OUTSOURCING THE SCA, INC.'S CORPORATE OFFICE INVESTIGATING THE ASSOCIATION MANAGEMENT FIRM ALTERNATIVE A Report by Master Bertram of Bearington/Dave Schroeder March 5, 1994 Unto all who read these words, good greetings from Bertram of Bearington, Pelican, former Society Chronicler, former T.I. Editor, and concerned advocate for the reform of the Corporation -- I believe that many of the Corporation's current problems with finances, with management, with service, and with focus can be greatly reduced by moving from our current system where we're trying to do everything for ourselves to a solution that has worked for many organizations in similar situations -- hiring an association management firm to handle those func- tions for us. WHAT ARE ASSOCIATION MANAGEMENT FIRMS? Association management firms are companies that specialize in handling the day-to-day business affairs and special activities of organizations large and small. They traditionally provide things like mailing list management, financial management (such as handling checks, disbursements, tax returns, fiscal status reports, and audits), inventory management (such as our Stock Clerk function), gathering material for Board meetings (such as our Corporate Secretary's function), and handling the duties of an Executive Director (such as obtaining insurance, coordinating legal issues, working with accountants/auditors, and advising Boards of Directors). For organizations that need such services they also handle meeting planning for annual conventions and the like, production and/or editorial services for group newsletters, public relations, preparing annual membership directories, strategic planning, and fund raising just to name a few. The key phrase for these companies is "we'll do whatever is necessary to meet the particular needs of each client." Organizations come to association management companies when the work involved in handling the day-to-day duties of the group becomes too much for volunteers to cope with or when existing internal systems break down -- as is now happening with the SCA, Inc. Management companies provide stability, cost savings, and a high level of professionalism to the organizations that use them. A 1985 academic study of customers' satisfaction with such firms compared to in-house efforts indicated that the association management firms were rated every bit as good as or *superior to* in-house efforts across all categories, from cost to quality to professionalism. Association management companies make their money through economies of scale. Having one office and one staff to serve the needs of more than one organization lets them charge less than it would cost for each organization to do it alone, yet still make a reasonable profit. Association management is a competitive and very service-oriented business. The SCA would be a sizeable account for most firms. You can count on a company doing their best to make us a happy client-- because if we're _not_ happy, the following year we could take our business to another association management firm and say "good-bye." There are dozens of high quality companies to choose from. WHAT ARE THE BENEFITS OF HIRING AN ASSOCIATION MANAGEMENT FIRM? The biggest benefit is reduced hassle. We get out of the business of running a business and are able to focus more of our efforts on the core aspects of what we do. We don't have to worry about paying for vacations or health benefits for our employees -- that's the management firm's problem. We don't have to worry about preparing tax returns or monthly cash flow statements or quarterly expected-vs-actual budget reports. We don't have to pay rent on a headquarters or buy new furniture or computer equipment or find database consultants or worry about the caliber of executive director we're getting for the salary we can afford to pay. We also gain a degree of financial and operational stability that we've been sorely lacking lately. Oh, yes, outsourcing will probably also save us money -- decent chunks of money that are currently going to rent and capital equipment and a full-time executive director and lots of other areas where a company running our business as _their_ business could find efficiencies and savings. Cost-effective management is their specialty. What are the drawbacks? There aren't many, really. If the selection committee does their work well and picks a quality firm we're in pretty good shape. We'd have to select the right sized company -- probably a medium-sized one where we're one of their two or three largest clients -- rather than a large one where we're just one of a number of smaller clients, but there are plenty of medium-sized firms to choose from. We could get poor service, but we can easily vote with our feet and go to another firm if we aren't well taken care of. Our Board of Directors, in a role that is more befitting a Board than an executive micro-management committee, would be responsible for reviewing the quality of the services the management firm provides. Instead of "being" the business side of the SCA, their role would be overseeing the association management firm and working with the Executive Director on issues like insurance, legal questions, strategic planning, and the like. Things could still go wrong. We could choose a less than competent management firm. The Board could fail to monitor the management firm's activities properly. But all in all, the drawbacks are far outweighed by the advantages. There are some other negatives. We've just signed a lease on the new offices in Milpitas. It may cost us a good bit of money to break it, but we'd avoid an annual expense of over $20,000 a year once we got out of it. If we've already signed contracts with