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This article was downloaded by: [McMaster University] On: 02 December 2014, At: 07:34 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK Journal of Community Practice Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/wcom20 Organizational Change-Too Much, Too Soon? Martha Golensky DSW a & Margaret Walker MPA b a School of Social Work , Grand Valley State University , Grand Rapids , MI , 49504 , USA b School of Public and Nonprofit Administration , Grand Valley State University , USA Published online: 24 Sep 2008. To cite this article: Martha Golensky DSW & Margaret Walker MPA (2003) Organizational Change-Too Much, Too Soon?, Journal of Community Practice, 11:2, 67-82, DOI: 10.1300/J125v11n02_05 To link to this article: http://dx.doi.org/10.1300/J125v11n02_05 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan,

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This article was downloaded by: [McMaster University]On: 02 December 2014, At: 07:34Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH,UK

Journal of Community PracticePublication details, including instructions forauthors and subscription information:http://www.tandfonline.com/loi/wcom20

Organizational Change-TooMuch, Too Soon?Martha Golensky DSW a & Margaret Walker MPA ba School of Social Work , Grand Valley StateUniversity , Grand Rapids , MI , 49504 , USAb School of Public and Nonprofit Administration ,Grand Valley State University , USAPublished online: 24 Sep 2008.

To cite this article: Martha Golensky DSW & Margaret Walker MPA (2003)Organizational Change-Too Much, Too Soon?, Journal of Community Practice, 11:2,67-82, DOI: 10.1300/J125v11n02_05

To link to this article: http://dx.doi.org/10.1300/J125v11n02_05

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy of all theinformation (the “Content”) contained in the publications on our platform.However, Taylor & Francis, our agents, and our licensors make norepresentations or warranties whatsoever as to the accuracy, completeness,or suitability for any purpose of the Content. Any opinions and viewsexpressed in this publication are the opinions and views of the authors, andare not the views of or endorsed by Taylor & Francis. The accuracy of theContent should not be relied upon and should be independently verified withprimary sources of information. Taylor and Francis shall not be liable for anylosses, actions, claims, proceedings, demands, costs, expenses, damages,and other liabilities whatsoever or howsoever caused arising directly orindirectly in connection with, in relation to or arising out of the use of theContent.

This article may be used for research, teaching, and private study purposes.Any substantial or systematic reproduction, redistribution, reselling, loan,

Page 2: Organizational Change-Too Much, Too Soon?

sub-licensing, systematic supply, or distribution in any form to anyone isexpressly forbidden. Terms & Conditions of access and use can be found athttp://www.tandfonline.com/page/terms-and-conditions

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Organizational Change–Too Much, Too Soon?

Martha Golensky, DSWMargaret Walker, MPA

ABSTRACT. Recent changes in government policies and practices, es-pecially managed care, have led many nonprofit organizations to em-brace collaboration as a competitive strategy. This article presents a casestudy of a large human service agency that has adopted a managementservice organization (MSO) model, a type of collaboration particularlysuited to handling third-party contracts, at the urging of the foundingCEO. A new governance model was also adopted. Using chronology asan analytical approach, the case examines key decisions made by profes-sional and lay leaders during four distinct stages of organizational devel-opment. The actions taken by the board of directors to restore financialstability and protect the organization’s reputation after learning from theCEO of the existence of a significant deficit demonstrate the need forstrategic planning and better communication among all relevant partiesinvolved in a collaboration. [Article copies available for a fee from TheHaworth Document Delivery Service: 1-800-HAWORTH. E-mail address:<[email protected]>Website:<http://www.HaworthPress.com> © 2003by The Haworth Press, Inc. All rights reserved.]

Martha Golensky is Associate Professor, School of Social Work, Grand ValleyState University, Grand Rapids, MI 49504 (E-mail: [email protected]).

Margaret Walker is Associate Professor, School of Public and Nonprofit Adminis-tration, at the same institution.

An earlier version of this article was presented at the 2001 Annual Conference ofthe Association for Research on Nonprofit Organizations and Voluntary Action(ARNOVA), November 29-December 1, Miami, Florida.

