Is There a New Normal for Associations – Not So Much!

OVERVIEW: For years the association community has been treated to passionate claims about how the world has been changing, resulting in a new normal or paradigm shifts and how our organizations will become extinct if we don’t change our “membership model,” or “give it all away.” Do these dooms-day claims have merit? Not according to how the community of associations were actually led and managed over the last two decades! According to the data, the association model is still strong and vibrant and not facing extinction.

Download the entire report as a PDF document: NewNormal-Not-So-Much-print.pdf, or select the link below for the entire report here.

Introduction

Is there a “new normal” for associations?

This is a significant question for association executives and managers. Since the advent of the Internet we’ve been deluged with articles, books, webinars and seminars about how much our environment has changed with catch phrases like “new normal,” “new economy” and “paradigm shift”. This only intensified since 2008 when the Great Recession ushered in a whole new class of prognosticators and thought-leaders on just about every subject. Of course we can find organizations that experienced large changes during the period. But just how pervasive are these changes? What exactly are they? Are the changes having deep impacts on our organizations, or are they somewhat superficial?

Our associations need revenue vehicles that are responsive to the willingness of members and prospective members to pay for benefits and to contribute to organizational goals. Also, we need to make effective choices about how to allocate scarce resources against competing programs and services. After all, this is what managers do.

This paper attempts to shed light on these questions and to contribute to a more meaningful definition of new normal. Conventional surveys asking association executives about new normal are mostly “opinion surveys” and were not used in this investigation. Rather, we examined the operating ratios of associations. These data are more sensitive to real changes because they reflect actual decisions made by members (revenue side) and association executives (expenses side). The base year for this examination is 1993. The end year is 2011 (19 year span).

Nineteen ninety-three is a good baseline year for a couple of reasons. First, the data are conveniently available from that year. Second, and more importantly, the Internet was first tossed over the transom from the academic and research worlds to the commercial world in 1993. It’s probably the last pure “non-Internet year” for the association market. Only a few early adopters in the association world experimented with email lists and websites that year. Our firm was one of them. Since 1993 our client associations have largely been trade associations in the technology sectors whose members were already using the Internet for collaboration before the World Wide Web commercialized the experience.

The Operating Ratio Reports (ORR) from the American Society of Association Executives (ASAE) from 1993 through 2011 were the source data for this examination. During this 19-year period ASAE published the 9th through the 14th Editions of the ORRs, providing six (6) reports that document operating ratios for revenue and expenses that cover: i) the pre-Internet period; ii) the initial build up of the Internet; iii) the “dot bomb” bust of 2000-01; iv) the pre-recession bubble; v) the Great Recession of 2008-10; and vi) one year following the recession.

It would be folly to even suggest that the association worlds of 1993 and 2011 were the same. Yet, it’s only reasonable to think that these changes would appear in the operating ratio data – especially since we’ve been told so often, and with great conviction, that the association world has changed in such dramatic ways.

Indeed, there have been changes. However, the changes are remarkably small. Hardly the magnitude that suggests transformative changes – or a “new normal.”

About Operating Ratios

For those unfamiliar with operating ratios they are simply a breakdown of standard revenue and expense categories found on a typical profit and loss statement (P&L). These breakdowns are represented as a ratio, or a percent of some total figure. The revenue ratios are a percent of total revenue. The expense ratios are also a percent of total revenue. Under these circumstances revenue ratios will total 100%; expense ratios may not. Expense ratios totaling less than 100% denote an operating surplus. Those totaling more than 100% denote an operating deficit. In the case of deficits an organization would either draw on reserves or carry the deficit as debt into the next fiscal year.

Summary of Results — Just the Facts

Table #1 below reports the summary of operating ratios for classes of revenue and expense categories. Revenue is reported in 13 categories. Similarly, expense classes are reported in 10 categories. For several of these revenue and expense classes that experienced the greatest change over the 19-year period, deeper examination of the categories are explored later in this report. Please note, percentage-point changes are the subject of this examination, not percent changes. Comparison of percentage-point changes preserves the overall relationships of the general ratios. Changes within categories over the period can be useful, but those comparisons answer different questions from what is explored in this paper.

