Case Study: Taking a Nonprofit Organization Back to Financial Health

On March 30, 2015, I began my tenure as an interim manager (Interim Chief Operating Officer) at ChildServ, a social services agency that had recently celebrated its 120th anniversary serving at-risk children and families in the Chicagoland area. While I was new to the role, I had the benefit of not being new to the organization. In fact, I had served on the Board of Trustees of ChildServ for the prior 15 months, resigning only after my Board colleagues had voted to have me take on the difficult task of driving badly needed change from within.

Assessing the Problem
In my first three weeks, I met with as many employees as possible, ranging from leadership to our caseworkers. With 11 facilities and nearly 150 employees, it was not possible for me to meet individually with everyone, but by the end of my third week I had conducted individual meetings with over 25% of the staff. The time devoted to this was not merely a matter of public relations, rather, these meetings provided incredibly valuable insight into the perceived strengths and weaknesses of the organization, and what might be done to address them. Moreover, as patterns became apparent, it was increasingly clear that the major internal challenges facing ChildServ were:

1) Poor Communication
2) Suboptimal Staffing
3) Inadequate Information Technology

At the start of my third week, and in the face of resistance from the leadership team, I hosted a management town hall at our headquarters. There was no agenda for this meeting, and my goal for it was as simple as it was profound: to open a direct dialog with the leaders of ChildServ, and to set expectations going forward. After years of a command and control management style, many of those in attendance did not feel at liberty to speak their minds, but I was able to address the two key points that I felt needed to reverberate throughout the organization: 1) I had been brought in with a mandate to change the organization, 2) Major program and staff changes would be announced by the end of the current month, and 3) I would be presenting a budget for the upcoming fiscal year to our Board of Trustees by the end of the following month. By creating an open forum and giving managers the opportunity to see and hear me lay out clear and simple timelines, I set the stage for all future progress.

On April 30, I received unanimous approval from ChildServ’s Board of Trustees for a turnaround plan that involved program cuts, staff reductions, and turnaround financing. This plan, the product of an intensive month of financial, operational, and strategic assessment, was arrived at with the input, though not necessarily the support, of an incumbent leadership team that was skeptical at best, and sometimes openly hostile to, the need for change. Happily the Board of Trustees, recognizing that ChildServ was flailing, gave their enthusiastic support to a holistic plan to address systemic weaknesses, build on historic strengths, and bolster organizational finances with an eye toward becoming a premier social service agency. The unanimous vote of my former colleagues was a signal that reverberated throughout the organization that change, even radical change, had come to ChildServ, and would be allowed to proceed.

Key Aspects of Turnaround Plan:
• Program Rationalization
• Headcount Reduction
• Turnaround Financing

Having secured board support, staff was apprised of the changes, which included the elimination of 20% of our headcount. Eliminating programs in a mission driven organization was painful, and eliminating so many positions in an organization that had long been resistant to change was a shock to the system of many, but the strategic rationale of the changes was sound. Moreover, through a series of small group meetings throughout the organization, questions were answered, fears addressed openly, and within a short span of time we had moved on from the difficulty of these changes to focus on the promise of the new organization that we were all engaged in creating.

The turnaround plan was a necessary component of change at ChildServ, but it was clearly not sufficient. In order to ensure that the plan would, and could be, acted upon, it was necessary to further explore the roots of ChildServ’s prior under-performance. It soon became clear that the lack of accountability that had prevailed in the organization was due in part of an incoherent organizational structure, in which managers were held accountable for budgets that they had no hand in creating, and that were never properly explained to them. Furthermore, a lack of key performance indicators (KPIs), and an infrastructure for reporting them, left all levels of management blind to the early warning signs of danger in ChildServ’s many programs, with the predictable result that leadership had been forced into a permanently reactionary state.

Breaking out of this rut necessitated four changes:

1) Creation of Business Units. ChildServ’s operations were divided into five business units: Early Childhood, Foster Care, Residential, Resource Development, and Operations. Each business unit was headed by a member of ChildServ’s leadership team with full P&L responsibility, thereby aligning authority and responsibility in a way that had eluded the organization previously.

2) Changes to Program Leadership. In order to drive accountability, it was necessary to make changes to program leadership. Luckily, ChildServ enjoyed an embarrassment of riches in terms of engaged, talented individuals who were eager to prove themselves. Many changes within leadership involved internal promotion of these high potential candidates to roles of greater responsibility and authority.

3) Development of Program KPIs. ChildServ represented a data paradox: in that it was data rich and insight poor. Due to the reporting requirements of its numerous government funders, the organization had a great deal of information about the performance of its programs, but that information had for too long been housed in inaccessible silos. By working with program leadership to determine a rational set of KPIs for each business unit, and mining the information within ChildServ to develop actionable insights, the stage was set for a more versatile, data-driven organization.

4) Initiation of a Learning Culture. Mistakes are inevitable, but great organizations turn their mistakes into teachable moments, and make the necessary investments to ensure that lessons are learned from each misstep. As a part of ChildServ’s evolution, a robust program of training and staff development was laid out, ensuring that ChildServ would become an organization dedicated to investing in its people.

Change must continue long past the time when the change agent departs the scene, and the situation at ChildServ was no different. As that time approached, I worked diligently with leadership to ensure that new processes were properly documented and handed off, and that all key analyses were shared and explained, so that they could be revisited at a later date if necessary.

At the end of August, ChildServ is in a remarkably different position than it had been in just a few months earlier. Formerly on the brink of insolvency, and suffering crippling losses, ChildServ now is on the path to a strong balance sheet, and with organizational changes resulting in a structural profitability improvement of over $1 million annually, ChildServ will only grow stronger. Leadership is newly empowered, and with several new faces, there is considerable support at the very top of the organization for continued change and reinvention. And perhaps most importantly, the staff, those who live the mission of a 120 year-old organization every day in their interaction with clients, have come to understand that change is possible, and are increasingly seeing themselves as the guardians of that change. I could not ask for a stronger assurance of good conduct from a former client.

About the Author

David Johnson

David Johnson served as turnaround advisor and change agent to ChildServ from March – September in the role of Interim Chief Operating Officer. David is a founding partner of ACM Partners, a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services. In his over 15 years as a change agent, David has served as an advisor, board member, interim manager, investor and operator at organizations ranging in size from pre-revenue startups to Fortune 500 organizations. David has several publications to his credit and is a regular speaker on the topics of performance improvement, turnaround and restructuring.