the database expert to set up our new system, we may have to work something out to deal with that commitment. If we've already purchased all the new furniture and the new computer system, we may have to see what we can recoup by selling the stuff to someone else -- maybe even the firm we hire to manage things for us. We'd have to terminate our consulting arrangement with the current SCA Executive Director, but that would not be a difficult process. We'd also have to say "thank you" to the people who have been handling the clerical and bookkeeping functions in the current corporate office and send them off with appropriate references, severence, and the appreciation of the Society. None of these issues negate the benefits outsourcing can provide. The association management company, at least initially, wouldn't know much about the special culture and traditions of the Society, but you don't need a PhD in interkingdom anthropology to process subscription requests, handle checks, or mail out copies of the Known World Handbook. The people at these firms working as our account managers/executive directors are experienced with learning the ins and outs of new clients. They are smart enough to embrace the things that make each client special. One firm executive said his wife, an art history major, would have him in costume and coming events within a month. All in all it seems the payoff from moving to an association management firm is worth the risk. HOW DO WE SELECT A GOOD ASSOCIATION MANAGEMENT FIRM? The Institute of Association Management Companies is the professional association for firms of this sort. It's based in Chicago and has over 75 participating companies. The Institute provides a Code of Ethics and Professional Conduct that all member firms agree to abide by, including such important points as placing the interests of clients before their own interests, maintaining strict confidentiality about clients' affairs, insisting on the highest levels of professional conduct from their own staff people, and clearly setting forth in advance the nature and scope of all fees, charges, expenses, and other costs billed to clients. The confidentiality clause in the code of ethics would ensure that our mailing list would not be released without our approval, for example. The Institute also provides a service to organizations interested in hiring association management firms. Institute staff people will help us prepare a description of the services we need and will circulate that description to all their member firms so that interested firms can bid on our business. (Please note that the Institute will only circulate information that is authorized by the entity that has control of the purse-strings of the organization -- usually the organization's Board.) Within four to six weeks, we'd receive detailed replies from interested firms and could select the best looking bids we received for further review. The Board, or a designated committee of the Board, would check out the top firms and would invite their management teams in to make presentations. The committee would travel to the best looking firms to examine their facilities and confirm that they _can_ do what they say they can do. After a diligent review, a finalist would be selected and contracts would be signed (with the length of the contract's term fully negotiable). According to the Institute, the whole process can be accomplished in about ten weeks. The association management firm would then work with the SCA's current staff, computer people, and other personnel to move all the data and inventory to the management firm's facilities. An orderly shift from in-house staff to the external provider would be managed by our account manager/executive director and within a month or two everything would be handled by the association management company rather than by the Registry, the Stock Clerk, or the Corporate Secretary. Management companies are experienced in this sort of transition and can make the whole process relatively painless. WHAT KIND OF MONEY ARE WE TALKING ABOUT? To get a ballpark idea of what it would cost handle the clerical and bookkeeping components of the Corporation, I prepared a fairly detailed list of tasks, expected volumes of work, and related figures needed to handle mailing list functions, financial functions, Stock Clerk's functions, and the duties of the Corporate Secretary. I believe I am reasonably well qualified to put together a rough cut at this information since I have served a term as Society Chronicler and TI Editor, have a masters degree in business, and have been responsible for managing similar functions as an information systems executive. The specifics are in an attached appendix, but I estimated on the high side of the volumes of work, based on the Board's estimate of the size of the formal membership by the end of 1994. Please note that estimates for Executive Director services are not included in the numbers below, though I believe it would be less expensive to "rent" just as much of an executive director as we need rather than "buying" a full time executive director. I tried to include as many of the functions of the Corporate Office as possible in my list, but may have overlooked some things that the Board would most likely not overlook when they prepared their detailed task description. Things like photocopying, telephone bills, and having blank membership cards printed are not included in these estimates. Based on the items on the detailed list of tasks one firm I spoke to reviewed our needs and gave us a rough estimate of the relative dollars involved. They believed it would take 2.5 people most of the time, plus some temporary help to handle especially busy