A article in the Portland Press Herald caught my attention a few weeks back:

Youth Alternatives and Ingraham, two social services here in Maine, have agreed to merge.

As a nonprofit-innovation-phile, I'm generally interested in nonprofit mergers, since a the sector is growing rapidly and has failed to fully recognize the value of an ecosystem (i.e. most nonprofits will expand their missions to cover new program areas rather than adequately partner with others already providing those same programs). I'm interested because despite the above failure of the nonprofit sector, I'm not convinced mergers are the answers. Here's why.

Firstly, I have yet see true value generated -- either value for the beneficiaries or real value for organizations. Blame it on the Portland Press Herald, but I don't see the increased value in the merger. The two organizations merged under the auspices of reducing operating costs and expanding services. However, both organizations are maintaining their base of operations, combining staff, and maintaining the current scope of programs and services. They will be laying off 4-5 people, but maintaining their combined budget of roughly $4 million. Any money saved by combining operations will be directed into program costs, but with the facts I have -- even if calculating potential unreported redundant costs in administrative and financing -- the "money saved" on an annual basis will most likely be less than 3% of total costs, and certainly less than the legal fees associated with the merger itself.

This could simply be the limited information presented in the press release -- but I recently picked up the Summer edition of the Stanford Social Innovation Review which reviews "the merger proposal," cases for and against nonprofit mergers. I was struck that of the example given to support nonprofit mergers, the primary return on the merger was a 20% increase in assets the first year, which has not grown since. That is, the two organizations increased their combined annual fundraising budget from $2.4 to $2.9 where it has remained the last few years.

Furthermore, I'm intrigued that I've yet to see a case demonstrating how nonprofit mergers improve and expand services for beneficiaries. Perhaps the one value of small nonprofits is the power to touch individual lives. I'm not saying larger organizations can't do this -- but (1) no evidence has ever been made to indicate that they can and can do it better -- which ultimately should be the value proposition of the merger, and (2) our experience with other behemoths is that they can't -- the value of a clinic over a hospital, the intimacy of your personal physician compared to an HMO.

And finally... I doubt mergers solve for what's really gnawing in people's craw. I know in Maine, the philanthropic sector is calling for mergers because the sector is growing faster than many other sectors. It employs 12% of the population and contributes $43,000,000 million to the economy. The government is simultaneously shrinking its support of many direct service organizations and the philanthropies are suddenly being asked to fund (and perhaps being criticized for not funding) direct service and municipal projects (which is apparently beneath their strategic focus).

Across the world, the sector is growing rapidly, and the services (particularly the financial services) supporting the sector isn't growing or innovating. This isn't a new topic at all -- many have been talking and writing about it for almost a decade now. And there are the few innovative folks who are actually doing something about.

But its far too early to either shut down or consolidate this growth. I found it slightly ironic that those arguing for mergers do so under the auspices of increased application of business principles to the nonprofit sector. And those same people are the very people who should understand that the growth brings innovation and that innovation is good. Our problem is not the need to consolidate. Our problem is information and resource flows and the failure of nonprofits to "destruct" in the process of "creative destructive." In the private sector, capital will not flow to the services/products left behind by innovation. People will not buy them and investment firms will not invest in them.

Information and resources do not flow the same way in the nonprofit sector, and this is the problem that needs addressing.