Journal of Community Practice, Vol. 11(2) 2003http://www.haworthpress.com//web/COM

2003 by The Haworth Press, Inc. All rights reserved.Digital Object Identifier: 10.1300/J125v11n02_05 67

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KEYWORDS. Collaboration, leadership, decision-making, board gov-ernance, managed care, organizational change

To tell you the truth, I sometimes miss the old days when we weresmall and everyone knew everyone else. But, given the environ-ment in which we now work, with managed care and all that goeswith it, there is no turning back. The small not-for-profit is goingto go out of business, and the large ones are going to survive. It’s amatter of positioning ourselves further up on the chain for man-aged care at the policy-making level. The not-for-profit world [to-day] is . . . a hard-nosed, cutthroat business.

The words above, from the CEO of a human service organizationheadquartered in a midwestern city, speak volumes about the pres-ent-day environment for nonprofits. The job of leading and managing anot-for-profit has become increasingly more difficult and complex aschanges external to the organization have forced strategic responses in-ternally to ensure survival.

This adaptation has been driven by both political and economicforces (Alexander, 2000; Dolgoff & Feldstein, 2000; Perlmutter &Gummer, 1994; Wernet, 1994). We are living in an era of governmentcutbacks and increased competition for the private dollar, of privatiza-tion and managed care, of greater demands from stakeholders for bothprogrammatic and fiscal accountability. Of these forces, managed caremay ultimately have the most profound impact on the social servicesfield, requiring a reexamination not only of service delivery practicesbut also of fundamental values related to organizational mission (Davis,2001). In being responsive to client need, managed care often necessi-tates a juggling act “to balance access, quality, flexibility, control, andaccountability while remaining fiscally viable” (Dolgoff & Feldstein,2000, p. 233).

Survival mechanisms adopted by nonprofit organizations have in-cluded new revenue strategies for generating income, legitimation strate-gies to favorably influence funders by enhancing organizational prestigeor reputation and retrenchment strategies designed to save money(Bielefeld, 1994). Another approach has been to forge alliances amongnonprofits. Such alliances encompass a wide range of options, froma joint venture, in which risk is relatively low and autonomy of theentities involved is maintained, to merger, where risk and cost can be

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high and autonomy of the parties considerably reduced (Arsenault,1998).

One type of consolidation that has yet to receive much attention inthe literature is the management service organization (MSO), which isformed by one or more nonprofits to achieve greater efficiency and ef-fectiveness by providing management and administrative services toother organizations. This model is viewed as particularly suited to han-dling third-party contracts and contract management (Arsenault, 1998).However, because of the lack of empirical data on the MSO, nonprofitleaders faced with difficult decisions in coping with today’s environ-ment have had little information about the pros and cons of the model.

To help fill that void, a case study will be presented of a social agencythat has undergone major organizational transformation over the pastfour years to become an MSO. Although the steps leading up to themove to the new structure will be outlined, the heart of the case is the af-termath of the decision. The article will conclude with lessons learnedthrough this experience and their application to other organizationsconsidering alliance as a strategy.

THE MANY FACES OF COLLABORATION

In speaking of human service organizations, Kramer (2000) notes:“To maintain their autonomy in an intersectoral environment, organiza-tions engage in a variety of political strategies–shifting from competi-tion to co-optation and collaboration–to cope with the forces thatinfluence their resource acquisition and service delivery systems”(p. 8). In today’s social and political climate, nonprofits are choosingsome form of collaboration more and more often to enhance capacitybuilding or respond to regional and community-wide problems (Reilly,2001).

Yet, despite the prominence of collaboration among organizationalstrategies for survival, the term itself is not always clearly defined (Gilde Gibaja, 2001; Snavely & Tracy, 2000). Even when a precise meaningof collaboration is offered, the practical realities of implementing andsustaining an alliance are frequently ignored (Reilly, 2001). For the pur-poses of this article, we have elected to use Mattessich and Monsey’s(1992) definition of collaboration: “A mutually beneficial andwell-defined relationship entered into by two or more organizations toachieve common goals . . . [that] includes . . . a jointly developed struc-

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ture and shared responsibility; mutual authority and accountability forsuccess; and sharing of resources and rewards” (p. 39).

