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Nonprofit Management

Reality Time for Human Service Organizations

The recent collapse of Hull House is a reminder that the tectonic shifts underway in the human service sector cannot be avoided.

The recent demise of Hull House, the historic Chicago settlement established over a century ago by socialite, social entrepreneur, and activist Jane Addams may well be emblematic of tectonic shifts taking place in the human service sector. And the big problem with tectonic shifts is, you don’t know where the plates will land until they have.

To know about the history of social welfare in the United States is to know about Hull House as one of its most historic and significant icons. Addams imported the idea of a settlement house from England, and had the bold idea of empowering people and giving a hand up not a hand out. Central to the concept was that the settlement house was a part of the community, often an immigrant community, not somewhere downtown where one had to beg for help. The idea caught hold and settlement houses were established in communities across the country. Many still exist and are vital resources in their neighborhoods today.

Who knows if the board and staff leadership of Hull House could have made better decisions? They are certainly to be credited for spinning off some of their services to other service providers following the 123-year-old organization’s demise. The specifics of the Hull House situation notwithstanding, I think many of us see it as emblematic of the maelstrom of challenges even the most established and well run human service organizations is confronted with.

While often delivered by nonprofit charitable organizations, the lion’s share of funding for human services comes from government and it is squeezed at all levels. The economic downturn and recessionary pattern over the past few years created increased demand, notably by newly homeless and newly unemployed people, at a time when tax revenues and donations declined. Funding is particularly stressed in states hardest hit by the mortgage crisis, but it is the federal deficit that is driving and will continue to exacerbate the problem for service providers.

Nonprofit agencies are, for the most part, well run. Not all are as efficient as they might be, as many are more focused on mission than operations. Among the more sophisticated agencies, that has changed in recent years though. Groups of organizations are forming back-room cooperatives, agencies are combining their purchasing power, and several of the large “brands,” such as Girl Scouts of the USA, United Way Worldwide, and American Cancer Society, are combining sets of smaller local affiliates into larger and hopefully more efficient regional operations.

Being historic and having had success over the decades will not necessary spell success in this new era that seems to be upon us. Because of the financial pressures that are likely to affect the sector for the foreseeable future, every nonprofit organization has to consider its operations in new ways and perhaps consider organizational options it would rather not. From my vantage point, these are among the considerations:

Service offerings have to be evaluated: 1) to ensure that they reflect current needs (rather than providing a service because we always have); and 2) in light of current funding realities. Some service lines may have to be cast off. Some should be.

Every organization needs to understand and evaluate its financial model. This is not necessarily common nonprofit practice. Many of us have a funding mix that is historic and we work those sources from year to year. There are so many forces affecting the “tectonic plates” of the sector that we need to start from square one, evaluate not only the sources but also the alternative ways of financing the things we need to do. My organization, for example, found it was dependent on one source that was not growing and others that varied widely from year to year, and developed an earned revenue approach to round out our financial model.

Cost savings and efficiencies are imperative. It is amazing to me how many organizations—nonprofit and otherwise—overlook group-purchasing arrangements. To their credit, hospitals and other industries get this, and save billions collectively annually. But efficiency goes far beyond purchasing; nonprofit organizations grow bureaucratic just as government and for-profit companies do. Layers add processes and costs and we should assess the cost-benefit. And, as I noted, some organizations are consolidating smaller operations into larger operating units. In a sector where local engagement is crucial, that can and should be done in a way that maintains local “ownership.”

When times are really tough and survival is in question, organizational and brand ego should give way to what’s right for the mission, even if that means spinning off functions to another organization (as Hull House did with some of its services) or merging with a more viable entity. Boards are, in my opinion, as guilty of the failure to consider such options as paid staff. We love our organizations and we would, apparently, rather let them fail than take affirmative and bold steps to preserve important community services. 

The Hull House situation garnered national attention because of the agency’s rich history, a history that could not protect it in today’s volatile environment. Nonprofit human services providers, really all nonprofits that serve a community mission, must face the reality of today’s uncertain environment and consider all options with objectivity and vigor.

