Managing in turbulent times: problems, opportunities and responses in the downturn

Northamptonshire Conference for the Third SectorFebruary 2009

Karl WildingNCVO Research TeamJanuary 2009Contact: karl.wilding@ncvo-vol.org.uk

The Nice Decade

The growth in charity numbers, 1960-present

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Tota

l num

ber

of c

hari

ties

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

Regi

stra

tion

s/Re

mov

als

per

year

Registrations Removals Number of Charities

The end of the Nice Decade

• The UK and global economy is clearly in trouble:• UK unemployment expected to hit 3 million• Housing market correction• Equity markets in decline• Banking and credit crisis

• But action to stop recession turning to depression:• Monetary policy: inflation falling rapidly (lower costs)• Fiscal policy: increased government spending (boost demand)• Bank rescue: availability of credit

• Growth again in 2010? • ITEM Club forecasts growth in 2010…• …but consumer spending negative till 2011• Long term impact on public finances

Charities: previous recessions

• Income streams do not necessarily decrease in economic downturns

• Individual charitable giving may be resilient…• …but lag and redistribution effects likely• Statutory funding: fiscal stimulus in some areas (advice; worklessness), but cutbacks in

others (spending that isn’t ‘frontline’?)

• But real concerns over other income streams:• Legacies, investment income: follow asset prices downwards• Corporate giving: related to business cycle• Foundations: medium term fall, short term refocus• Social enterprise: still a viable model?

Inflation adjusted total giving (US)

Source: Giving USA

Using one definition of a slowdown, giving grows an average of 0.8% in years with a slowdown

Foundation Giving, 1997-2007 (US)

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

$11

$12

’75 ’80 ’85 ’90 ’95 ’00 ’06 ’07

Source: The Foundation Center, Foundation Growth and Giving Estimates, 2008. Figures estimated for 2007.

Dollars in billions (inflation adjusted)

Total Giving During Recession Years: 1975; 1980; 1981–1982; 1990–1991; 2001–2002.

The Sector’s income sources

Statutory sources & Lottery: 36%

The public (giving and purchases): 37%

Other VCOs: 11%

Private Sector: 4%

Interest & Dividends: 12%

How did government respond in 1991-93?

38

20

18

16

13

5

0 5 10 15 20 25 30 35 40

Cut funding

Look on charity as an extension of socialservices

Moved us lower down list of priorities

Became more sympathetic

Moved us higher up list of priorities

Increased rent/charges for facilities

37

19

14

11

9

6

6

0 5 10 15 20 25 30 35 40

Cut funding

Pressure to become service providers

Less sympathetic to aims

More sympathetic to aims

More funding provided

Shifted responsibility from government

Tightened charity laws

Yes33%

No61%

DK6%

Local Government

Yes23%

No64%

DK13%

Central Government

CommentaryA majority report no change in attitude of government to the sector – but where there was a response the most widely cited response was a funding cut.

Current/anticipated impacts

• A reduction in income streams and asset values• Particular nervousness – real or otherwise – re local government, esp in 10/11• Opportunities for asset purchase

• Cashflow and reserve levels• Many organisations poorly capitalised

• Increasing levels of demand• Many indicators of social malaise worsen in recessions

Current/anticipated impacts

• Easing labour markets• Less pressure on staff costs; skills shortages ease• Greater demand for ‘skilling-up’ via volunteering (but capacity to manage this)

• Reconfiguration of the sector• Weaker organisations will close, creating opportunities for others• Mergers and collaboration become more necessary

What next? Five Ps to address

1. Purpose: focus on your mission

2. Planning: think ahead

3. Pennies: financial management

4. People: human resources

5. Partnerships: strategic relationships

1. Purpose: focus on your mission

• Focus and refocus• Concentrate on your core activity

• Innovate: don’t do different things, but do things differently

• Reconsider your users & their needs• Ensure your services are relevant and user-oriented

• Other player analysis• Check who else is meeting their needs

• Refine your story about the gaps you fill

2. Planning: think ahead

• Scan the environment• Maintain awareness of local and wider issues that will shape your organisation (eg

PESTEL)• Ensure your internal management information supplies what you need

• Prioritise opportunities and threats• What’s most important? What’s most uncertain?

• Plan your response• Consider alternative scenarios…and plans to get there

• Make changes• Ensure your plans are a living document• Ensure a clear link between plans and budgets

3. Pennies: financial management

• Income• Look to diversify income streams• Upsell and cross-sell to existing customers• A bad time for donor prospecting• Plan for a range of income scenarios

• Expenditure: do more with less• Understand your costs and systematically identify opportunities for savings

(which may require investment)• New technologies might help: recruitment, publishing• Identify joint purchasing opportunities

• Monitor cash flow: retain cash• Reforecast frequently

4. People: human resources

• Leadership is more important than ever• Clear communication, with honesty

• Although staff are used to uncertainty they still want reassurance

• Ensure the staff and board are working together• Look at your skills mix

• Many managers have not experienced a recession

• Take advantage of the labour market• Many will look for volunteering opportunities

• Celebrate success• Maintaining morale is crucial

5. Partnerships: strategic relationships

• Ensure funders and partners know your position…and you know theirs

• Funders are ready to help, but not if its too late• Counterparty risk: are suppliers and partners robust?

• Explore collaboration/merger• Be clear who the candidates are• Identify the nature and scale of efficiencies• Merge/collaborate from a position of strength

• Demonstrate value for money• If you havent done already, now is the time to invest in proving your efficiency

and effectiveness

Conclusions

• The sector is entering the recession in a strong position

• Income streams do not necessarily decrease in economic downturns

• Redistribution of income might be the biggest impact?

• Charitable giving and government contracts/grants are critical: these are not closely correlated with the economy

• The sector is poorly capitalised and relatively unable to deal with falls in income/cashflow problems

Conclusions

• Impact will be variable: by size, by sub-sector, by geography

• The largest organisations are more capable of resilience

– Reserves greater

– Diverse income streams

– Brand recognition

• Smaller or less established organisations (though not micro?) are the ones more likely to suffer hardship

• Reconfiguration of the sector likely

Planning for the future

• Expect two years contraction: plan for now, but plan for the upturn

• There is a lag: and therefore enough time to plan• Don’t just focus on risks: look for opportunities• Negative impact isn’t uniform: it doesn’t have to be you• Collaboration and merger are options…but not as a

response to crisis, so plan now.

NCVO can help you manage the downturn

• Make better decisions by getting intelligence on your environment with NCVO Third Sector Foresight: www.3s4.org.uk

• Develop your strategy and highlight your impact with NCVO Strategy and impact: www.strategy-impact.org.uk/

• Reduce your costs by accessing NCVO’s range of brokered goods and services with NCVO Discounted Services:

www.ncvo-vol.org.uk/discounts/

• For practical advice and guidance see: www.ncvo-vol.org.uk/downturn.asp