Modest Changes in Revenue Sources

Over the 19-year period there were only three changes in revenue of any note, and these were not material in operational terms. In 2011 Dues accounted for 2.6 percentage points less of all revenue than it did in 1993. Meetings & Expense revenue grew by 7.1 percentage points between 1993 and 2011. Certification & Accreditation as a revenue source grew by 3.7 percentage points over the 19-year period. Chart #1 (below) displays the revenue percentage point changes from 1993 to 2011.

It’s significant to point out just how small these percentage point changes were over the 19-year period. Table #2 (next page) displays the average annual change for each of these revenue ratios – they don’t appear to rise to the level of “new normal”.

Table #1: Revenue & Expense Changes
from 1993 to 2011
% of
Revenue
1993
% of
Revenue
2011
Percentage Point Changes
Revenue
Dues 40.2 37.6 -2.6
Meetings & Events 17.7 24.8 7.1
Education Programs 7.8 6.1 -1.7
Certifications & Accreditations 1.3 5.0 3.7
Periodicals 5.5 4.1 -1.4
Grants & Contributions 8.1 8.2 0.1
Dividends & Interest 3.2 2.2 -1.0
For Profit Subsidiaries 0.0 0.9 0.9
Management & Admin Service Fees 2.1 3.2 1.1
Other 8.1 4.3 -3.8
Expenses
Personnel 33.9 39.7 5.8
Dues, Subscriptions & Pubs 0.8 1.5 0.7
Overhead 25.3 32.0 6.7
Technology 0.6 1.9 1.3
Legal Fees 1.5 1.4 -0.1
Consulting Fees 2.9 4.9 2.0
Occupancy 14.5 4.2 10.3
Travel 4.1 2.9 -1.2
Meetings & Events 10.8 10.0 -0.8
Taxes 0.2 0.3 0.1
Total Expenses 94.6 98.8 4.2

As stated above, Meetings & Events experienced the greatest gains over the period. But at this level Meetings & Events grew by one (1) percentage-point approximately every three (3) years. Certification & Accreditation revenue sources grew by one (1) percentage-point approximately every five (5) years. Lastly, Dues revenue fell by one (1) percentage-point of overall revenue approximately every seven (7) years.

chart-1-revenue-changes.jpg

Is This the Picture of “New Normal”?

There are two possible explanations. First, let us concede that the prognosticators were right and major material shifts were taking place during this period. If this is the case, then the association management community appears to have done a stellar job of responding to and maintaining a rather even keel during this period in terms of revenue sources to fund operations.

Alternatively, the collection of changes that occurred during this period had an impact on some types of organizations, where major changes may have taken place, but for the most part these changes were more like ripples on a pond than tsunamis from the ocean.

Table #2: Average Annual Rates of Percentage Point Changes for Dues, Meetings &
Events and Certification & Accreditation
Percentage Point Change 1993 – 2011 Avg. Annual Rates
of Change
Dues -2.6 points -0.14/year
Meetings & Events 7.1 points 0.37/year
Certification & Accreditation 3.7 points 0.19/year

Some Shifts in Expense Allocations

A closer examination of Personnel, Overhead and Occupancy may reveal some interesting changes. Each of these categories in Chart #2 is comprised of four or more expense categories from the ASAE ORRs. The three expense categories experiencing the greatest changes during the period are: Occupancy (-10.3 percentage-points); Overhead (+6.7 percentage-points); and Personnel (+5.8 percentage-points).

chart-2-expense-changes.jpg

Before examining the three categories experiencing the greatest changes during the period, it’s worth noting one category that changed very little over 19 years: Technology! During what has been one of the greatest periods for innovations in information and communications technologies, one would expect a much more significant rise in the proportion of operating budgets for technology. Perhaps this measures some of the innovation itself, namely the drastic reduction in the cost of technology. Or, perhaps as an industry we’re not tracking the costs accurately. Whatever it maybe, it’s certainly noteworthy that the change is stunningly insignificant.

