AMC Management Model Has Advantages over Non-AMC Models

The results are in: The AMC management model generated more consistent operating surpluses and grew reserves to a greater extent between 2006 and 2015 than did the non-AMC model (i.e., directly employed staff and full financial responsibility for occupancy and capital costs).
Read the full report here.

For those familiar with the AMC model, this is not a big surprise. What is newsworthy about the results is that we have credible evidence that demonstrates the advantages of the AMC model for associations. These results add to previous studies conducted in the past decade showing that the AMC model is both the less expensive alternative to hiring staff directly and shouldering all operational costs, including capital purchases, and also the more productive association management model.

In short, the non-AMC model is overpriced and under-performing.

These latest results lead to an interesting set of questions: Why does the AMC model outperform the non-AMC-model? What’s the AMC model’s ‘secret-sauce”?

Continue reading AMC Management Model Has Advantages over Non-AMC Models

The Full Measure of the AMC Advantage is “Management”

There are two components to the AMC-model that delivers the performance and value for organizations: economies of scale; and economies of scope. The AMC value proposition is strongest when these are combined.

The first, economies of scale, is self-explanatory. It’s the sharing of certain infrastructure and operational costs across numerous client organizations. Such costs include:
Continue reading The Full Measure of the AMC Advantage is “Management”

Updated study validates value proposition of AMC model

The release of the third study report in as many years comparing the performance of associations managed under the two dominant management models (e.g., standalone and AMC-managed), caused me to reflect on what I was originally looking for when I undertook comparing the operating ratios of associations based on these two models.

My initial goal was to find a credible set of data that would debunk the many myths about AMCs and AMC-managed organizations. I found that and much more!

Continue reading Updated study validates value proposition of AMC model

In-house Association Management Services — Bad Idea!

The following is a comment to the article entitled “In-House Association Management Services Checklist” published in the Component Relations section of the ASAE. If you’re an ASAE member you can read the entire article here.

This is an excellent article, for as far as it goes. At first I was taken back and as an AMC owner thinking: ‘this market is competitive enough without a whole new class of competitors….’ But as I thought about the risks not identified in the article, I quickly realized three things.

Continue reading In-house Association Management Services — Bad Idea!

AMC-Managed and Standalone Organizations — A Sibling Study


whitepaper.jpg

CONCLUSION: Based on a comparative analysis of two parallel operating ratio studies of AMC-managed and standalone organizations, AMC-managed organizations reap considerable qualitative and quantitative advantages for membership-based organizations up to $5M in annual revenue. These results are likely valid for organizations above $5M in annual revenue, however, there was not a sufficient number of organizations above $5M in the study of AMC-managed organizations to draw any conclusions about those organizations.
 
IMPLICATION: Standalone organizations up to $5M in annual operating revenue should answer one question: “Are we receiving the return on our management model investment, given that on average, we may be spending 50% more for the resources to manage our organization than if we were managed by an AMC?”

AMC and Standalone Organizations – a Sibling Study

More on ‘AMC Clients Measuring Up…’

Michael LoBue writes: Last month I shared the comparative analysis between AMC-managed clients and standalone organizations in terms of key performance indicators. This post contains a slightly more refined grouping of the standalone organizations — the following will be included in a soon-to-be released white paper discussing about 13 different comparisons.

Net Profitability
Figure 5 below reveals that in the case of organizations up to $1M in annual revenue, AMC-managed organizations enjoyed a nearly 10-fold increase in their profitability vs. organizations under the standalone model, which was barely profitable at a half of a percent. This gap closes considerably for organizations between $1M and $5M in annual revenue, but AMC-managed organizations still enjoy a 33% greater rate of profitability at 8.4% vs. standalone organizations at 6.3%.

Operating Efficiency
Operating Efficiency is charted in Figure 6 below. According to the ASAE Operating Ratio 13th Edition, this ratio “tell us how many dollars in revenue are being generated by each dollar of assets employed in running the organization.” This comparison reveals that in the case of organizations up to $1M in annual revenue, the operating efficiency ratios are comparable between the two management models. However, in the case of for organizations between $1M and $5M in annual revenue, AMC-managed organizations at 1.3% are enjoying a 38% better level of efficiency than standalone organizations at .94%.

Leverage
The last metric in this series of key performance ratios is Leverage. This is often used when evaluating an organization’s need and/or ability to borrow funds. Given that most associations would not seek to acquire debt to support operations, like a profit-driven organization might, leverage then can be a useful proxy for general operating risk. In this case, a lower ratio is probably more desirable. This ratio is derived from dividing total liabilities by total fund balance; thus, the higher the ratio, the less able the organization is cover its commitments.

