AMC Connection, September 2010
By: Michael T. LoBue, CAE
San Francisco-based AMC firm LoBue & Majdalany Management Group recently authored an informative study called “Are AMC-Managed Organizations Recession Resistant?” that examines how the onset of the recession affected organizations based on their management models: standalone or AMC-managed. The results show the AMC model can be beneficial.
As association industry professionals, we are constantly hearing news of the punishing impacts of the current recession on associations. CEO Update’s informative piece about associations taking a hard hit (October 30, 2009) was one particular article that caught my attention.
Simply titled, “Analysis confirms 2008 group deficits,” the article reported that 24 percent of national organizations and nonprofits operated at a loss in 2006 and 2007, whereas more than 48 percent of these same organizations operated at a loss in 2008. Wow. In one year, the number of organizations operating in deficit mode doubled.
The first question that occurred to me was, “Is the recession treating associations differently based on their management model?” I wondered if the CEO Update study could be replicated for two comparable groups of associations—one group of standalone organizations and one group of AMC-managed organizations—and if the results would differ by group. Based on the analysis that I conducted in 2009 of two parallel operating-ratio studies for AMC-managed and standalone organizations, we learned that AMC-managed organizations enjoyed considerable performance benefits over standalone organizations. A new study on recession performance would add to evidence-based distinctions between the two management models.
The basic question driving the study was simple. Did an organization’s management model—standalone or AMC—impact the organization’s performance at the start of the recession?
I collected two samples of 109 standalone organizations and 113 AMC-managed organizations. The organizations in both groups had annual revenue up to $5M in at least two of the three fiscal years ending December 31 for 2006, 2007, and 2008. There were no other qualifying characteristics for the two groups, except that the AMC-managed groups had to be “full management” and were clients of AMC Institute-member firms. For further details about the sample groups and the methodology used in this study, please refer to the white paper at www.amcinstitute.org/resources/publications.cfm#27.
While the samples were not initially qualified by other organizational characteristics, a comparison of available characteristics revealed that there were no material differences in the two groups (AMC-managed and standalone organizations) whether by tax-exempt status, member type, geographic scope, or age of organizations. Based on the data, AMC-managed organizations outperformed standalone organizations during the onset of the recession when measured by surplus or deficit operations.
As the chart below demonstrates, there was no real difference during 2006 and 2007 (good economic conditions) based on an organization’s management model. But once the economy was undeniably in a recession in 2008, the decline in the number of standalone organizations experiencing a surplus was much steeper than the decline in AMC-managed organizations (a 35 percent decline versus an 11 percent decline, respectively). That year, more than half (53 percent) of standalone associations operated at a loss, compared to the two-thirds of AMC-managed organizations that reported a surplus in 2008.
We’re Number One?
So, what do all these numbers and percentages mean for AMCs? As demonstrated, the recession is indeed treating associations differently based on the management model—at least at the outset of the recession. Absent other numbers leading to a different conclusion, those of us in the AMC community may be tempted to puff up our chests and claim bragging rights to the more superior management model for organizations up to $5M in annual revenue. While this is certainly a finding that can be used in new business conversations with association executives and volunteer leaders, perhaps the strongest message stemming from this study that we can send to those committed to the standalone model is this: Understand the return you’re getting for the premium you’re paying to own your resources. We know from the AMC Institute’s Client Operating and Financial Benchmarking Survey Report that standalone organizations, on average, pay 50 percent more to own their own resources versus the “basket” of services they can obtain from an AMC to provide services that, on average, yield the same or better results.
We’ll provide a better contribution to the association management community by conducting additional research to better understand the performance benefits of each of these important management models. For example, are there some factors other than the management model causing such dramatic changes in an organization’s ability to operate at a break-even or slight surplus? What are the most critical factors for leaders to understand about their organization that allow them to determine which of these two models is best for their organization?
Our firm will conduct a follow-up study with 2009 990 data as it becomes available. Other firms could also conduct studies to investigate critical differences in these two models to build our evidence-based knowledge about these and other topics that are relevant to the association community.
Michael T. LoBue, CAE, is principal of LoBue & Majdalany Management Group in San Francisco and is an AMC Institute board member. Email: email@example.com