's gaps will help you create broader, more compelling services and pooling together will make you significantly more effective across the board.

  2. Gap Partnerships are ones where you look for ways to improve the quality and effectiveness of what you do by teaming up with organisations that have a complementary focus, products, services or skills that save you from having to employ or develop them yourselves. You can offer each other all sorts of value, from access to different audiences to new skills and capabilities and most crucially, credibility through association.

    This form of partnership is particularly applicable to connecting and working with commercial organisations that are interested in your target audience, or could gain brand kudos through their association with your social cause. Their involvement may include financial support, access to commercial networks and platforms, specialist skills, operational services or progression pathways.

    The trick for social organisations is to identify and develop their audiences, services and brand image in a way that makes them attractive to other organisations. Note that contrary to assumption, this has no correlation with compromising core purpose, and typically is only achievable by staying focused to the social cause and social outcomes.