Commentary: Beyond Revenue Dependence
Article first published online: 21 JAN 2014
© 2014 by The American Society for Public Administration
Public Administration Review
Volume 74, Issue 1, pages 25–26, January/February 2014
How to Cite
Kellermann, C. (2014), Commentary: Beyond Revenue Dependence. Public Administration Review, 74: 25–26. doi: 10.1111/puar.12172
- Issue published online: 28 FEB 2014
- Article first published online: 21 JAN 2014
A s a practitioner with experience in both government and the nonprofit sector, I found Deanna Malatesta and Craig R. Smith's discussion of resource dependence (RD) theory in their article “Lessons from Resource Dependence Theory for Contemporary Public and Nonprofit Management” interesting and helpful in thinking about the response of both sectors to the “new normal” of scarce resources.
It is certainly true that public and nonprofit executives face a new fiscal reality of resource (i.e., revenue) scarcity. For example, in New York State, where I live and work, cost-of-living adjustments to state contracts with social service providers used to be taken for granted; they have not received one in five years. Moreover, the stress of the recession has had an impact not only on government funding but also funding from foundations and private philanthropists.
As described by the authors, RD theory posits that mergers and other forms of alliance, whether horizontal or vertical, are driven by the motivation of managers to find resources despite the risks of loss of power and autonomy. But rarely are organizational changes of this magnitude explained entirely by one factor or goal.
It is certainly true that the need for adequate and stable sources of revenue has sparked more widespread consideration of mergers and other forms of combination and collaboration by struggling nonprofits. Some foundations have encouraged this “urge to merge” by favoring grant proposals that are collaborative efforts and/or offering grants specifically to cover the cost of mergers among grantees. Indeed, because of resource scarcity, some government agencies are in a position to exert influence to foster consolidation among their contractors as well. It should be noted that nonprofits are also engaged in expanding forms of fee-generated revenue (e.g., providing technical assistance, franchising), creating for-profit subsidiaries, and other efforts to find new ways to fund their core missions. These pursuits raise many of the same issues the authors discuss with respect to mergers and alliances and may warrant further study as well.
But many consolidations that are now being discussed and achieved make sense for other reasons besides the need for revenue; in some cases, resource scarcity is serving as a helpful spur to action. The reluctance to share or shed power and autonomy can inhibit nonprofit executives—and board members—from embracing creative new organizational arrangements. RD theory characterizes the loss of power and autonomy as negative, but that is not always the case. The authors’ admonition that “managers who ignore the power relationships that result from the relationships they form do so at their peril” is hardly necessary. These power relationships are rarely ignored; indeed, they are often given too much attention and priority at the expense of a focus on mission and outcomes.
By focusing so much on the motivation and needs of managers, RD theory obscures the fact that the overriding objective of a nonprofit is pursuit of its mission, not self-perpetuation or the preservation of the authority of its executives. To the extent that realignment of authority enables the more effective pursuit of mission, it can be a positive outcome to be sought, not avoided. A rational nonprofit executive should resist the temptation to avoid difficult challenges and changes in power and leverage. The authors list a number of questions to be used to evaluate a potential merger, but the most important—arguably the only—relevant question is, will it improve the capacity to deliver quality programs or services?
With respect to less definitive combinations that the authors refer to as “alliances,” they acknowledge that the category encompasses a broad array of arrangements between entities. Their analysis largely focuses on government contracting and outsourcing—perhaps because of the lack of research on other arrangements, such as joint ventures and strategic partnerships. They evince more enthusiasm for alliances than mergers, but the advantages cited can be true of mergers as well, such as cost savings, increasing organizational learning, providing a sense of community, and diffusing risk. The role of trust, which the authors emphasize, is also of the utmost importance in formal mergers, as is the lesson that “the terms of the relationship can be as important as how the deal is labeled.”
In applying RD theory in the context of government contracting, the authors say that it favors smaller, multiple relationships over sole source contracts and large-scale public–private infrastructure partnerships (P3s). But smaller is not necessarily better. Particularly with respect to P3s, it is economies of scale and the benefits of larger entities’ experience and expertise that makes them attractive, that is, the ability to deliver projects faster, better, and cheaper. The fact that some power and control will be ceded means that government managers must structure these arrangements carefully and manage them effectively with appropriate risk sharing built into the arrangements, not that they should be avoided.
Similarly, it overstates the downside risk to state that nonprofit board members with contacts and experience in government and/or related organizations foster unhealthy dependency. Board members are often recruited because of their perceived (or hoped for) access to resources—including their own—and this can sometimes lead to accruing more members than is manageable. But board members with relevant expertise are far more likely to enhance, not detract from, the health of an organization.
In sum, RD theory can be useful in helping delineate the potential impacts of shifts in organizational arrangements on the independence and authority of existing entities and their managers. But this analytic framework can overemphasize the importance of these elements; practitioners must be careful not to define preservation of the status quo balance of power as the best case scenario for their organizations. Mission trumps all.