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COMMENTS

  • BY Tom Tresser

    ON February 17, 2012 04:48 PM

    Irv - Where was YOUR organization in the fight (or complete lack of fight) to save Hull House? I think Chicago and America’s nonprofit and social service agencies are wimps, cowards and operating from a fear and deficiency mentality. America bailed out the financial services sector for TRILLIONS of public dollars while the greedy owners lavished BILLIONS of dollars of bonuses on themselves. In Illinois our crooked politicians threw hundreds of millions of dollars of tax breaks to the Chicago Mercantile Exchange (recent annual revenues of almost $3 billion) and also the money-hemorrhaging Sears Holdings (owned by another sharp operator who is banking on the land UNDERNEATH the stores). In Chicago corrupt politicians have spent hundreds of millions of public dollars on private developers and private companies such as Wills Insurance (they bought the Sears Tower), United Airlines, Quaker Oats, Coca-Cola, Grossinger Auto and Marianno’s Grocery. No outcry. No oversight. No public debate on what is worth bailing out and what is worth letting go. Personally, I think the Jane Addams heritage is worth to the people and spirit of Chicago than these private businesses. We need Jane’s fighting spirit now, more than ever. I blame the past leaders and board of Hull House for throwing away this precious resource - but they can’t take the rap alone - they tried to meet overwhelming demands for service and the late paying state of Illinois helped erode their situation.

    It’s too late to save Hull House - but PLEASE don’t give this sort of anemic and pitiful post game analysis that asks our nonprofits to be more strategic, more efficient or better marketers. We need to gather and deploy POWER on behalf of our constituents just as Jane did over 100 years ago.

    When the Tea Party movement puts more people into government and they all cal for the elimination of social service funding as wistful and evidence of “big government” all the while passing legislation that despoils or strip0mines the commons and doing deals with private companies to privatize our water supply, our prisons, our schools, our libraries and our military - well, it will too late for America’s nonprofits to be better marketers because they’ll be long gone or their work done by Wal-Mart

  • Mike Moran's avatar

    BY Mike Moran

    ON February 28, 2012 10:45 AM

    The author sounds generous when proffering: “Who knows if the board and staff leadership of Hull House could have made better decisions? ” An organization runs up a $1M+ plus deficit for more than two years in a row? It optimistically counts govt contract or grants that aren’t that secure - in an obvious time of public spending cutbacks?  It ultimately fails to protect and preserve the assets of the corporation and it simply, hugely, overspends when it needed, albeit painfully, to trim costs and services. Slim down to rise up another day. Someone was not watching the meter well. Where was the Treasurer, the E.D., the Finance Manager and the auditor?
    The fact that HH could spin off some funded services to other groups upon shutting down demonstrates that there were reliable income streams to cover some programs. Hull House should have exercised more responsible management and lived within those means. I’m sorry they closed, but I don’t see how it was tight times that killed this group.

  • Lou Perry's avatar

    BY Lou Perry

    ON February 28, 2012 10:58 AM

    If Tom Tresser lessened the ranting some then his core message would come across better. . But he does offer a valuable suggestion: did the State of Il. (or the City or County) in its economic troubles or political paralysis delay the deserved check cutting or reimbursemt of Hull House to such a degree that it scuttled HH cash flow and thus delivered the final big blow?  So maybe (very) tough economic times (esp. in IL) or political impasse is partly the executioner here. If so, is then the IL legislature somewhat to blame?

    But if that is true, why didn’t many other IL nonprofit agencies fold too? Or are they about to? Or did they trim spending to save themselves? What say, Chicago?

  • Mark Tisdahl's avatar

    BY Mark Tisdahl

    ON February 28, 2012 11:36 PM

    Lou-  As the former group volunteer coordinator and in-kind manager at Hull House, I can’t speak to the exact issues with Hull House (I simply don’t know the details), but the state of Illinois is routinely late in paying everyone.  http://philanthropy.com/blogs/state-watch/late-payments-to-nonprofits-in-ill-become-routine/1434  This was certainly an issue with Hull House as we never knew when we were going to get paid by the state.  We knew the money would eventually come, but cash flow was an issue throughout the last several years I worked at Hull House.  Many other IL nonprofits are in danger of folding.  Several have.  My guess is most are hoping the economy recovers quickly and are amassing large debts in the process.  I have no doubt that Hull House won’t be the last institution to fold due to this crisis.

    As to the article as a whole.  There is enough blame to go around.  There is no doubt mistakes were made by our leadership.  The programs that were spun off to other agencies (and one that is being run by former employees who created their own 501(c)3) have funding attached to them.  There certainly could have been more programs that survived with other agencies if we were given adequate notice in terms of our closure (instead of the 2 months that the board had announced when we found we were closing, it was 1 week).  Several more programs had proper funding, but with such little notice of our closure finding adequate nonprofits to take on the services wasn’t possible.

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