Moving away from definitional distinctions and focusing more on is-sues of formality and risk, it is possible to create a continuum of collab-oration, as shown in Figure 1. Cooperation is the most informal andleast risky kind of interaction, usually characterized by a loose struc-ture, total autonomy for each participant and an emphasis on informa-tion sharing. Coordination, which generally involves a certain degree ofplanning to identify common tasks and establish communication chan-nels, is somewhat more formal in structure (Reilly, 2001). A joint ven-ture may be viewed as any undertaking of two or more organizations toaccomplish a specific purpose and is often time-limited and narrowlydefined; the parties maintain a high level of autonomy under a contrac-tual agreement. In a partnership, the joint venture is formalized througha legal contract, is separate from the regular operations of the participat-ing groups, and is expected to continue as long as goodwill existsamong the partners.

Whereas joint ventures and partnerships tend to focus on program-matic issues, the MSO stresses administration, resulting in more impacton day-to-day operations and a higher level of centralized control. As toform, either the MSO is created within a single organization and estab-lishes contractual relationships based on fees for service with the otherentities involved, or an incorporated partnership, limited to administra-tive functions and with a separate board of directors, is created. The par-ent corporation is a kind of umbrella structure for grouping a number ofseparate organizations; as part of the legal agreement, the parent is ableto exercise a certain amount of authority over the governance and man-agement of the corporations beneath it. Finally, the most formal andmost risky alliance is the merger, which is a combination of two (ormore) corporations to form a new entity, usually with a new name,structure, governance, and so on. When one of the organizations ab-sorbs the other, the process may be called a consolidation, or in thefor-profit world, an acquisition (Arsenault, 1998).

The common thread in all of these types of collaborations is a con-cern by the participants for sufficient resources to ensure their viabilityas service deliverers. “Organization decision makers are oriented to theacquisition and defense of a secure and adequate supply of [money andauthority] . . . Authority to conduct activities is generally assumed toimply a claim upon money adequate to performance in the prescribedsphere” (Benson, 1980, p. 351). Thus, the theoretical underpinnings ofcollaboration can be found in political-economy theory. In fact, Zald

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(1970) points out that that the original purpose in developing this ap-proach to the study of organizations was to help explain the nature of or-ganizational change.

Classic decision-making configurations are also useful in under-standing the move toward nonprofit alliances. If we assume that adher-ence to mission is a fundamental tenet of the not-for-profit world, thenorganizational leaders are predisposed to actions that will protect thiscore belief, even when they reach important, transformational decisionson the basis of imperfect information or in reaction to circumstancesrather than through a more systematic consideration of the different al-ternatives (Arsenault, 1998; Cohen, March, & Olsen, 1980; Perlmutter &Gummer, 1994). The end result may be satisfactory but not necessarilyoptimal, a compromise reached in the interests of maintaining coopera-tion and support (March & Simon, 1958).

METHODOLOGY

Proponents of case-based qualitative research believe this methodis particularly useful to study the process of strategic and structuralchange in organizations, as leaders address the interaction of political,economic and cultural forces leading to conditions of disequilibriumand transition (Leavy, 1995). Furthermore, the choice of a case studyas the research strategy is warranted when “a ‘how’ or ‘why’ ques-

Martha Golensky and Margaret Walker 71

Level of Formality Type of Collaboration

High

HighLowLevel of Risk

Merger/ConsolidationParent Corporation

Management Service OrganizationPartnership

Joint VentureCoordination

Cooperation

FIGURE 1. Continuum of Collaboration

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tion is being asked about a contemporary set of events, over whichthe investigator has little or no control” (Yin, 1989, p. 20). In this in-stance, the central questions to be addressed were how the organiza-tion came to choose the MSO model and why they encountereddifficulties during its implementation. Since this model is clearly amodern manifestation of internal organizational planning, all ofYin’s conditions were met.

Some degree of interdependency is central to any collaboration. How-ever, there are three types of organizational interdependency–pooled,where units work independently of each other; sequential, where aclearly defined order determines work flow from one unit to another; andreciprocal, where units must adjust to each other. Both pooled and se-quential interdependency are governed by rules and supervision fromabove, but reciprocal interdependency requires two-way communica-tion and mutual adaptation (Harrison, 1994). The theoretical proposi-tion guiding this study was that the coordinating mechanisms of pooledinterdependency were used in the MSO, when those of reciprocal inter-dependency were more applicable.

