AMC-Client Relationship is Not a Partnership

I recently attended the annual meeting of the AMC Institute in Long Beach, CA.  For a west coast venue, there was good turn out and Long Beach Convention and Visitors’ Bureau rolled out the red carpet.

There was a program this year that resurrected an old topic:  “Trusted Development as a Client Partnership Strategy” presented by Michael Reed of Bloch and Reed (Association Advisors).  Bloch and Reed is not an AMC, so in defining their role with clients as a “trusted partner”, I have no issue.  I continue to have an issue defining the AMC-Client relationship as a “partnership” for the same reasons I did back in April 2009 when I first posted on this topic.  (“AMCs More Like Agents Than Partners”)

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AMC Managed Organizations Are More Stable Than Standalone Organizations

This paper reports the results of a study examining the rates of change in the length of chief staff executive tenure and of turnover in office locations of membership-based organizations for the period 2009 to 2015. The study sample was 396 randomly selected associations from 9 of the most populous states and the District of Columbia.

The results of each case were surprising. They revealed much higher frequency of turnover in standalone organizations compared to organizations managed by Association Management Companies (AMCs). As the chart above shows, standalone organizations changed their chief staff executives more than 10-times more often than AMC-managed organizations. This study may finally reveal evidence explaining why AMC-managed organizations outperform standalone organizations in key performance indicators.     Download full report.

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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”?

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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.

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


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 Ratio 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