William Harper Associates

July/August 2008 NEWSLETTER

William Harper Associates Newsletter

This newsletter is a free service to the North American not-for-profit community from William Harper Associates. Its focus, like everything we do, is on helping organizations that do good, do better!

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In this issue:



FEATURE ARTICLE: Strategic Risks for the Sector

A recent Ernst & Young study identified the top ten strategic risks for business globally. This article, and several to follow, will examine the impact of these risks on our sector – some are extreme, and merit your urgent attention; others, not so much. We'll try to provide some practical insight as an input into your planning for the coming years.

But, first, a note about applying business-focused information to not-for-profit organizations: I've long held that there are two critical mistakes that NPOs can make when it comes to business information, tools and resources: the first is ignoring them; the second is applying them without carefully adapting them to the unique needs and challenges facing our sector. Do either at your peril.

One more thought about risks: it is human nature that most discussion of risk focusses on the negative, on the down-side to risk and how to avoid (or, more generally and realistically, manage) it. But, we shouldn't forget that risks can also be positive. That is to say, risks can also present opportunities, and the most successful organizations of any type are those that are as adept at taking advantage of opportunities as they are at avoiding the negatives. Our advice on this is: don't get into a defensive, “bunker” mentality, where you are huddled against all manner of potentially bad things “out there”. We deal with risks every day, and assessing risks is simply a matter of being forearmed, and well equipped to fend off the negatives and exploit the positives.

This month, we'll just identify the top ten risks, along with five more that Ernst & Young also identified as having potentially significant impact. We'll also provide a few general, 'refresher' comments about risk management and how it can be realistically addressed by busy not-for-profits with limited resources. In subsequent newsletters, we'll explore each of these issues, all specifically in terms that are relevant to our sector.

While the top ten risks have been prioritized in the E&Y study, there's no reason to think that these priorities apply to the sector. And, even where they do, there's certainly no reason to think that this is the priority for your particular organization. So, simply judge each one with an open mind, and assess the likelihood and severity of each risk to you. More on this later, but first, on to the list.

The top ten risks identified are:

  • Regulatory and Compliance Risk
  • Global Financial Shocks
  • Aging Consumers and Workforce
  • Emerging Markets
  • Industry Consolidation/Transition
  • Energy Shocks
  • Execution of Strategic Transactions
  • Cost Inflation
  • Radical Greening
  • Consumer Demand Shifts

And, the next five contenders are:

  • War for Talent
  • Pandemic
  • Private Equity’s Rise
  • Inability to Innovate
  • China Setback

As you reflect on each of these, consider the likelihood and severity of each risk to you, as follows:

  • Likelihood – how likely is it that this risk factor will have an impact on your organization? No need for sophisticated probability calculations and such; just consider for each risk, is it a high, medium or low probability that it will have an impact on your organization over the coming planning horizon?
  • Severity – how severe will this factor be for your organization if it does impact you? Again, don't get carried away trying to quantify something that is inherently unknowable anyway; just consider for each risk factor, if it does impact you, will it be extreme, moderate or minor (and don't forget the “risk” that it will have a positive impact!).

As you assess them, simply record your assessments in a list: risks noted down the page (a spreadsheet is ideal, so that you can sort them after), and one column each for likelihood and severity. Sorting them based on these two factors will bring the most likely and most severe quickly to the top. These are the ones to start working on.

Is risk management scary? Not as scary, I'd say, as not managing risk!

For more information on risk management for not-for-profits, here are a couple of resources that may be of interest:

Imagine Canada's Insurance & Liability Resource Centre for Nonprofits

The Nonprofit Risk Management Center


NEWS AND RESOURCES: Newsletter Archive

Don't forget to browse our newsletter archive for access to over 100 great articles, news items and resources on the sector. Simply click on the link at the top of this page to find a comprehensive index of materials on the site. The index is updated regularly, and includes not only actual subject title, but also keywords.