periods, and that their firm could provide all the services described for between $95,000 and $105,000 a year. This sum is less than what we planned for salaries and payroll expenses alone in 1993. (The Board's January 1993 budget for these categories was $111,709.) The anticipated cost of salaries, benefits, and taxes for 1994 based on the Board's new budget, is $162,411. An estimate from another firm came in at $73,000 but did not include postage, telephone expenses, copying, and other miscellaneous office expenses amounting to (at the high end) $20-25,000. Adding in those costs brings the second bid well in line with the first with total costs around $93,000 - $98,000. The second bid also included $10,000 in non-recurring equipment costs in the $73,000 -- so it quite possibly would be much lower than the first in the future. The second firm is located in a metropolitan area with a lower cost of living than the first, which may account for some of the difference. Of course, people more familiar with the detailed operations of the Corporate Office would be able to provide more accurate proposals and to obtain more accurate bids. CONCLUSIONS At the very least, these numbers suggest that substantial cost savings may be possible by "outsourcing" our day-to-day processing to a firm that specializes in helping organizations do just that. Association management firms would be just as glad to work for a federation of independent kingdoms who contract with them to provide the services outlined as they would to be hired by the centralized SCA, Inc.'s Board of Directors. They'd be glad to take on more thankless jobs like serving as ad-manager of TI (for a fee), working with printers for TI and CA and other such services that currently put excessive burdens on our volunteer editors. They'd be glad to help the Board members get the training they need to be better Board members and to help them shift gears from a hands-on to a high-level perspective. I believe that this option deserves serious consideration as a way of getting the Corporation back on an even, stable course after several years of stormy sailing. I would be glad to share additional details of my own investigations with any interested parties and would welcome a chance to help a reform-minded SCA, Inc. (or if it comes to it, a federation of independently incorporated kingdoms) look closer at the benefits of outsourcing. Thanks for your time spent reading this report. My best -- Bertram of Bearington Debateable Lands * AEthelmearc * East Kingdom Dave Schroeder * 117 Gordon Street * Pittsburgh, PA 15218 (412) 731-3230 :home dschroeder@cmu.edu :internet * * * A P P E N D I X * * * HERE'S THE INFO ON WHICH THE MANAGEMENT COMPANIES BASED THEIR BIDS... +-----------------------------------------------------------------------+ We are primarily interesting in a ballpark estimate for handling the following functions (volumes are based on purposely *high* guestimates): o MAILING LIST MANAGEMENT - Handling adds, updates, and deletes for the mailing list. We offer two-year memberships so you won't have to update every record every year. - Producing pressure-sensitive mailing labels for the kingdom monthly newsletters - Producing Cheshire mailing labels for the Society's quarterly magazine - Producing pressure-sensitive mailing labels for the Society's bimonthly pamphlet series - Producing plain-paper lists of members for the use of kingdom officers. ASSUME: - Adds and changes: 25,000/year - Deletions: 5,000/year - Pressure-sensitive labels for mthly newsletters: 455,000/year (~35,000/month * 13 sets) - Cheshire labels for quarterly magazine 72,000/year (~18,000/year * 4 quarters) - Pressure-sensitive labels for bimonthly pamphlets: 30,000/year (~5,000 * 6 sets) - Shipping for monthly newsletter labels: 169 pkgs/year (~13 kingdoms * 13 sets, 1 to Europe, 2-day air) - Shipping for quarterly magazine labels: 4 pkgs/year (~$50 a package?) - Shipping for bimonthly pamphlet labels: 6 pkgs/year (~$20 a package?) - Printing Membership Cards 24,000/year - Postage for Membership Cards (bulk rate is fine) 24,000/year - Printing for Renewal Notices 24,000/year - Postage for Renewal Notices (first class) 24,000/year - Kingdom Membership Lists for Officers 250,000 lines/year (these are just name lists to verify membership used by regional officers-- probably 200 requests per year for various subsets of the mailing list--you can charge them for your costs, but may want to budget for the staff to handle them...) o FINANCIAL MANAGEMENT - Processing checks that come in with membership forms or requests for publications - Producing monthly cash flow and quarterly budget reports - Following up on bad checks (fairly small problem) - Accepting a small percentage of requests by fax with credit card numbers - Preparing state and federal tax filings - Sending checks to the Regional Newsletter Editors - Sending checks to the printer of the quarterly magazine - Miscellaneous disbursements (Board member travel, etc.) - Handling requests for insurance certificates (can pass along costs) Some locations for our events require official copies of our insurance info. ASSUME: - Checks to process: 18,000/year - Bad checks: 240/year - Insurance certificate requests: 1,200/year o OTHER SERVICES - Handling requests for special publications - Maintaining an inventory of said publications - Collecting letters and materials for Board meetings - Copying and mailing collected materials to Board members for meetings ASSUME: - Requests for special publications: 1,200/year (each one will include a check) - Four Board meetings a year, 200 pages per meeting +-----------------------------------------------------------------------+ * * * END OF DOCUMENT * * *