Editor’s note: As part of Forefront’s Mission Sustainability Initiative, we’re highlighting models of successful partnerships that have put local nonprofits on a strategic path to sustainability and growth. On October 20, Forefront will host a learning summit at the Chase Auditorium in Chicago. The Summit will offer a unique opportunity for nonprofit leaders to learn about the principles and practices of strategic nonprofit alliances, partnerships, joint ventures, collaboratives, and mergers. Participants will explore how strategic partnerships have helped nonprofits align their services, strengthen their infrastructure, and scale their missions, even in the face of reduced funding and increased demand. Learn more and register here. 

We recently spoke with Greg Petersen, Chief Administrative Officer or the Keystone Alliance, a family of nonprofits and social enterprises with powerful missions working together to achieve great outcomes for people with disabilities. Greg is also one of our panelists at our October 20 Learning Summit. In this blog post, Greg shares the story of Keystone Alliance: how the alliance came to exist and advice he has for nonprofits thinking about strategic restructuring.

What were the circumstances leading up to your strategic partnership? How did you decide to form an alliance of organizations?

Keystone Alliance’s origin story began with a succession planning conversation. One organization had a retiring CEO who approached the other to explore options. What began as a discussion about a merger eventually morphed into an exploration of alternatives, including the creation of a parent company to share back-office services. This model ultimately became the Keystone Alliance.

What were your goals at the end of the process?

We had three overriding goals from the start. Our first imperative was to do no harm. Each agency’s mission, program quality and hard earned community equity – built over decades – had to be preserved. The basic assurance that both founding agencies would be able to keep their unique identities within the Alliance was paramount. Our second priority was to create cost savings via administrative efficiencies. Our third goal was to create an Administrative Service Organization (ASO) platform which would attract other nonprofit organizations to join the Alliance as affiliates.

These were our priorities at the beginning and throughout the process of creating the Alliance. But, about a year in, we came to a realization: reducing overhead costs, while important, was ancillary to the need to build new strategic capacity for the founding Keystone Alliance organizations and any subsequent affiliate agency. 

What was the process of creating an alliance like? Did you use a consultant or any legal counsel? How and at what points did you engage your stakeholders?

This was a long, deliberate process comprised of seven distinct phases. It took more than two years from the initial, informal discussions until the Alliance was fully-formed.  Here’s an overview of each of the phases:

1. We began with an exploratory phase, which was basically a get-to-know-you process for each organization’s board, senior leadership, and key stakeholders. 

2. We then executed a letter of intent, outlining the conditions under which each organization would enter into some to-be-determined ‘unified management agreement’.  This was approved by each organization’s board of directors prior to final execution.  Following execution of the letter of intent, we then signed a formal confidentiality agreement contemplating the remainder of the planning process. 

3. The third phase was affiliation planning. This formal process focused on establishing shared core principles organizational objectives associated with a potential affiliation. During this portion of the process different organizational options were forwarded for consideration, including merger.  Given the mutually agreed-upon core principles, it was quickly agreed that merger was not an option. However, with the strong alignment between the two organizations’ missions and values, an alternative quickly emerged to create a shared administrative group which also provided governance, budgetary and other oversight to the founding affiliates. This conceptual shift was the point at which the Keystone Alliance concept was born. 

4. Upon completion of the affiliation planning process, we entered into formal due diligence.  This centered on a formal legal and financial review of all relevant documents for each organization to determine if any unforeseen liabilities would emerge upon creation of the Keystone Alliance.

5. Following completion of formal due diligence, we then crafted an affiliation agreement which set forth the conditions for ‘closing’ the Keystone Alliance transaction. This included defining the resulting organizational structure, drafting revisions to each organization’s bylaws, defining parent-corp controls and approvals, and organizing all intellectual property and trademarks which would be in place following creation of the Keystone Alliance. It also included definitions of the executive staffing of the resulting family of organizations as well as management and control functions which would be in place to support ongoing Keystone Alliance operations.

6. Next, we created a management services agreement to define the specific services to be provided within the affiliation. This included precise definitions of services on a function-by-function basis, i.e. those items which comprised the Financial Services function, how ‘third party HR services’ was defined, etc. It also included regular review processes to identify each organization’s satisfaction with services provided, as well as a means for revising the scope of services over time.

7. The final phase was transition planning and change management. This included a long list of affiliation-related tasks, including the creation of shared Keystone Alliance corporate values as well as operational matters such as opening new office space, staff moves, and rolling out new branded materials. Again, in the end, Keystone Alliance officially opened for business in the fall of 2009; the very first conversation regarding this potential partnership took place in the fall of 2007.

How do you measure effectiveness of affiliating your organizations?

There are two measures we like to track – the first is administrative overhead. Our combined organizations spent more than 12% on administrative overhead prior to creating the Keystone Alliance. Since it was founded, the number has dropped to 7.9% (based on FY 2015 audited financial statements). The second and most important is new capacity created by and through collaborations that were made possible by the Alliance. Access to new capacity has allowed Keystone Alliance affiliates move forward on a host of strategic initiatives including social venture and program development and a host of other outcomes that can be found at www.keystonealliance.org.

What kind of impact do you expect to see for your community?

Simply put, better services, more programming options, and improved experiences across-the-board for the people served by Glenkirk and Search. By consolidating IT, HR and Finance functions into one shared back office group, organizations in the Keystone Alliance are able to focus more time on building innovative programs and services and less time on administrative headaches.

Do you have any advice for nonprofits thinking about strategic restructuring?

First, take your time. Understanding what your organization wants to get out of any potential strategic partnership or collaboration is important, but equally important is getting to know your potential partners. Second, keep an open mind.  We had no idea we’d arrive at the multi-organizational structure of Keystone Alliance when we first started talking. Because we were willing to explore all options, we were able to adapt in the face of challenges and ultimately create a structure that’s delivering strong value to its founding affiliates as well as the nonprofit community at large.

Would you recommend that a nonprofit attend Forefront’s Oct 20 Learning Summit on Strategic Collaborations?

Absolutely. This is an unprecedented opportunity to hear from industry leaders on the topic of strategic partnerships, learn more about best practices, and identify some near-term strategic partnership goals for your organization.

~ Greg Petersen, Chief Administrative Officer, Keystone Alliance