DID YOU SEE: Our June 2008 Newsletter Line Up

Last month's Newsletter included the following items. If you missed any of them, click here:

  • OUtsourcing Red Flags
  • 45% Interest
  • What Executive Directors Need (3)
  • Member Recognition

QUICK TIP: When is a receivable not a receivable?

In traditional for-profit accounting, a sale is made and – if the cash is not collected at the time of the sale – an account receivable is created. This represents the amount that the customer legally owes the business in respect of the product or service they've delivered. Many not-for-profits have amounts coming to them that are not legally owed, however. Two common examples are pledged charitable donations for charities, and membership dues for associations. These amounts usually arise from some kind of activity that does not give rise to a legal obligation on the part of the “customer” (i.e. the donor or member) – for example, a prospective donor may pledge in a telethon, and an existing member may choose to renew their membership (and may even be “invoiced” for the renewal). Neither of these examples, however, generally gives rise to a legal obligation that would justify the recording (for financial accounting purposes, at least) of the revenue and an amount receivable.

What is justified, however, is careful tracking and follow-up of these amounts. And, this is where not-for-profits need to be careful not to confuse financial accounting and good management. In most cases, all or most of your costs have already been incurred, so every additional dollar collected goes straight to the bottom line. And, while the bottom line is NOT what it's all about, the bottom line funds what it IS all about!

So, how to track and manage these “receivables that aren't receivables”? Look to the for-profit sector in this case for some good tools and techniques – accounts receivable systems, processes and procedures may not drive your financial accounting, but they to do something far more important – maximize the collection of significant amounts of revenues for your organization.


NEWS AND RESOURCES: CRA Charities Directorate Activities

The Canada Revenue Agency (CRA, or Revenue Canada, as us experienced/older CAs still lapse into calling it), through its Charities Directorate, has been significantly increasing its activity around the regulation of charities of late. Many sector executives view this with mixed emotions. Regulation that will help to protect and enhance the sector's reputation, and justify our donors' and stakeholders' continued trust, is a good thing, after all. Complex rules and regulations that increase the cost of compliance, and particularly those that can lead to unintended regulatory consequences, however, are another matter. Recent CRA initiatives fall into both camps:

The good: A recent CRA study, on Small and Rural Charities, was a welcome initiative indeed. A series of consultations with representative small and rural charities was undoubtedly a valuable window into a very different world for CRA, and the resulting recommendations, if carefully acted upon, should provide significant value to the sector. The report and recommendations can be viewed here.

The bad: Not so welcome is a draft fundraising policy which is intended to provide direction and insight into what CRA considers to be acceptable – and acceptable levels of – fundraising costs. The first issue is the nearly 20 pages that CRA has found necessary to explain its thinking. (Recall that the first enactment of the entire Income Tax Act was just about ten pages long, and we all know where that led us – the Act and regulations now run into thousands of pages!) The next issue is that even a fairly diligent read-through of this draft does not yield much high-level insight into the bogeymen that are evidently keeping CRA up at night – just a great many potholes and landmines on CRA's road to fundraising safety.

There are numerous specific issues that might impact your charity when you least expect it – but rather than get into the detail here, we suggest that you review it yourself, and voice your concerns directly to CRA about this perhaps well-intentioned, but troubling, initiative.

Please send all replies in writing to the address or fax below or by email to consultation-policy-politique@cra-arc.gc.ca

The mailing address is:
Charities Directorate, CRA
Ottawa ON K1A 0L5
Fax: 613-948-1320


FROM THE ARCHIVE: Leverage your core competencies (from July 2007)

Last month, we wrote about outsourcing - a good option for those things that really aren't core to your operations. The following reprint from last year goes to the other extreme - what to do with things that you are SOOOO good at, nobody else can do them as well? The answer - do MORE of them!!

This month's PROFIT idea is … leverage your core competencies.

Leverage your core competencies - now there's a $50 phrase! Consultant-speak if ever we heard it. But, stripping off the buzz-words leaves a simple concept: get more out of what you already do well.

What do you do?

