Synopsis

There are ways to manage the risk gap between authority and responsibility in your organization and this article is about three of them.

Introduction

Non profits have a treacherous dance partner in government. Government loves you today but treads on you tomorrow. This commonly happens when a serious error is made by one of your staff members. The government agency is highly attuned to the optics of the story as well as the performance failure. Their favored way of responding is to cut ties immediately, leaving you with a lot of unfunded good staff and various other bills and liability.

How does a human service provider avoid being crushed by an elephant during their tango?

Case Study

Let’s look at the SCO story that recently unfolded. Three recent news articles about SCO involve massive charges of abuse by foster parents in their network. The Daily News reports that NYC ‘cut its placement ties’ within a week of the charges.

According to Guidestar, “SCO has provided vital human services throughout New York City and Long Island for more than 100 years.” They have an annual budget of $258 million, most of which is provided by government. Their recent contributions for the year were only 3.3% of their revenue. They have 6 major program areas where they provide services. A heavy hitter. Their most recent fiscal year reported a deficit of $3.5 million. SCO has 5,000 staff members.

Let me start with a disclaimer. I know nothing about SCO except from public news sources. I have no contacts within the organization. I only use these reports to understand the pressures that the senior management team can face if they are not proactive to manage risk of pending explosions. 

A key problem is your disconnect between authority and responsibility as your nonprofit scales up.

Have you ever had a favorite restaurant or hairdresser that got larger and was no longer the pleasant experience that you remember? I was in a small takeout place yesterday that is incredible. The owner is behind the counter with 3 staff. Although he was arranging food, he was also watching the other 3 and helping, telling, and showing exactly what he wants to prepare for me.

He is 100% responsible to me as the customer for a great experience. He also has 100% authority. It’s very easy for him to watch the other staff as they go about their work. His authority only slips if he takes a lunch break or a day off. His responsibility to the customer always stays at 100%

Scaling up past the lemonade stand size business involves the disconnect between 100% responsibility and some percentage less for authority. And that is where the risk lies. I doubt very much that the Executive Director of SCO personally ordered a social worker to place children in unsafe homes. He is responsible for the problem but disconnected from the authority to prevent the problem.  SCO is actually a minor example. The federal government lists 2.7 million employees. Think of what the President of the United States gets blamed for – 100% of them.

There are ways to manage the risk gap between authority and responsibility and this article is about three of them.

  1. ReConnect Authority to Responsibility with Great Systems

With the deli and with the President, systems better be there to protect authority because they are 100% responsible to me for a great experience.

The only way to keep authority high is to develop systems of reporting and control. For example, at my company, I discovered that weekend custodians were not staying for the full work shift. This never happened during the week when I was present. We added a system. To protect management authority, we bought a time clock and cards to replace the sign in sheets. As the staff grew and a 2nd site was added, some staff were clocking in for both themselves and their friends by punching two time cards. We changed the system. We changed the machines to biometrics — to protect management authority. Then a weak manager ignored lateness by overriding the system to check certain staff in before they arrived.

I fired the manager. It is not easy to maintain a control system. Which leads me to my second point.

2.  ReConnect Authority to Responsibility by Embedding Values

Scaling up past the lemonade stand size is not easy. Scaling Up in any service organization is not easy. Scaling up 5,000 staff in a regulated nonprofit is not easy.

John Mullins says that efficiencies of scale in a service organization are more difficult than in a product company. If you are making lawnmowers, there is an assembly line to build them and some easy quality assurance tests at the end. With a service company, the customer has to consume the service and then discover afterward if the quality is acceptable. If your staff member is unskilled, not suited to the job, indifferent to your way of working, despondent over a personal problem, fighting with a coworker, hung over from last night, ill …….

Many human service companies also hire professionals. People who have passed exams and received MA degrees sometimes are more like cats than sheep. They have learned other values and are not expecting to be attuned to corporate direction.

There are many ways for a service provider to fail through the work of staff.

a.Embed Values by Preaching Values

The management team needs to have a set of company values that is baked into the company architecture. The management team and the Executive Director need to conspicuously demonstrate and repeatedly refer to company values. One of my company’s values is to possess ‘Determined DNA’. As I explain to staff members, work in education involves results. I don’t want to hear good reasons why the students failed. I want to see multiple creative attempts to result in student success. Some staff members can buy into Determined DNA. Others feel that our corporate culture is too demanding and look elsewhere. Your company values should please some people and make others uncomfortable.

Most nonprofits will help themselves with values regarding quality, putting clients first, and not giving up.

b. Embed Values by Firing Quickly

In the 1970’s, American products were poorly made. Many cars had defects before they left the showroom. Carmakers got religion after Toyota and others reduced defects and grabbed market share. Americans have gotten used to zero defects. We talk about Six Sigma and other defect prevention schemes. People expect that level of quality in your human services.

In my company, we hire staff who are rapidly categorized in three value matches –  A, B, and C. My goal is to retain the A’s, develop the B’s, and fire the C’s. I don’t want the B’s to stay static – they have to improve to A or move to C.

I take no joy in firing a person and disrupting their life. 95% of my staff team buys in to the company values and seems happy at work. I don’t want scared or defensive staff wondering if their job is safe. Those feelings have to be coordinated with the fact that I need to direct an agency responsibly. When I fail to keep the desired results for clients as Job One, I let my authority erode even as my responsibility remains the same.

3. ReConnect Authority to Responsibility by Investing in Administration

Administrative costs at SCO are 7.3% of revenue, according to their Annual Report. I find it hard to understand how that level of investment will pay for systems, technology, and labor costs of managers for the ideas that this article has introduced. This may just be the way that costs are distributed on the SCO 990 report. The bigger point is that systems are built with technology and it isn’t cheap.

Government has a fantasy that bigger players will experience so many economies of scale that overhead of 10% or less is quite reasonable. SCO is involved in Early Childhood, in residential treatment and other activities which have mandated ratios of staff to client. These kinds of services are resistant to economies of scale.

Verne Harnish writes about the ‘Valley of Death’ between $1-$5 million in revenue for a company. That is the range where you need a full administration and are slowly getting efficiencies of scale to build it.

$5-$6 million provides the administration with all the key players. After that, further economies of scale for service companies are limited. You cannot overfill classes, add nighttime PreK classes, or reduce professionals. I would expect a $250 million operation to have a Sales, General, and Administrative overhead of about 15%. Maintaining authority as well as responsibility for an agency has its own costs.

Conclusion

Directing a human services company has special challenges with labor often comprising 70% of the total budget. The only way to keep the agency proceeding in one direction is to keep watching for ways to reconnect authority and responsibility.

Many directors avoid the work of joining those two qualities. If it seems too difficult, the SCO story should be a warning. Someday, that gap will come to the attention of government when one of your staff grabs the authority and marches in an illegal direction. And the government won’t worry one moment about all the good you have done. Or your 100 year history. And the rest of us will hungrily line up to grab your contracts. J

The human spirit is often independent but orchestra conductors show us repeatedly that we can direct the magic of nonprofit staff to play a united song.

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Harnish, Verne. Scaling Up: How a Few Companies Make It… and Why the Rest Don’t. N.p.: n.p., n.d. Print.

Mullins, John. The Customer Funded Business. Hoboken: Wiley, 2014. Print.

“SCO Annual Report 2014.” (n.d.): n. pag. SCO Annual Report 2014. SCO. Web. 31 Mar. 2016.

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