Joining Forces in the Back Office – Administrative Collaboration and Consolidation

Published on: by Emily Chan Category:BOARDS / GOVERNANCE, COLLABORATIONS & MERGERS 2 Comments

Sharing Administrative Services, Part II: Joining Forces in the Back Office – Administrative Collaboration and Consolidation

On June 3, 2009, The Chronicle of Philanthropy presented the webinar, “Joining Forces in the Back Office: How Collaboration Can Help Your Organization,” moderated by Nicole Wallace, Senior Writer at The Chronicle of Philanthropy, with three panelists, Robert A. Kret, Director at the Hunter Museum of American Art; Stan Birbaum, President of MACC CommonWealth Services; and Lois Savage, President of Lodestar.

As mentioned in the previous post,"Sharing Administrative Services, Part I: Administrative Consolidations and Management Service Organizations,” administrative partnerships can be thought of to fall into four categories: an administrative collaboration, administrative consolidation, management service organization (MSO), or external provider. According to La Piana Associates, Inc., an administrative collaboration is an informal, not necessarily enduring, arrangement to share services or expertise while each organization retains its individual decision-making power; an administrative consolidation is a more formal agreement that involves shared decision making (without changing the corporate structure) and the sharing of specific functions; an MSO is a newly created organization for the purpose of integrating administrative functions; and an external service providerinvolves the outsourcing of certain administrative elements. Although the webinar did not discuss the three organizations according to these categories, applying the La Piana framework to the panelists’ experiences helps to better illustrate examples of administrative collaborations and consolidations, and MSOs.

Administrative Collaboration and Consolidation: The Hunter Museum of American Art

The Hunter Museum of American Artis part of the Chattanooga Museums Collaboration (hereinafter referred to as “CMC”), a back-office partnership formalized in 2001 between the Hunter Museum, Tennessee Aquarium, and Creative Discovery Museum. Using a fee-for-service agreement, the Tennessee Aquarium is currently responsible for the finances, human resources, information technology (IT), and some marketing for the two smaller nearby institutions. It is important to note that the Tennessee Aquarium is not an MSO; although it provides most of the administrative services for CMC, this is not its primary purpose.

Prior to CMC, the Hunter Museum was facing a steep administrative hill – it only accomplished basic bookkeeping and most things were out of date such as the personnel policy, job descriptions, (few) employee benefits, appraisal system, and unsophisticated, limited dial-up computer network. Kret states the CMC relationship originally started with sharing back-office but has since evolved into much more, and while they work closely together, “[the] organizations haven’t merged and [have] actually worked very hard to maintain their separate identities.”

While Kret believes the biggest benefit of CMC has been allowing the Creative Discovery Museum and Hunter Museum to focus on their mission, the Hunter Museum has also improved productivity, generated additional income, and saved money.

  • Improving Productivity.The Hunter Museum improved productivity through administrative collaborations such as joint-staff training for areas such as security and first-aid, using the area expertise from other staff (e.g., early child development), and having active participation from the Tennessee Aquarium and Creative Discovery Museum in strategic planning. The Hunter Museum also benefits from administrative consolidations such as having a standardized HR managed by the Tennessee Aquarium; joining the Tennessee Aquarium’s retirement plan to get improved benefits; and having the same CFO for the three entities. Kret highlights that because of the CFO’s unique position, the CFO has intimate knowledge of each organization from which they can pull expertise, an informed third party opinion, and valuable business consulting.
  • Generating Additional Income.Importantly, Kret notes that CMC was more than just a defensive measure to fix administrative problems; it also allowed the entities “to play a little offense.” For example, CMC led the 21st Century Waterfront Plan, a joint capital campaign that raised $120 million with the city of Chattanooga – $40 million of which was raised through 75 fundraising meetings held by CMC with private foundations and individuals within a 6-week time period. Kret primarily credits the CMC administrative relationship already in place as building the foundation for this joint capital campaign.
  • Saving Money.Kret explains that at the outset, the Tennessee Aquarium saved the Hunter Museum money by charging half of Hunter’s previous administrative expenses (which accomplished just bookkeeping functions). Ultimately, because the Tennessee Aquarium added HR and IT, the Hunter Museum receives three times the services for about half the expense. CMC created additional savings through administrative consolidations such as joint purchasing for computer hardware and software, liability insurance, etc. More specifically, CMC bundles liability insurance – but keeps the insurance products separate – and “shop[s] it out every three years so it’s a bigger piece of business [and thus] the individual underwriters have really sharpened their pencils.” CMC also uses their partnership to save money through joint exhibitions and public programs. Overall, since CMC was formed in 2001, the Hunter Museum has saved about $1.7M, the Creative Discovery Museum has saved almost $2M, all while the Tennessee Aquarium has generated roughly over $1M in income.

Although the “immediate reaction is that it’s the smaller guys who are getting the benefit,” Kret corrects this misconception stating that through CMC, the Tennessee Aquarium benefits as well by generating revenue from typically nonrevenue places like accounting, increasing retention by offering key employees a higher level of compensation, and offering their employees a much more rewarding and challenging work environment.

The success of an administrative partnership like CMC is neither guaranteed nor easy. However, this should not necessarily be taken as a deterrent. Organizations can reap great benefits from such a partnership so long as they are committed to the time and effort necessary not only to establish a solid plan going into the partnership but also to maintain a continued “upkeep” of the partnership. Kret alludes to an overarching concern that the right attitude must be in place to overcome certain obstacles and challenges that may occur in opposition to a successful partnership such as conflicting priorities and turf battles.

  • Avoiding Conflict of Interests Among Institutions.To avoid conflicting priorities among the institutions, Kret advises partnerships to have good communication, common sense, and courtesy and respect for one another (i.e., an understanding that you might not get something right away). For example, CMC’s inter-office computer system (e.g., setting up meetings through Outlook) and physically close proximity (all institutions within three blocks) helps facilitate its good communication. CMC also helps inter-functioning by using different fiscal years to spread out the audits and auditors’ workload.
  • Overcoming Challenges to Successful Partnerships.Kret emphasizes critical factors for success are a positive attitude and an understanding the partnership is about relationships between people. It important to get over “traditional turf battles” and to recognize “that each of the CEOs at the organizations have different leadership styles.
  • Advice to Organizations Interested in Administrative Collaborations and Consolidations.Kret says as a preliminary matter, “people need to understand it’s not necessarily going to be something that solves all of the problems an institution may be confronted with.” Kret also says that the need for a strong spirit of cooperation and leadership by the board cannot be underscored enough – “sometimes it’s not enough for the CEOs to be interested in doing something like this, I think there needs to be active participation by the board.” The attitude cannot be “we’ve always done it this way” – the organizations must open their thinking to being “more imaginative, creative, and inspired.”

To read more about the Chattanooga Museum Collaboration, please view the “About us” article written by Heather DeGaetano, developement director at the Tennessee Aquarium, on the Hunter Museum website.

– Emily Chan