Let's start with this simple question: just what is it that you do? But let's put a bit of a twist on it. Instead of describing what you do in terms that are intimately tied into our specific mission, we want to look at "business processes". Here are some examples:

  • A food bank collects food donations, stores and repackages them, and distributes them to their clients, a charitable activity if ever there was one. But, what are the "business processes" involved in doing this? Logistics: scheduling pick-ups, matching resources (trucks, staff, etc.) with tasks and locations in the most efficient means possible. There's also a warehousing function: sorting, organizing, storing, and accessing goods in an efficient manner that facilitates fulfillment. There are other processes at work here too: packaging, scheduling clients, communications and 'marketing'.
  • A member-driven association collects member fees, maintains records about their members and their needs and interests, markets and delivers services, and may regulate their members' activities in some way. There are a host of very generic business processes employed here: marketing and communications, registrarial (record-keeping) activities, research and analysis, quasi-legal administrative processes, and so on.
  • A community arts organization stages exhibits and shows. Processes here range from the logistical to design, to marketing, and possibly to manufacturing.

What do you do really well?

Now, of those things you do, you need to identify the things you do really well. Not just well, but really well. Let's face it, many of the things you do, others do, too. And, they do them pretty well, too. So, find those things you do so well that they give you an advantage over others. It is this advantage, not just the activity itself, which you can translate into greater rewards.

But, this is where some serious honesty is required. You do many things well enough to continue operating - but there are maybe one or two things that you do really well, that your circumstances dictate you be better at, and that's what needs to be focused on.

And, to be honest, it's not likely that you do things really well just because you are "good guys" (I'm sure you are), because you are dedicated and hard-working (I'm sure you are), or because your staff are "the best" (I'm sure they are). It's likely in response to circumstances that have forced you to work better than everyone else in a particular area. The trick is to find that area, and identify those factors that objectively confirm your excellence.

Things to consider:

  • complexity - is your operation more complex than most because of what you do? For example, does your food bank have to be faster at pick-ups than the FedEx's and UPS's of the world, because the food is not only perishable, but has already been prepared and served? Is your membership structure more complicated than most, because of a wide range of membership organizations (for example, ranging from individuals to multi-location companies, with many different profiles and attributes)? Is your arts programming complicated by serving individuals with physical or emotional challenges that many organizations just can't or don't handle? If you've adapted to some of these unique circumstances, meeting a need that few others could hope to, you may have complexity on your side.
  • volume - are you already one of the biggest at what you do? Serving more clients, registering more members, managing more programs than anyone else in town? The biggest isn't always the best, but often a high volume forces organizations to learn efficiencies and service techniques that others just haven't had to embrace as a matter of survival.
  • timeliness - do you have to do what you do faster than most? Are you dealing with extremely time-sensitive goods or services (like the food bank)? Do you have members with particular timing requirements that you have learned how to meet? If so, you've probably had to engineer your processes to be super-efficient and fast. And, these processes might just dazzle others in a different context as a result.
  • staff skills - look deeply at your staff (and volunteer) skill set and competencies. For whatever reason, have you assembled a team that is truly outshining their peers? Maybe you had to over-hire on skills to get the abilities you needed, and are now blessed with a staff resource that could do even more.
  • seasonality - do you have a particular busy period (time of year, time of day, etc.) that you need to be equipped for? Do you have excess capacity at certain times because of this?
  • past experience - maybe you've had some of the above challenges in the past, and still have a capacity that exceeds your current needs. Is your own membership declining, leaving you with surplus capacity?
  • profile - is your service or activity on display because of your circumstances? Have you had to be the best of the best because of who you are? For example, are you the registrar of registrars? Is there an expectation on you that exceeds all others, just because of who you are or who you serve?

How could you do more of it?

Having identified that certain, special thing that only you do so well, the next step is to figure how to do more of it. This may be easy, in that you already have surplus capacity. Or, you may have created processes that are particularly scalable (for example, by investing in leading-edge, robust technologies). If so, the circumstances almost demand that you do something with this surplus capability.

