Is Outsourcing or Sharing Back Office Operations the Answer?

A new study tackles the on-going conversation about whether nonprofits can save money and improve services by combining or outsourcing backoffice operations.

Small to mid-sized nonprofits have always struggled to meet their needs for the administrative and professional services that support their core program work. Often referred to as “back‐office” needs, these services have typically included:

· Finance and administration (e.g., routine book keeping and accounting, financial planning, budgeting and reporting, vendor management, etc).
· Human resources (e.g., benefits administration, payroll processing, policy development, recruiting, personnel management, etc).
· Information technology (e.g., computer hardware and software procurement and maintenance, database management and support, website development and updating, etc).

While less commonly understood to be “back‐office” functions, the Meyer grantee survey also identified “public relations, communications, and marketing” and “fundraising and development” as pressing needs for which better solutions are urgently needed. Experts interviewed for this study confirmed the Meyer grantee survey findings that:

· HR issues almost always poll highest in polls of most needed back‐office services.
· Finance and IT are the most in‐demand services for outsourcing by small nonprofits.
· Development and fundraising assistance by outside firms is in great (and increasing) demand.

The Phase I Survey revealed that a large percentage of small nonprofit executives are performing many of these back‐office functions themselves, and many or most of them are dissatisfied with their own performance. For some functions (financial planning, human resources, PR, communications, and IT), high levels of dissatisfaction are reported even when performed by in‐house paid staff, external consultants or pro bono professionals.

The impacts of not finding better solutions to these back‐office needs include: inefficiency and burnout; high staff turnover, cash flow crises, loss of funding, missed opportunities, diminished impact and threats to growth and sustainability. At best, these are enormous distractions for leaders of small nonprofits. At worst, the lack of adequate back‐office infrastructure is responsible for their ineffectiveness in achieving their mission (Non‐Profit Overhead Cost Study, Brief No. 3, August 2004) and incalculable human and financial waste.

The study provides great insight, but unfortunately finds few cost-saving solutions noting that an organization that currently spends little or nothing on HR, Acctg, or IT cannot save money by outsourcing or combining it.

Read the full study.