Much like the revenue changes over the 19-year period, the rates of change in expense changes were also very slow. Table #3 below displays the average annual change for each of these expense ratios – again, they don’t appear to rise to the level of “new normal.”

Table #3: Average Annual Rates of Percentage Point Changes for Occupancy,
Overhead & Personnel Expenses
Percentage Point Change 1993 – 2011 Avg. Annual Rates
of Change
Occupancy -10.3 points -0.54/year
Overhead 6.7 points 0.35/year
Personnel 5.8 points 0.31/year

Occupancy

The total net reduction in Occupancy over the 19-year period is comprised of 4 component expenses. Chart #3 (next page) displays each of these component expenses, where traditional occupancy, such as rent, utilities, etc., actually rose by 1.1 percentage points over period and the three other component expenses declined. Printing & Photocopying and Office Equipment & Supplies are the clear drivers in the overall reduction in this expense category. In the case of Office Equipment & Supplies the rise of “big box” office supply retailers like Staples, OfficeMax and OfficeDepot could account for the drop in product prices. Online purchasing over traditional brick-and-mortar shopping might also account for these reductions.

The reduction in Printing & Photocopying expenses is very likely due to the shift to digital distribution from traditional paper and binding methods. However, if we look at the pace of this change, it’s not dramatic – between 1993 and 2004, this line item dropped two (2) percentage-points (an average of 1 percentage-point every 5 years). In the 2011 ORR report this line item was simply removed; presumably because it’s no longer worth tracking.

chart-3-occupancy.jpg

Overhead

There is an expense category in the OR reports entitled “Other Expense” and it appears that this non-descript category (i.e., component parts not identified) is the driver here (see Chart #4). What’s more interesting about this category is that Postage & Shipping and COGS were not reported separately in 2011. In the case of Postage & Shipping, this category represented 3% of total expenses in 1993. In the case of COGs, it was 2% of total expenses in 1993. It’s highly likely that these “retired categories” are now accounted for in “Other Expenses”. Even taking into account that “Other Expenses” experienced the greatest change over the 19-year period of all the changes examined here, it still changed at the rate of one (1) percentage point every 2 years. This hardly rises to the level of “new normal”; however, it may be the category to keep our eyes on going forward. In addition to dying categories, it probably also contains emerging categories that may soon take their places as the standard ORR survey categories.

chart-4-overhead.jpg

Personnel

It appears that there’s been a seven (7) percentage-point increase in salaries for management staff. We have no way of knowing if this represents an increase in exempt personnel, or a more rapid rise in the compensation of exempt vs. non-exempt staff. Spending more on salaries for exempt personnel seems to be the driver in this category.

Perhaps this change in personnel cost is related to the fact that Technology expenses were essentially flat over the period – related in the sense that organizations hired, or retained, more exempt staff who might have come with existing “technology expertise” vs. investing in training and development. As Chart #5 displays below, Training & Development was essentially flat as a percentage of expenses over the 19-year period.

chart-5-personnel.jpg

Conclusion

If over the past 19 years you’ve been involved in association management, you should give yourself a pat on the back for contributing to a stellar job of management. Not because I say so, but because the data say so!

We certainly should not be hard on ourselves because bloggers, tweeters and presenters with microphones in their hands are telling us that we’re heading toward extinction because we’re missing the “new normal” and “paradigm shifts” that are all around us.

The analysis and synthesis presented in this paper is not intended to deny that major shifts have happened in the field of association management over the past two decades, but to simply put them into context with data and evidence of decisions made and actions taken, versus full throated exhortations of how we need to adopt the latest and greatest technologies or that our governance models are antiquated.

For certain, many organizations are facing new and unprecedented challenges. But are these challenges likely to be more accelerated than we’ve experienced in the past 19 years, during which there were six (6) fairly distinct periods of change and disruption? Doubtful.

A final suggestion – the next time you encounter someone who is telling you that your organization is facing one of its greatest challenges, or that its relevance is in question, ask him or her to prove it. By proof I mean, with actual data that is relevant to your organization.