As previously noted, the primary emphasis in this case is on theevents that occurred once the decision was made to become an MSO(the dependent variables). The unit of analysis is the organizationalchange process, which was driven by the threat of a more competitiveservice delivery environment under managed care (the independent vari-able). In keeping with case study methodology, multiple data sourceswere used: a series of semi-structured interviews with senior administra-tors and board members, document review, and participant-observationby one of this article’s authors (Yin, 1989).

A CASE STUDY

As noted, collaboration among nonprofits may come about as a stra-tegic response to environmental pressures, real or perceived. Moreover,cooperative behavior is often encouraged by funders, both private andpublic, explicitly or implicitly, as a sound economic choice (Snavely &Tracy, 2000; Young & Steinberg, 1995). These dynamics will be tracedthrough a case study of a large human service organization headquar-tered in a Midwestern state, referred to here by the pseudonym of Reha-bilitation Services Network (RSN), which became an MSO at theurging of its founding CEO, in large measure to meet the anticipatedchanges of a managed care environment. The events of the case, as re-

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flected in key decisions made by organizational leaders, are presentedin a four-part chronology: historical framework, transition to the MSOmodel, organizational crisis, and crisis resolution.

Historical Framework

RSN was originally part of a hospital for the mentally ill founded in1910 by members of the American Christian Reformed Church. Fromthe very beginning, the hospital’s operating philosophy reflected the be-lief that religion was not only a reason to provide care but also had aspecific therapeutic value. By 1957, custodial care, which had been theprevailing treatment modality for the mentally ill, was challenged andreplaced by the concept of involving patients in a variety of recreationalactivities through a special Adjunctive Therapy Department. The intro-duction of drug therapy at about the same time made this new approachmore feasible.

The professional hired as director of this department brought visionand leadership. The result was rapid growth and expansion of the pro-gram to include vocational activities. By 1963, the department hadgrown to the point of becoming a separately incorporated nonprofit or-ganization as a sheltered workshop. Over the next twenty years, thenew organization kept increasing in size and complexity, changing itsname along the way to reflect the broader services now offered. In1983, the board of trustees determined that this growth had resulted ina mission change and the organization was ready to become totally in-dependent of the hospital. The current name was adopted in 1985. Fur-ther program expansion in the areas of housing, health care, andresidential treatment took place during the remaining years of the de-cade.

Beginning in 1990 with the election of its current governor, RSN’shome state has emerged as a leader in welfare reform and in thereinvention of government movement. In 1992, the governor intro-duced his primary initiative, To Strengthen Our Families, which setforth his administration’s views on addressing social service needs. Atthe same time, structural changes were implemented. The one affectingRSN the most was the decision to merge the Departments of PublicHealth and Mental Health into a new Department of CommunityHealth, with a focus on supporting community-based systems and theapplication of managed care principles (Seefeldt, Pavetti, Maguire, &Kirby, 1998).

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An Organization In Transition

Under the founding executive’s leadership, the organization de-veloped an impeccable reputation for service, connections, and po-litical acumen in the rehabilitation field. RSN’s success wasreflected in a significant jump in revenues between 1994 and 1996,from nearly $27 million to close to $41 million. However, it becameincreasingly clear that the old ways of doing business did not fit thenew managed care environment. Accordingly, in 1996 the CEO pro-posed a new service approach to position the organization to meetthe anticipated changes in state policy. A board task force reviewedthis strategy, and local stakeholders and state officials also critiquedthe proposal. The consensus was that RSN needed to expand to ac-quire necessary resources.

In 1997, the organization became an MSO, thereby changing itsmanagement and service delivery systems (see Figure 2). The newstructure’s objectives were to create efficiencies and provide a contin-uum of care; expand service delivery throughout the state; provide fi-nancial, information technology and human resources services for theorganization; establish new programs and turn them over to the affili-ates; and work with vendors from the private sector in accordance withthe state’s managed care plan. The agreements that RSN’s executive ne-gotiated with affiliates entailed the provision of services by the MSO inreturn for fees and a percentage of the affiliates’ profits.

