Recession = Consolidation of Social Sector. FINALLY!

It is sad to think that it takes a recession for some social sector organizations to think seriously about their costs and decide to (a) go out of business or (b) merge with another organization. There are examples of social sector organizations consolidating back-office functions or merging before the financial crisis started, but they are rare.

Now, however, there is a fury of mergers and back-office consolidations. Social sector organizations are finally realizing that if their mission will not be sacrificed and they can reduce costs then they should merge or consolidate some operations.

Why has it taken until now for some social sector organizations show responsibility for the money that they have been entrusted to put toward mission? Following are some of the reasons (which may not be exhaustive):

1. Founder’s syndrome: Someone and their friends invested thousands of dollars and person-hours creating this organization, and why would they sacrifice it?
2. No financial incentive: Mergers and consolidation in the private sector happen for a proposed future financial reward. In the case of social sector organizations, there is only cost.
3. No measure of comparable outcomes: Whereas a private/public company will go out of business if it is not ‘making money,’ the core metric social sector organizations should be delivering is extremely hard to measure and compare
4. Donors give most often with their heart, not their mind: This goes hand-in-hand with the last reason, but also explains why donors do not demand better comparable metrics. People will continue to support a failing program because it makes them feel good.

Now that upper middle-class and lower upper-class donors are really feeling the crunch, as reported by a friend at CCS, social sector organizations are shaping up, and doing what will deliver more value to the people they serve.

But how do we get these organizations to behave in a more businesslike fashion EVERY DAY? This is the question of the millennium. We have to start cracking away at the above list of reasons why there is not a flow of capital away from poorly performing organizations. Acumen, Salesforce and Google in conjunction with B-labs are starting to do something about comparing social outputs of organizations with “Pulse.” However, it appears years away from being something most social sector organizations will use.

What are your thoughts?