We should all be suspect of survey results, as well as detailed descriptions of the alleged asteroid that is about to rock our world. We should also be suspect of a case-study or two that sound dramatic and compelling, but may have no relevance to our organizations.

I’m not suggesting that these data- or evidence-types are without merit, but they hardly make the general case for “new normal” or “paradigm shifts.”

Defining New Normal

It appears that new normal is defined in the same manner that Supreme Court Justice Potter Stewart defined pornography: “I know it when I see it” (Jacobellis v. Ohio 1964).

If we perform a Google search on the term “new normal” the search engine will return more than 10,700,000 links. In short, new normal means whatever the speaker wants it to mean without rigorously defining it. We can do better than this as a community of professional managers.

Proposed Definition of New Normal

For us new normal has three (3) components:

  1. A new condition that the organization needs to accommodate resulting in a new or significantly modified business process;
  2. A change that will endure – have a lasting impact on decisions that are made or the processes that are employed by the organization; and
  3. Over time significant damage will result from ignoring a response to the change – may be a short duration or a much longer duration.

Based on these criteria an operational definition of “new normal” might read: “A change in an organization’s operating environment that necessitates how the entity conducts its affairs into the future, and if ignored serious consequences will likely result for that organization.”

An important aspect of this definition is that “different” is by itself not a new normal. Sometimes a new process or product is simply something new. Sometimes different is just different. Sometimes differences may result in a deeper understanding and justification that what an organization has been doing all along continues to be the right course for the foreseeable future. For example, the Internet has made it possible for groups of people to collaborate in ways that might trade off against historical trends in travel. These collaboration tools should force organizations to value the new tools for the “newness” of what they present rather than to value them because they replace some incumbent set of practices. In the case of online collaboration tools it’s just as likely that these tools allow our working groups to do a better job of preparing for face-to-face meetings, so their value is not lowering the cost of travel, but increasing the value of the travel we do.

When confronted with something new we should always ask ourselves: “How will this impact the ways we support our organizations?” “How will this impact the important work we’re doing?” How the tool works may be interesting on its own, but it may not be significant or relevant to the work we do. In the end, there’s no substitute for a deep understanding of the value our organizations were formed to have. Perhaps the greatest value of the next new thing is how it challenges us to better understand the essential purpose of our organization.


Sources:

ASAE Operating Ratio Report 9th Edition; © 1994 by the American Society of Association Executives
Operating Ratio Report 11th Edition; © 2000 by the American Society of Association Executives
Operating Ratio Report 12th Edition, Volumes I & II; © 2003 American Society of Association Executives
Operating Ratio Report 13th Edition; © 2008 American Society of Association Executives
Operating Ratio Report 14th Edition; © 2012 American Society of Association Executives

new-normal

By the Numbers

$1 Billion

The total operating budgets for those associations managed by AMC Institute member firms.*

*AMC Institute

By the Numbers

2.8 million people

The number of members in associations under management by AMCs.*

*AMC Institute

By the Numbers

3,500

The total number of individuals employed by AMCs that are member firms of the AMC Institute.*

*AMC Institute

By the Numbers

10 years

The length of time L&M has been a Charter Accredited AMC – making it the only remaining Charter Accredited firm west of the Rockies.*

*AMC Institute

By the Numbers

19 out of 20

The number of industry segments that AMC-managed organizations have in common with organizations managed by employed staff.*

*Client Operating and Financial Benchmarking Survey Report 2011; © 2011 AMC Institute, pg. 21

By the Numbers

1,700

The number of associations managed by AMCs that are member firms of the AMC Institute.*

*AMC Institute

By the Numbers

32%

On average, the premium standalone organizations pay to directly employ staff and shoulder the full costs of occupancy and capital expenses vs. the AMC alternative.*

*Client Operating and Financial Benchmarking Survey Report 2011; © 2011 AMC Institute, pg. 23

By the Numbers

32%

The rate over which the AMC-managed model outperformed the standalone model during the Great Recession (2008 – 2010) in terms of operating surpluses.*

*AMCs Managed Client Bottom Lines Through Recession; © 2012 L&M, page 2 (derived from data reported)