At the same time, with the help of a consultant, the MSO boardadopted the Policy Governance model and began operating, for themost part, as a committee of the whole (Carver, 1990). Nine peoplewere appointed to the board. Although drawn from the private, public,and nonprofit sectors, these individuals had one common characteristic:upper-level management experience. The board met quarterly for a pe-riod of four hours, with the president/CEO customarily the only staffpresent. In his reports, the executive described the MSO as moving for-ward according to plan; he emphasized the benefits to the affiliates ofbeing part of this network and downplayed their concerns. His statureand reputation and that of the executive vice-president among state andnational figures were often mentioned as integral to the MSO’s success.However, the board was not entirely comfortable with this one-sidedcommunication. Even though the audit reports were generally favor-able, the lack of consolidated financial statements to review at the meet-ings was especially troubling.

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Martha Golensky and Margaret Walker 75

Independent Company

Independent Company

Managed Independent Company

Wholly Owned Subsidiary

Option #1 - Joint Venture

Option #2 - Selected Services Contract

Option #3 - Full Services Contract

Option #4 - Affiliate

Board

Executive Director

Staff

Board

Executive Director

Staff

Board

Executive Director

Staff

Board

Executive Director

Staff

MSO

MSO

MSO

MSO

Joint Venture(Allocated or assignedstaff from all companies)

Contracts(Selected services)

Contracts(Staffing, Management, Support Services)

FIGURE 2. The MSO Model

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Organizational Crisis

In 1999, the director announced his plans to retire in October 2000, atwhich time he would have 40 years of service with RSN, and the boardbegan to develop a succession plan. Comments from staff and affiliateswere solicited for use in developing the position profile. After extensivediscussions, it was decided to conduct a nationwide search, beginningin January 2000. However, in December 1999, the CEO informed theboard chairperson of a serious financial problem–a deficit of approxi-mately $1.25 million–that had been neither discussed nor apparent atthe November board meeting. Although several reasons were cited forthe cash flow problem, those with the most far-reaching effects were:(1) The projected sale of MSO services to affiliates and other groupshad not occurred as anticipated in the budget; (2) The fee-for-serviceand affiliate-profit formula was insufficient to cover the costs of theMSO; (3) Cash reserves from a sale of bonds were spent on fundingnew profit-making ventures whose start-up costs were above budget;(4) The MSO was bearing bond costs in excess of the revenues fromthe bond repayment from affiliates; and (5) The system of estimatingrevenues from a percent of profits was inadequate due to time delays inmatching revenues with costs.

Given the seriousness of the situation, matters could not wait until thenext regularly scheduled board meeting. Neither an Executive Commit-tee nor a Finance Committee was part of the board structure; therefore,the chairperson scheduled a special meeting with the other board offi-cers, the president/CEO and RSN’s accountant. Following a briefingabout the financial dilemma, the three officers agreed the president/CEOhad, at the very least, violated board policy. The executive was asked toprepare a comprehensive report for the full board, with recommendationsfor resolving the financial problems, but was to take no independent ac-tion. One of the first changes the board authorized concerned theweekly meetings held by the president/CEO with affiliate directors.Routinely, the directors’ role in these meetings had been advisory, withthe president ultimately making the decisions. A management consul-tant was hired to facilitate discussions during these meetings to ensurethat the board’s desired outcomes were accurately conveyed to mem-bers of the management team and to assist the president/CEO in hearingand considering suggestions from team members.

Negative comments from affiliates began to surface concerning themanagement style of the president/CEO as well as the financial stabilityof the organization. What had been viewed as creative entrepreneurshipwas now described as recklessness and fiscal irresponsibility. For ex-ample, the fee-for-service formula had resulted in increasing the affili-

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ates’ administration charges and decreasing their competitive biddingcapabilities. The board held several agonizing meetings with the profes-sional and lay leadership of the affiliates. In one of these meetings, affil-iate executive directors candidly stated that “the financial predicamentwas the result of poor leadership [by the president/CEO]. There waspoor planning of new ventures, misuse of lines of credit, failure tomatch variations in costs at the MSO with variations in revenue, lack ofattention to the problem, [and] uneducated use of a large bond issue.”While supporting the MSO structure, they felt a change in leadershipwas imperative, and advocated for “the MSO executive staff and re-gional affiliate directors to work together as an Executive Leadershipteam, both stakeholders in the success of the network as a whole and ineach affiliate.”