Or, it may not be so easy. You might need to add staff, warehouse space, or other resources. If this is the case, it is not so obvious that you should proceed. It will be necessary to move cautiously to expand only when it is likely to have a positive pay-back.

The best situations are those where you can make better use of what you already have. For example, your trucks are already driving down the street - could they do pick-ups and deliveries for others? Do you have seamless, scalable technology that could process many more transactions with no impact on your existing services?

But, even if you have to acquire more resources, the incremental cost of doing so may be a small portion of your total investment in the process, and would also be a small portion of others' cost in replicating your process. For example, maybe all you need to do is add a part-time (and flexible) staff person or put one more vehicle on the road. In this case, there is still an inherent advantage to expanding your scope of activity.

(Or, do you have expertise, knowledge or information that is inherently "leverable"? Any information-based advantage you have can be put to expanded use. For example, could you sell this knowledge, license your processes, or train others in your ways? This is another whole category of leverage that is beyond the scope of this article.)

Once you've figured out how to scale up beyond your own needs, it's time to find a partner!

Who to Serve?

So who will you want to work with? Who needs your services? The answer may be right under your nose. Start by looking at your own immediate and extended "family" of organizations. If you are a food bank, identify other food banks. If you are an association, look to sibling bodies in other jurisdictions. Or, look at those with "neighbouring" missions - food banks might offer services to clothing banks; health-profession associations might work with other health-care bodies.

There are several advantages to looking close-by: you probably already have a relationship to build on, or at least an acquaintance; the processes that need to be in place to serve them will likely be very much like your own; the culture of similar organizations may itself be similar, smoothing the process of learning to work together; the missions of similar organizations may be synergistic.

The other place to look for customers is in your own back yard. If you own a building, do you have tenants that you could provide added services to? Or maybe fellow tenants down the hall if you rent? Other organizations in your physical neighbourhood? Don't look too far afield, especially when you are getting started. Down the road, as you grow (and work out the inevitable growing pains), you can cast your net farther.

How can you benefit from it?

Remember, this article is all about "profit", so our goal here is to generate added resources directed to your own mission. And there are lots of ways to do this.

The obvious one is money. Charge fees to others for these services. The particulars of how to price for the services you offer is beyond the scope of this article, but just remember your "profit motivation". Don't be shy about this! The trick is to find a price that exceeds your total incremental cost of offering services, but is still competitive with what others would have to pay for these services elsewhere.

One pricing tip, particularly as you start out: consider pricing activities on a per-transaction basis. This will be very appealing to a smaller or growing organization that would otherwise have to incur some fixed costs to meet its evolving needs. And, for you, starting small is the way to go as you learn how to be in the business of serving others.

There are other ways to benefit from offering services to others, though, and these should not be overlooked. For example, the following are good and valuable incentives for proceeding:

  • staff challenge - you've got good, skilled staff that just aren't challenged by serving your own needs. Expanding your services to others will offer professional growth and development to the team, and support their own career progression. While that's good for them, it's also good for you, reducing staff turnover, saving recruiting costs, and so on.
  • skills development - as your staff members grow, their increased skill sets are available to you. Perhaps your staff team can develop supervisory skills, new technical abilities, or selling and marketing skills, that will in turn serve your organization well going forward.
  • share investments - particularly as your activities become more capital intensive, for example, requiring heavier investments in information technology, new facilities and so on, sharing these costs is wise. Together with your partners, you can share investments in these assets, along with new processes and abilities, while you retain substantial control over these investments.
  • supporting your mission - the partners you can most profitably serve will often be in similar areas of activity, with similar missions. Serving those organizations may directly benefit your own mission. Indeed, it may be appropriate to do so purely for this reason, though you should generally recover your incremental costs at a minimum.

A key to success is to take a long view, and develop a well-thought out plan. Consulting with possible partner organizations at an early stage will give you an assessment of the market place for your services. And, consulting with the staff that will be on the front-lines is also key.


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