By Steve Zimmerman
The headwinds facing nonprofits today – from the federal government retrenchment to declining household giving – have forced many organizations to reexamine their operations and find ways to deliver essential services with fewer resources. As a result, partnerships, collaborations and even mergers are once again being discussed. Indeed, this type of strategic restructuring to achieve greater impact has always been smart to consider, it’s become even more critical in today’s environment.
Partnerships and mergers, however, require significant time – time that many organizations simply don’t have. In addition, widespread funding cuts mean there may be fewer viable merger partners capable of creating a stronger combined entity. Unlike for-profits, nonprofits rarely achieve significant cost savings from consolidating back-office functions. Given these realities, leaders should also consider a strategic pause or winddown.
Even with a partnership or collaboration the economics of certain programs may not be able to withstand funding cuts. While there are serious implications for constituents who utilize a program, a strategic pause would allow an organization to retain its key leadership and processes in hopes that a more favorable environment lies in the future. This could mean fully closing a program – as we’ve seen Planned Parenthood do with abortion services in many states as a result of federal legislation – or reducing service levels to minimize the subsidy a program requires to a level that allows the organization to be sustainable.
This approach, called “strategic hibernation” in a recent article in Harvard Business Review, relies on several key factors to be successful:
- Understanding of financial costs and impact: Let’s be honest, finances are driving these decisions, but they can’t be the only consideration. Leaders must understand both the full cost and impact of programs to evaluate how both would change if service levels were diminished.
- Identification of core competencies and key people: The goal of a strategic pause is to enable rapid reactivation when the opportunity presents itself. Leadership must determine which people and processes are essential for future growth – recognizing that not everyone can be retained.
- Pivot toward advocacy: During any pause communication is essential. Consistent visibility and communication allow the organization to remain in the programmatic space and advocate for the importance of the work. While service may be paused or limited, any extra capacity from retained staff should focus on community engagement and championing the mission, ensuring the organization stays visible and relevant.
- Community Analysis: We may hope for a better environment, but it doesn’t mean it is coming. Continuous assessment of community resources and potential partners allows organizations to adjust course – whether toward collaboration, merger, or winddown – based on real-time conditions.
For organizations with multiple programs under pressure or organizations that only operate one large unsustainable one, a strategic wind down may be the best option. A strategic wind down does not necessarily mean closing entirely and stopping every program. Instead, it involves looking at each program independently and exploring whether there is a home for the program and/or your constituents inside another organization in the community. For example, in Cleveland, Ohio, behavioral health nonprofit, Recovery Resources, worked with their funding partners to transfer their mental health services to the local health system and move its remaining programs to other nonprofits.
We would hope, in keeping with the concept of scenario positioning, that at this point the organization has already scanned the community and identified organizations offering similar or complementary services. If not, funders are a great resource as they often see the broader landscape of services in a community.
While a potential partner may be unwilling to take on an entire organization via a merger, they may be willing to consider continuing a program or contract thereby preserving vital services for the community. The process may result in multiples partnerships, each designed to sustain the organization’s core mission in new ways under the umbrella of other nonprofits.
When no partner can be found, a thoughtful winddown involves connecting the organization’s constituents to alternative resources, however limited, while treating every person with dignity and respect by providing them with as much transition time as possible.
Unprecedented times demand not just new actions, but bold and compassionate leadership. For years, nonprofits have faced calls to explore consolidation as a pathway to sustainability. Today, however, mergers and partnerships – while still valuable – may no longer be sufficient. Some organizations may need to consider pausing operations or winding down altogether. Approaching these possibilities with foresight and integrity requires courage and honesty from leaders at every level. It begins with open conversations among board, staff, constituents and the community. Though the choices may be difficult, when guided by transparency and a steadfast commitment to mission, they can be carried out with compassion and purpose.
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