Crisis Resolution

The board was uncomfortable leaving the president/CEO in chargebut was equally uneasy about assuming a management role. Also, beingsensitive to the CEO’s many years of productive service in advancingthe cause for the mentally disabled, the board did not want to take an ac-tion that would seriously reduce the dignity of this individual so close toretirement. To the general public, the president/CEO had a stellar repu-tation. He had served with a passion that greatly benefited the targetpopulations. In addition, the board, still convinced that the MSO struc-ture was the best way to operate in today’s environment, recognized thatto reduce the CEO’s stature would diminish the organization’s reputa-tion at a time when it was hoping to become an even bigger player in themanaged care field in the state.

Having placed RSN on their list of top priorities, the board membersbegan meeting almost bi-weekly from December to March. In the end,with the help of consultants familiar with the agency, they developed aproactive course of action that also allowed the president/CEO to saveface. A key decision was to separate the position of president from thatof CEO. The current leader would continue as president, in a figureheadrole with special assignments for the remainder of his tenure. None ofthe duties assigned involved the daily operations; they were projects as-sociated with research, grants, and RSN’s foundation. The CEO posi-tion was established with full authority to carry out the day-to-dayfunctions of the organization. Performance goals and objectives, focus-ing on restoring fiscal stability and positive relationships with the affili-ates, were approved for a six-month period. During this time, the CEO

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would work with the board chair in planning the board agenda. Themeeting schedule would change to bi-monthly, with time allotted ateach meeting for the president to report on his activities.

These actions were presented as succession planning. After abortingthe national search, the executive vice-president was selected as CEOfollowing very careful scrutiny as well as a show of considerable sup-port from the affiliates. In October, the president retired with full fan-fare. The new CEO’s performance appraisal for the six-month periodwas excellent; accordingly, his status was made permanent and he wasgiven the restored title of president/CEO.

DISCUSSION AND CONCLUSIONS

Today’s political and economic climate has placed enormous pres-sures on nonprofit organizations, especially those in the human servicesarena, to adapt in order to survive. The intent of this article is to providean understanding of a particular form of collaboration, the managementservice organization (MSO), which is perceived to be a viable strategyfor such agencies to become more competitive in a managed care envi-ronment (Arsenault, 1998). Given that the MSO has not drawn much re-search interest up to now, the RSN story told here can be viewed as arevelatory case, that is, one delineating a phenomenon about which lit-tle is known (Yin, 1989). Lessons to be learned will now be discussed.

Leadership Of Change

In Alexander’s (2000) study of organizational adaptation, one of themost helpful techniques adopted by participants was strategic planning,“which encourages management to consider a range of possible futuresin light of current trends in the environment and in the organization”(p. 296). Instead, in this case, the founding CEO proposed a singlestrategy, the MSO, which was then examined and embraced by variousstakeholders. It should be noted, however, that even after the crisis oc-curred, both the board and current management continued to believe theproblem lay in the initial leadership and implementation, not in themodel itself.

When considering what caused this organization that had grown tosuch heights and historically handled change so well to fall into such atailspin, a good part of the explanation rests in the character of thefounding CEO. Studies of leaders of change and of executives promot-

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ing collaborations reveal a similar personality pattern: extraverted, withextremely high self-confidence, persistence, and tolerance for risk andambiguity (Goldman & Kahnweiler, 2000; Perlmutter & Gummer,1994). This profile closely fits that of RSN’s founder. A large part of theCEO’s appeal for organizational members was derived from his vision-ary thinking and genuine accomplishments on behalf of the agency overmany years. Unfortunately, in this situation, his propensity for takingrisks resulted in a blind spot to potential disaster, and his sense of infal-libility created a vulnerability to misjudgment. Although in the past, hehad been able to manipulate funds and programs for the good of the or-ganization with no ill effects, he had not educated himself about the dif-ferences in managing the financial side of this new structure. This led tosuch errors as mishandling a bond issue and the regulations associatedwith it.

