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:
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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.

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AMC-Managed and Standalone Organizations — A Sibling Study


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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

Are Results of Surplus – Deficit Study Valid?

Michael LoBue writes: As the study results comparing the impact of the start of the recession on standalone and AMC-managed organizations gains attention, there seems to be a general criticism of the study by executives of standalone organizations. The criticism is that the results are not valid because the study samples were not randomly selected. This post responds to that criticism, pointing out how the criticism itself is both short-sighted and (intentionally?) misleading.

Here’s the punch line —true the samples were not randomly drawn, but it’s just as likely the stellar results produced by the AMC-model vs. the standalone model would be even greater (as opposed to less — as implied by the critics) if the study is repeated on randomly drawn groups.

Select the following link to read the entire response to that criticism.

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Goodbye Brick and Morter — Hello Virtual Office

Michael LoBue writes: I returned today from the 2010 ASAE Annual Meeting in Los Angeles. Another good meeting and conference. It appears that there’s a growing interest among small staff organizations to abandon the main office (or any leased office space) and have employees work from their homes. This trends seems like an exercise in tossing a few chairs off the deck and rearranging a few other chairs on the deck. It also seems driven by the desire for cost savings and not a desire for improvements, although direct cost savings can be achieved and some productivity gains can be realized under the right circumstances.

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Clearly, there are benefits if the situations and the personnel are right for such an arrangement. However, it just seems short-sighted. As I listened to a presentation some questions came to mind:

  • What happens when you bring the first new staff person into the virtual office arrangement? It’s one thing to ask a group of staff members who comfortable with their jobs and who know one another after sharing an office, to work from home than it is to recruitment and orient new staff into a virtual office arrangement.
  • While the organization is no longer writing rent and utility checks, the list of employer concerns (see Figure 1) remain. How do these concerns change and might there be new employer concerns resulting from the arrangement?
  • How does working from home enhance the staff’s professional development in this isolated arrangement?
  • Where is the organization or their membership in these issues raised in the presentation? (Not a single slide in this excellent presentation contained the word “member”, or discussed how this arrangement adds value to the members of an organization.

Based on yesterday’s presentation it’s clear that this notion about “going virtual” is aimed at saving costs. Clearly a worthwhile objective, but this new piecemeal approach cannot touch the benefits delivered by the AMC-model:

   
AMC Managed and Standalone Organizations — A Sibling Study
 
   
Are AMC-Managed Organizations Recession Resistant?

Uncomfortable Truths About Association Management

Michael LoBue writes: In the two recent comparing organizations based on their management models — AMC-managed vs. standalone — a number of uncomfortable truths emerged. The discomfort appears to be with some standalone organizations.

The second of these two studies completed last month, compared deficit operations over 2006, 2007 and 2008 was mentioned in the April 2010 issue of Association Trends magazine. The reference to the study was based on complaints from an unspecified number of standalone organizations because I sent letters to selected officers of those organizations sharing the results and suggesting that they might want to consider the AMC model.

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Are AMC-Managed Organizations Recession Resistent?

Michael LoBue writes: I just completed writing a report on a research project examining how the current economic climate affected AMC-managed and standalone organizations. Based on analyzing two comparable groups of membership-based associations, AMC-managed organizations appeared to be avoid the harsh aspects of the economy, whereas standalone organizations were hit very hard.

Standalone organizations employ their own personnel, shoulder the full costs of occupancy (own or rent office space) and spend their scarce revenue on capital goods.

The study examined whether organizations ended their fiscal years in surpluses or deficits. The fiscal years examined were 2006, 2007 and 2008 — fiscal year ending December 31.

Continue reading Are AMC-Managed Organizations Recession Resistent?

AMC-Managed vs. Standalone Organizations – ‘No brag, just facts’

Michael LoBue writes: In a soon to be published white paper, that I authored, comparing the profiles of AMC-managed and standalone organizations, two major conclusions are clear.

First, there is no difference between the types or organizations managed by AMCs and those that “own their resources”. An organization that owns its own resources is one that employs its own staff, leases (or owns) its own office space and spends its scarce revenue on capital goods (e.g., furniture, furnishings, IT resources, etc.).

Second, AMC-managed organizations out perform standalone organizations across conventional operating metrics like:

  • Operating Efficiency
  • Net Profitability
  • Leverage (a measure of risk)

Oh, and let’s not forget that standalone organizations pay, on average, almost a 50% premium to “own” those resources that, on average, produce lesser results! How this translates into “fiduciary responsibility” is lost on me…

The white paper will be posted on the AMC Institute website for downloading, but I would also be happy to email a copy of it to anyone that is interested. Just send me an email request at: LoBue@LM-Mgmt.com

This is not to suggest that all standalone organizations up to $5M in annual revenue, the threshold up to which the comparisons were done, are irresponsible for using the standalone model of management. But, we now have hard data that governing boards and management can use to ask: “Is the premium we’re paying for our management model providing the right return for our unique needs?”

The real value of the comparisons in the white paper is that organizations can begin to explore this question beyond half-truths or simply because the standalone model is what they’ve been use to.

The comparisons in the white paper do not give us the most important analysis all organizations need to conduct, which is how an organization’s programs connect to the impacts outside the organization that each was formed in the first place to have. But, it’s a start!

AMCs More Like Agents Than Partners

Michael LoBue writes: An all too common characterization of the relationship between an AMC and its client organizations is that of a “partnership”. As “feel good” a notion as this may be, I contend that it is fantasy more than anything else. There’s a danger being too literal when borrowing a concept — after a fashion we begin to believe our own spin. I admit that our firm has used it before, but always with some discomfort; we won’t make this mistake again.

Partnerships
A partnership is defined as:

“A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business undertaking in which all have invested.”
(Wikipedia)

There’s nothing about the relationship between an AMC and its client organization that meets the above definition. AMCs don’t cover the risky ventures and bad debts of a client organization, anymore than a client organization co-signs on leases or capital improvement projects of its AMC. We certainly shouldn’t share in the earnings of client organizations.

Clearly both parties in the AMC-client relationship have risks and rewards resulting from the provider-client relationship, but aside from enhanced reputations, there isn’t anything they really share. And, shouldn’t that be enough? AMCs certainly value their reputations as much as any other business asset. An organization can grow, but there’s no guarantee that this growth represents expanded revenue for the AMC — it all depends on the nature of the growth and whether it increases demand for the AMC’s particular offerings.

Before someone interprets this position as: “he’s saying there’s nothing in the AMC-client relationship that leads to common goals”, let me be clear — there’s plenty to bind the two parties together for mutual benefit, but we should not kid ourselves into thinking it directly involves shared investments and returns. If I’m right and this relationship is not a partnership, characterizing it as such can lull both parties into thinking it is and inevitably lead to making lesser choices over the course of the relationship.

An Agent Relationship
A more likely candidate is that of an agent relationship. AMCs work on behalf of their client organizations to find and take advantage of opportunities for the clients. If the AMC is successful in this role the client benefits by having more impact in its profession or market, revenue continues to flow to the AMC, perhaps even increasing from the client’s successes, and the firm’s reputation is enhanced as a trustworthy and results-driven AMC.

There’s one other aspect of “agency” that I like; I think it’s more likely to focus on finding the client organization real successes — ones that make an impact in the organization’s profession or market segment, than merely generating busy work.