Figure 7 below reveals that for organizations between $1M and $5M in annual revenue, those AMC-managed organizations enjoy a slight, but probably insignificant edge over standalone organizations. Whereas, for organizations under $1M in annual revenue, those managed by AMCs appear to operate with 25% lower risk profile than organizations using the standalone model (.25% vs. .40%).

AMC Fee Averages – The World is Flat Argument

Michael LoBue writes: The most preposterous debate within the AMC community in 2008, in my opinion, centers around the average fee AMC-managed organizations pay for the collection of services they receive from their AMCs.

Of course, this issue of the AMC economies of scale value is perhaps the least interesting and least valuable of the benefits enjoyed by using an AMC, but it is the easiest to understand and quite possibly the benefit that will be most sought in 2009 while the economy is in the tank.

As recently as December 23rd a highly respected member of the AMC community wrote the following response to a question asked on the ASAE AMC List Serv:

Question: Could you please give us an idea of what the average percent of an association budget is the typical management company contract fee?

 
Answer: Frankly, I don’t think there is such a thing as average in this business. The range of services, output and work product are so varied in terms of necessary resources , human and otherwise as to make association management aggregated cost data fundamentally flawed when used to establish “average” . Even the ASAE ORR (with a fairly broad sample) falls apart as you slice and dice within scope and organization type. It really is like taking a chain saw to do brain surgery. You can look at subsets of organizational activity such as membership development but the useful analytics are, in the end, more about ROI, dollar based or otherwise. I think seeking average is the lazy way to avoid doing the hard work of establishing value.

First off, the above answer is an excerpt of the entire response, but it captures the respondent’s two major points:

  1. the average doesn’t exist
  2. even if it did, it would be too toxic for mere mortals to even posses, let alone use

Of Course An Average Exists!
The first point about the average not existing has to be an emotionally charged over-statement by an otherwise intelligent and highly responsible professional simply very concerned that an important piece of information will be misused, resulting in harm, much like his metaphor of using a chain saw to do brain surgery. Of course the average exists, even if proper sampling was not conducted to know the value, it doesn’t mean that it doesn’t exist.

This is where The Flat Earth Society comparison enters. According to recorded history, Aristotle was the first to present evidence that earth was a sphere (around 330 BC). Around a 100 years later Eratosthenes provided the first calculation of the earth’s circumference (Wikipedia).

Here’s my point, to deny the existence of something that so obviously exists is to look no less silly than about 3,000 people who align themselves TODAY with an organization that continues to deny a fact that was essentially settled science more than TWENTY FIVE CENTURIES AGO!

Wouldn’t it be more productive to collect useful information, disseminate it and educate practitioners about the accurate use of such data? Then, based on what’s learned, ask a new round of questions, go back to real organizations to collect more data to answer those questions, and so on? Last month I posted on what is lacking from ASAE’s Operating Ration Report (click here…).

We can do better than having debates about the shape of our industry; we should collect data to help define its boundaries and contours and learn to improve it.

This is cross posted at: www.AssociationVoices.org

Virtual Staffing – Tell the Whole Story

Michael LoBue, CAE writes: The September issue of Associations Now magazine from the ASAE & The Center for Association Leadership contains the article Virtual Staffing, Actual Success, which is worth reading despite the author’s glaring omission of not having interviewed an AMC on the general subject of “association outsourcing”.

Just to be clear, I am an AMC owner and presently serve on the board of the AMC Institute. Naturally, you can expect the rest of this article to be pro-AMCs. Fortunately, the AMC model for association outsourcing is highly successful in its own right that I don’t have to be reactionary in pointing out the misconceptions about the AMC model raised in the article.

Before addressing some of these misconceptions, I think it worth pointing out that no association management model is universally better than another. The article features a “hybrid model” of direct staff and consultants, which obviously meets ALA’s needs very well. What is most critical for an association considering staffing options is to be very clear on their needs, culture, goals — to know themselves. It also requires that they fully understand the strengths and weaknesses of the options and to be sure to put the right processes and incentives in place to make the option they select consistent with their desired results. Below is a table that outlines the general strengths and weaknesses of the three major management/staffing options for associations.

