AMC-Managed and Standalone Organizations — A Sibling Study


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 AMC-Managed Organizations Recession Resistant?

Based on results of recent study, it appears they are!


OVERVIEW: The current economic climate is having an impact on associations, just as it is on virtually all business sectors. This paper reports on a recent study showing that until 2007, about 30% of all organizations up to $5M in annual revenue operated at a loss. But, organizations that employ their own staff, lease their own office space and incur their own capital expenses (aka: standalone) were nearly twice as likely to have ended 2008 with deficits than AMC-managed organizations. More than 50% of standalone organizations with up to $5M in annual operating revenue operated at a loss that year! The reduction for AMC-managed organizations between 2007 and 2008 was a nominal 7% — two-thirds of AMC-managed organizations reported a surplus in 2008! Therefore, the answer to the question posed in the title would seem to be a resounding “yes.”

Download study

IMPLICATION: Standalone organizations up to $5M in annual operating revenue should answer one question: “Are we receiving a return on investment in our management model, given that on average we may be spending 50% more for that management approach than if we were managed by an AMC — especially given the performance benefits produced by AMCs?”

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.

Continue reading

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.


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.

Continue reading

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

Why I’m Deleting My Twitter Account

Michael LoBue writes: I can’t remember when I signed up for my Twitter account — probably 6 months ago when a colleague in the association management space assured me that it was “where it’s all happening”. It is where it’s all happening; the train wreck of thought!

Intuitively I couldn’t quite accept that much of anything could be communicated in 140 characters unless a deep context already existed between the communicating parties. If other means of online communications didn’t exist (e.g., email, group lists, blogs, SNSs, etc.), then there might be some value to it; but I couldn’t see the there, there.

This morning I read Why Email No Longer Rules in the WSJ. Jessica Vascellaro contends that “services like Twitter, Facebook and Google Wave, with their constant stream of interaction among users — for better or for worse” has knocked email off its top perch. I think for worse – much worse!.

I reviewed a wonderful little experiment commissioned about one of our firm’s clients, the Institute for Innovation & Information Productivity (IIIP).

This study sought to understand whether attention deficits and associated performance drop-offs were statistically significant and if they varied with age or gender when an office worker was interrupted with email and text messages. Subjects were given a cognitively challenging task to perform, and then were interrupted with email and text messages to test their abilities to recover focus and complete the original task. Here’s what the researcher, Dr. Martin Westwell of Oxford University’s Institute for the Future of the Mind discovered:

  • There was a significant difference between age groups on performance with cognitively demanding tasks under conditions of high interrupts.
  • Younger people (18 – 21), lost their cognitive advantage over older counterparts when interrupted continuously during cognitively demanding work;
  • The older group (35 – 39), saw no significant performance degradation under conditions of high interrupts and cognitively demanding tasks.

When I spoke with Dr. Westwell about this research, he went on to say: “The drop off in performance was akin to suffering from a concussion resulting from an injury in a contact sport such as football!” Find full report here…

The point is, email is bad enough in the hands of someone with little discipline — Twitter is like crack-cocaine to an addict. If you’ve read this far — well beyond 140 characters — and you think there’s some merit to this position, then you should read Mark Baurerlein’s The Dumbest Generation


This post also appears on AssociationVoices.

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.

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%).