Nonprofits improving on how they do business

Nonprofits aren't usually known for running rigorous back-office operations the way their for-profit counterparts do. But that's changing.

After three years of planning, integration and execution, several Twin Cities human-service nonprofits have achieved higher levels of administrative competence, efficiency and cost savings through a shared-service approach to functions such as accounting, office technology and human resources.

"It means that our member agencies were able to serve more than 1,000 additional clients last year," said Stan Birnbaum, president of MACC Commonwealth, the hybrid operation supporting what is now seven of the 21-member nonprofits of the Metropolitan Alliance of Connected Communities (MACC). "This [approximately $200,000] is no one-time annual savings. Our model ensures that this level of efficiency will continue."

Their effort has been the focus of a Humphrey Institute paper that won first place at a recent national conference on best practices among nonprofits. And this kind of collaboration also underscores a recent Stanford Social Innovation Review article titled "More Bang for the Buck."

Birnbaum, who was the chief financial officer of Family & Children's Service, started talking about a new approach with fellow executives at other agencies within the MACC umbrella. He oversaw everything from information technology to the annual audit to building maintenance. And even after 30 years in business, government and nonprofit management, Birnbaum knew he lacked expertise, particularly in technology and accounting.

"I could show our board nice slides and that things were pretty orderly -- or I could be candid," he said.

"I've been talking about that service-bureau approach for years," said Jim Toscano, a veteran medical-foundation executive and chairman of the Minnesota Charities Review Council. Toscano also teaches graduate-level courses in nonprofit management. "These are mature agencies that pool common services."

Larson Allen essentially said to start collaborating with willing agencies on a small scale.

Three more organizations agreed to step up in 2007: Phyllis Wheatley Community Center, Pillsbury United Communities and Plymouth Christian Youth Center.

Groups with common goals

Basically, all five organizations are in the business of building stronger families and communities through self-sufficiency programs, counseling, employment training, referrals and collaborations with local governments and employers. They tend to deal with low-income, problem-plagued families.

These nonprofits bear no resemblance to gilded art institutes or museums. Agencies such as these bore the biggest proportionate cuts in state funding starting five years ago. That resulted in shortfalls as demand rose and private philanthropy didn't keep pace.

"I'm not on Earth to build Pillsbury United," said long-time Executive Director Tony Wagner. "Our primary purpose is to serve people, to serve communities. And we could see that we were not as effective and efficient as we could be."

Two more groups have joined

The five agencies now have grown to seven, with 550 employees and a $35 million consolidated budget.

Pillsbury United was the largest. And Wagner struggled with IT and human-resources weaknesses. But he couldn't afford a full-time IT executive. Anne Little Long, executive director of Plymouth Christian Youth Center, a pivotal agency on the North Side, struggled with finance and accounting acumen.

"Our audit always took too long and was too expensive," said Long, who said the auditors always had to spend time tying up loose ends. "Our business-affairs committee of the board was always concerned."

A $10,000 savings

"Dan helped us get all the internal work tied up [before the auditors] arrived this year," Long said. "Last year, we paid $25,000 to the auditor, and this year it will be about $15,000."

Similarly, Long had a superior HR executive in Mike Johnson, a veteran of 25 years in industry, who now coordinates all the HR functions. The nonprofit executives say the objective was not layoffs, although a couple of folks left under the new system.

And Birnbaum at MACC Commonwealth hired one contractor, Warner Connect, to manage all the computer-technology functions, at a considerable savings compared with the separate IT directors that several agencies wanted.

Why not just merge some of the nonprofits?