- The Washington Times - Wednesday, December 16, 2009

Even as the economy shows glimmers of recovery, a recent survey by the nonprofit consulting firm Bridgespan reminds us that the social sector has been particularly hard hit by this recession. The survey results, while sobering, also provide important management lessons for social, business and government leaders.

First, the numbers. Among the 100 responding organizations, 93 percent said they were experiencing the effects of the downturn - up from 75 percent last year. A reduction in charitable giving, foundation grants and government cuts also has taken its toll, with 80 percent of nonprofits saying they are working with less funding this year and 48 percent reporting that they are eating into their cash reserves to make up the deficit, up from 19 percent.

And it’s getting worse: 44 percent of nonprofit leaders said the present environment has declined from six months ago, while only 15 percent said the situation has improved. Finally, 67 percent of respondents also said they have been warned by their funders that less money will be available in the future.

The sad irony of these results is the recession also has caused a spike in demand for social services. So how do organizations address the demand while trimming costs and preserving quality?

First, forward-thinking organizations have started to develop fallback positions and contingency plans, including protecting cash reserves, freezing hiring, reducing overhead, increasing volunteer support and evaluating critical versus noncritical expense lines. As Brian Diller, the executive director of St. Luke’s Community House in West Nashville, Tenn., said in the survey summary: “I’m not glad that we’re having rough economic times, but we’ve made decisions in a healthy way. We never thought of this as ‘doom and gloom the sky is falling!’ but rather ‘how can we ensure that we will be around for another 97 years?’ ”

Other organizations share that spirit. Seventy percent of nonprofits now have a contingency plan, up from 48 percent last year.

Strategic planning means making tough choices, however. Seventy-five percent of surveyed nonprofit leaders say they are cutting costs. Where you cut costs, however, not only has an impact on the short term, but also can shape the future of the organization.

For St. Luke’s Community House, this meant eliminating its newest program, which had yet to establish a stable funding stream, and consolidating its services into one main building to reduce overhead expenses. The organization also took advantage of a more competitive marketplace among its vendors and bid out a number of contracts - significantly reducing the costs of procurement. These measures allowed St. Luke’s to cut costs without compromising the quality of services to its key constituents.

Cutbacks also are forcing nonprofits to creatively redesign their programs to continue achieving outcomes while reducing costs. Several elements need to be in place to drive innovative redesign, including connecting interventions to clear and measurable outcomes. A strong feedback loop informed by well-designed metrics can reflect whether changes to the program are having a positive or adverse affect on services.

If tweaks to programming aren’t saving enough money, however, populations must be prioritized. For instance, the study notes that Service Coordination Inc., which helps people across Maryland with disabilities receive services necessary to “help them achieve their goals in life,” had its budget cut by 15 percent in August. As a result, the organization has been forced to strategically cut costs, redesign program delivery and prioritize its services, focusing first on those who wouldn’t receive services from anyone else.

As nonprofits redesign their programs and change their service structures, organization leaders are using this downturn as an opportunity to communicate with their key stakeholders. Indeed, 69 percent of survey respondents said they were developing new communication plans and outreach strategies to ensure there were no surprises. Eighty-eight percent said they were investing more deeply in relationships with core funders and supporters. For Service Coordination Inc., which is heavily dependent on state support, this means proactive outreach to taxpayers as well as policymakers in the form of town halls to discuss how they can pull together to provide high-quality services to those in greatest need.

Unfortunately, the hardship isn’t dissipating any time soon. In fact, the Chronicle of Philanthropy predicts that “2010 could be far more painful for charities and the people they serve than any other they have known.”

With smart planning, strategic cost management, innovative program design and proactive community building, however, nonprofit organizations have the opportunity not just to survive our current economic challenges, but to emerge stronger.

Aaron K. Chatterji is an assistant professor at Duke University’s Fuqua School of Business and a Fellow at the Center for American Progress in Washington. Christopher Gergen is the director of the Entrepreneurial Leadership Initiative within the Hart Leadership Program at Duke University’s Terry Sanford School of Public Policy and co-author of “Life Entrepreneurs: Ordinary People Creating Extraordinary Lives.” They can be reached at authors @lifeentrepreneurs.com.

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