 


Option

Strengths

Weaknesses
Member volunteers
  • High commitment to and understanding of the organization’s mission
  • Low direct cost (initially)
  • Time conflicts with volunteers’ employers
  • Not experts at running an association
  • Turnover creates inconsistencies
  • No neutral party; open to conflicts of interest
Employed staff
  • Dedicated staff
  • Specialized knowledge
  • Continuity
  • High overhead (office space, equipment)
  • Not able to staff key positions or areas of expertise unless can justify full- or part-time employee
  • Higher burden and risk associated with being an employer
AMC
  • Experts in association management
  • Lower overhead (shared overhead)
  • Expertise in multiple disciplines
  • Eliminates many typical legal risks associated with operations
  • Continuity
  • Possible mismatch between the association’s needs and the AMC’s expertise

Peter Gaido, ALA’s legal counsel asserts a completely unfounded conclusion that

“ALA’s model represents a significant advantage over the traditional association management firm, which from a cost-benefit standpoint naturally pushes tasks down the employee pipeline to less-experienced staff members”

This holds as much water as any blanket generalization, including that the outsourcing of the private practice of law pushes legal work down to less-experienced staff — implying that private practice law work is inferior to in-house legal work.

Of course there are probably cases where this happens, but conversely there are cases where in-house staff (and legal work) is misaligned with the resources doing the work. This is as much the result of poor oversight and delineation of the scope of services as anything else, which can happen as often with any staffing model.

Then there’s the reference to the hybrid model “statistically outpacing” both stand-alone and AMC models based on the ASAE’s Operating Ratios Report. With all do respect, Mr. Gaido should stay with the practice of law and leave management and statistical analysis to others!

One of the most common mis-applications of the Operating Ratios Report is that the averages reported are any kind of benchmarks of goodness, or some sort of “pricing/cost model” to be emulated. The point of operating ratios is to provoke questions about one’s operations that might otherwise be missed in the analysis of operations and budgets. Averages, after all, are nothing more than the best of the worst and the worst of the best. In management it’s outcomes that matter most, not inputs!

Conclusion — This article did a good job of making a one-sided case. A serious treatment of the subject of association outsourcing needs to span the entire range of options, explore the conditions and considerations of when one option is best for an organization’s individual needs versus others. I’m sure that 4,700 associations in this country cited by Associations Now in the July Supplement that are managed by AMCs can’t all be receiving inferior service, as implied by this article.

 

This is cross-posted at: Association Voices

Is Your AMC Committed to Mediocrity or Excellence?

Michael LoBue writes: —   I just returned from the AMC Institute 2008 Annual Meeting in New Orleans, LA.  Once again, this “gathering of the AMC faithful” did not disappoint.  There were many topics discussed and ideas generated from the rich interactions with the AMC members, as well as with all of the high quality associate members who provide a wide range of services AMCs utilize to support the successes of their client organizations (e.g., meeting venues, convention and visitors bureaus, printers, technology providers, insurance services, etc.)

The one topic that never ceases to interest me is how AMCs articulate the value of being a member of the Institute and being an AMC Institute accredited firm.  Clearly, the Institute members see the value or they wouldn’t spend the time and the hard cash on hotel, meals, airfare, etc. to attend these meetings.  We certainly have more than ample opportunity to travel to a wide variety of fine locations on behalf of our clients and their meetings, so it’s not that we need an excuse to get out of the office.

While the reasons may vary by firm for the investment of time and profits into this activity, I think there’s one universal reason why this type of investment is of value to our clients.  The clients of AMC Institute members benefit by our membership because membership and active participation in the Institute is a clear and tangible investment to provide the highest quality and value services.  It’s the difference between good intentions and taking concrete actions to produce a positive result.

Let’s face it — the principals of every firm providing association management services don’t open their offices every morning with the thought:  “Wow, I’m really looking forward to another great day of providing our clients with mediocre service.”  Of course not, we all believe we’re providing the very best services possible.

However, there’s a difference between providing “our” very best services and “the” very best services possible.  Members of the AMC Institute are in a very tangible way investing their time and capital to learn what “the” very best services are, and how to provide them.

So, it matters to an organization that an AMC is at least a member of the AMC Institute because it’s a tangible sign of the firm’s investment in staying abreast of what constitutes “the” very best association management services — because the definition of “the very best services” is a moving target — and Institute members are investing in staying abreast of this moving target.  And for those organizations seeking the “gold standard” in service providers, there are the almost 40 AMC Institute Accredited AMCs, which not only practice these standards, but drive best practices to ever higher ground.

Besides, doesn’t it seem odd that a self-respecting association would higher a firm to provide association management services that is not a member of the AMC Institute?  Isn’t that a bit like going to a minister for religious guidance who didn’t attend a seminary, doesn’t belong to an organized church, or perhaps doesn’t even believe in god?

In fact, it’s probably not much of a stretch at all the generally define an association management company as to whether or not that firm is a member of the Institute.  Membership in the AMC Institute constitutes the basic definition of being an AMC at all; AMC Institute Accreditation confers the gold standard for an AMC.