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Nonprofits can benefit from outside manager

January 21st, 2020

“The times they are a-changin’.” —Bob Dylan

Technology has seen to it that the business practices of our world are being rewritten on an annual basis. Progress that may have taken decades to accomplish in the 20th century now is possible in a matter of months.

We find the word “impossible” fading rapidly from our language. Revolution is the order of the day. It is a great and challenging time to be alive. Embrace the techno-revolution and cars that drive themselves.

Nonprofit organizations have acted in response to the technological revolution and the administrative cost cap of Gov. Cuomo’s Executive Order 38, which prevents public funds from being used to pay excessive compensation or unnecessary administrative costs. One strategy involves collaboration with other nonprofits to create a management services organization. Group purchasing cooperatives and shared computer support are examples of the many types of services that can be arranged for and provided by an MSO.

MSOs are not a new concept. Similar structures have been in place for decades. Yet “management services organization” can mean many things to many people.

A broad definition of an MSO is any organization that provides goods or services to its members and other customers with the objective of improving productivity and efficiency, and reducing costs. Obviously, this definition can apply to a variety of organizations. MSOs can be either nonprofit or for profit, depending upon the mission and objectives of the individuals forming the entity.

In the nonprofit sector, MSO’s popularity is being driven by the techno-revolution and changing expectations of consumers and government funders. Nonprofit organizations continue to face the challenge of government funders and philanthropic donors to produce quality service at a cost- effective price.

Other than group purchasing, the most common functions that can benefit from a shared service MSO approach are as follows:

  • Information technology
  • Financial reporting and billing
  • Human resources
  • Compliance
  • Managed care provider contracting
  • Facilities, maintenance
  • Access to grants and capital financing
  • Transportation
  • Administrative functions supporting regional provider networks
  • Fundraising and development
  • Marketing, public relations and communications
  • Strategic planning

As MSOs have become more popular in the health and human services sectors, their failure rate has increased dramatically. Recent studies have shown that, particularly in the nonprofit sector, most MSOs fail to achieve their goals.

Based upon my 35 years’ experience in the design, development and formation of MSOs, I believe the 10 factors in the following list are critical elements for success in providing such services. As you read this list, keep in mind that, in the final analysis, an MSO’s ability to provide value to its customers determines whether it will be successful.

The 10 critical factors are:

  1. The organization and its members must share a common vision with a defined purpose, goals and objectives. Too often, MSOs attempt to provide services in areas in which they have no experience or core competency.
  2. The MSO must have dedicated, capable leadership. Since MSOs provide services, its leaders must have expertise in providing those services.
  3. The MSO must have sufficient capital resources to be able to deliver what is promised.
  4. It also must have a customer focus and an ability to measure the satisfaction of its customers.
  5. The MSO should be a free-standing entrepreneurial organization. A timely decision-making process and management flexibility are important to an MSO’s success. The ability to react quickly to member needs and market changes will help it achieve success.
  6. The MSO must have the ability to grow by adding new members who will utilize the organization’s leadership talent and generate additional revenue.
  7. Ongoing education and training for MSO staff is essential. The value to be derived by MSO members is dependent upon the talent pool available either in the MSO or through contractual affiliations with other service providers.
  8. There must be an opportunity to provide consulting services to customers.
  9. The MSO must have an ability to provide benchmarking data to its customers. Both internal and external benchmarking data are necessary to provide a competitive advantage to MSO members.
  10. The services provided by the MSO must be targeted to meet the needs of what customers want. The cost of these services must be priced appropriately and demonstrate true value to the customer in the form of both cost reduction and/or improved efficiency and quality of services.

Participation or collaboration with an MSO is only one strategy that nonprofit organizations should evaluate to strategically position themselves for success in the restructuring and reform of the tax-exempt service sector.

As a final note, the lyrics written by Bob Dylan in the song referred to above can be viewed as prescient in this context, when he wrote, “If your time to you is worth savin’, then you better start swimmin’ or you’ll sink like a stone, for the times they are a-changin’.”

And you can bet that Dylan never heard about MSOs.

Reprinted with permission of the Rochester Business Journal. Gerald Archibald is a partner serving both of our Rochester, NY, and New York City offices.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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