Joining Forces in the Back Office – Management Service Organizations

Sharing Administrative Services, Part III: Joining Forces in the Back Office – Management Service Organizations
Management Service Organization: MACC CommonWealth
MACC CommonWealth is an MSO that was created in January 2007 by five social services groups to provide finance, human resources, and technology. With a 20 employee staff comprised of the administrative employees of the five charities, MACC now provides administrative services for 13 groups (fees based on total revenue). MACC President Stan Birbaum discussed the following benefits of their MSO:

Improving Quality of Services and Reducing Risks. Birbaum explains the founding organizations of MACC were typically weak in one area (e.g., IT) but acceptable in another (e.g., HR). Birbaum states the biggest benefit resulting from MACC was an opportunity for all the organizations to have solid back room services across “the whole gamut” by giving the necessary quality at costs equal to or less than their historic costs so as to drive out risk at the same time. For example, a basic strategy to minimize financial risk is to separate the individuals in receivables from those in payable. Smaller members (which at best have one accountant or a part-time accountant) could not afford to implement this strategy: everything across the whole spectrum was managed by one person. And even the largest members “couldn’t get [it] right… [I]f they were fortunate enough to have two accountants or three accountants, [when] somebody was gone on vacation, somebody else did back up.” In contrast, MACC has a finance staff of 14 that not only separates the receivables from payables but also uses a third group responsible for review and release of statements, touching neither the receivables nor payables.
Economies of Scale and Purchasing Sophistication. Birbaum expressed a surprising and significant saving occurred for members one step removed from the service itself through economies of scale and purchasing sophistication. Birbaum states if the person or team involved in purchasing the benefits has a “deeper expertise in how purchase of benefits works, how the channels behave, and what the opportunities are, how to negotiate the contracts, how you work with the brokers, you have a chance of having lower costs for your organization.”

Challenges for the Member Organizations. Besides turf and ego issues, Birbaum discusses two other critical challenges. He states the first challenge is addressing service design issues to reach a standardized way of doing the work (e.g., MACC has a common auditor appointed by multiple boards at the same time, single approach to employee handbooks, and single chart of accounts): “Scale can save you some dollars; it can also cost you some dollars if you take on some complexity… [S]o our theme was always to reduce the complexity; variance we knew would increase costs.” The second challenge is this cannot be accomplished without high commitment from both the CEOs and the boards. Specifically, Birbaum says CEO mindset is a “make or break issue”: CEOs must think less about the greatest good for their organization and more about the greatest good for the collaboration, the common good; CEOs cannot compete for maximum organizational gain. Birbaum states that “[t]he critical groundwork of trust for MACC was built when the founding CEOs met every other week for 10 months before doing anything formal” and MACC continues to meet with their CEOs every quarter to address the common benefit and reinforce the spirit of working together. He credits much of MACC’s success to the “commitment of those CEOs and their personal and professional decisions to really keep faith with that collaborative covenant.”

Advice to Organizations Interested in Creating a MSO. Birbaum first advises organizations to be realistic about their expectations and what the outcome might be. For example, none of the founding MACC organizations had significant inefficiencies that could be driven out for easy “financial wins.” And while cost reduction was a hope, Birbaum states it was not the primary reason for forming MACC. Second, in order to foster a collaboration that will build a sustained success, he advises organizations to pay attention to organizational structure, governance, and more importantly, the culture and rules of engagement among the collaborators.

Capital. While establishing an MSO may create efficiencies in the long-run, it has initial costs that may take time to fund or recoup.  Accordingly, organizations in financial distress may not be in a position to create an MSO. Birbaum explained MACC ran a capital fund drive to help to cover the $800,000 – $900,000 needed to create MACC. It received tremendous support from local foundation interest and importantly, Birbaum credits the members’ prior relationships with these foundations as a main reason for the foundations’ willingness to take on the risk and have confidence in MACC.
Additionally, the individual annual campaigns have benefited as well from MACC. Birbaum states the foundations that helped organize MACC place high regard on organizations that are MACC members. The membership “is short of a ‘seal of approval,’ but it helps funders have confidence in the quality of back office services and the financial stewardship of those organizations.”

To read more about the history of MACC, please view Jean Butzen’s article, "Management Service Organizations" and the Humphrey Institute's paper, “Trust as an Asset: The MACC Alliance for Connected Communities (B).”

 - Emily Chan