In addition, due to his strong sense of loyalty to the employees, hewas slow to deal with incompetence. Some staff members, althoughgood at what they did prior to the change, were not systems thinkers andlacked either the necessary knowledge or the desire to fulfill their newduties. The CEO failed to take steps to correct these inefficiencies, withthe result that reports essential to monitor finances were not produced.In fact, the CEO seemed almost oblivious to the growing problems, tell-ing the board chair that the million-dollar-plus shortfall came “as acomplete surprise to me.” On the other hand, his leadership style tendedtoward the autocratic. He would listen to the affiliate executive direc-tors in meetings but then make decisions unilaterally. Yet, the success-ful leader of change is more often someone who is inclusive in style andcan bring people together (Alexander, 2000); similarly, in collabora-tions, the leader must be comfortable with collective decision makingand relationship building (Gil de Gibaja, 2001). Here, one might con-clude that the CEO’s personal style was incompatible with the com-plexities of the new organizational structure.

Board Governance

The nine board members brought to the table diverse experience ob-tained from the business world, government and the nonprofit sector.However, this diversity was in some ways a liability, for there was littlecommon experience regarding the management of a nonprofit. Isolationfrom other RSN management staff also created an environment inwhich only the president/CEO’s voice was heard. At the same time, thefounding CEO had strong ideas about the proper role of a board. Being

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opposed to micromanagement by trustees, he saw the Carver (1990)model as ideal for the MSO, especially the provision calling for theboard to develop an Executive Limitations policy, premised on the ideathat the “board’s relationship with the CEO must be formed around theaccountability of the position, not its responsibility” (p. 114, emphasisin original). This means that the board determines what the CEO is ac-countable for, but within these restrictions, the CEO has considerablefreedom for making decisions.

Moreover, when the CEO reports to the board, he/she only addressesthe policy or policies being monitored. For example, instead of provid-ing a standard balance sheet and income statement regarding the organi-zation’s finances, the CEO would be expected to present just enoughdata to allow most of the board to feel reasonably comfortable aboutperformance within the parameters of its policy on financial conditions(Carver, 1990). As noted in the case study, this left the board in an awk-ward position. The trustees continually struggled with the sense of notbeing well enough informed about finances but felt constrained by theprescriptions of the governance model from requiring a more traditionalaccounting. Furthermore, the board members’ busy work schedules andthe decision to meet quarterly caused a delay in surfacing problems as-sociated with the new structure; becoming familiar with the intricaciesof the governance model itself added to the delay. The board chairper-son’s shocked response when the large deficit was revealed to her inDecember 1999 can be traced directly to these circumstances.

Final Thoughts

Clearly, some adaptive strategies appear to be more effective than oth-ers (Alexander, 2000). In this case study, we see some of the potentialdangers for an organization when the leadership responds to a perceivedthreat to its survival by making major changes in structure, service deliv-ery and governance simultaneously and in a relatively short period oftime. One of the dangers here is that “as the MSO takes on more responsi-bility for essential management services, an awkward power balance[with affiliates] can emerge” (Arsenault, 1998, p. 61). Our findings showthat this occurred at RSN, supporting the original proposition that theproblems encountered during the implementation of the MSO can betraced to applying the management techniques suitable for pooled inter-dependency, rather than those appropriate to reciprocal interdependency(Harrison, 1994). To avoid the difficulties just described, here are our

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recommendations for board members who may be considering a collabo-rative strategy and the MSO model in particular:

• Avoid the “halo effect.” That is, do not be lulled into a false senseof security by the previous success and charisma of the leader.

• Create a mutual understanding of the governance process amongall parties.

• Meet more frequently in a newly established or changing organization.• Set a definite timetable for receiving information requested.• Pay more attention to board relationships when changing roles and

responsibilities.• Hold executive sessions periodically during meetings to discuss

issues of concern to the board members.

For both professional and volunteer leaders, our further recommen-dations would be to: (1) Allow sufficient time to develop a full strate-gic plan, in which a variety of transformative options are investigated;(2) Once having made a choice among these options, try to anticipateall of the pros and cons of the proposed change prior to adoption of thestrategy; (3) Weigh these consequences in advance from the differentperspectives of key stakeholders; and (4) Rather than making signifi-cant alterations in management and/or governance all at once, introducethem in a way that permits those affected to absorb and gain some mas-tery of the new structure in a timely fashion.

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