Association for Public Policy Analysis & Management

Government entities at all levels rely on nonprofit organizations to deliver services. In these situations, determining the optimal structure of the system is important – should more providers deliver services across smaller areas to increase local knowledge or should fewer providers deliver services across larger areas to minimize fixed costs?  This paper examines the relationship between nonprofit intermediary structure and program outcomes using a series of mergers. Mergers represent a transition to a more consolidated organizational structure, and have been promoted as a means of delivering more and better services at lower costs. There is some evidence that mergers can accomplish these goals (McLaughlin 2010), with some appropriate caution (Boivard 2014). In particular, we look at the effect of mergers among intermediary nonprofits that administer the Combined Federal Campaign—the workplace giving program for federal employees.

The Combined Federal Campaign (CFC) is the largest workplace giving campaign in the nation, raising more than $250 million annually from federal government employees. The structure of the CFC is tiered, with one national and more than 160 local offices, which each correspond to a fundraising campaign for employees within a geographic boundary. While the Office of Personnel Management (OPM), a federal government agency, oversees the campaign nationally, a local nonprofit administers each local campaign. In the CFC context, the main cost that mergers seek to minimize is the cost of fundraising, while the main program outcome that mergers seek to maximize is donations by federal employees. The CFC provides a fruitful context to look at consolidation for two reasons. First, mergers were plentiful during the period of analysis, 2003-2013. Second, the regulated nature of the CFC provides a degree of standardization to the various offices, which simplifies the merger analysis.

Preliminary findings suggest CFC mergers had substantial cost-saving benefits but also performance drawbacks. The average cost of fundraising decreases by an average of 10 percent following mergers. The average cost to raise a dollar goes down by nearly 30 percent, mostly due to the merging of several exceptionally inefficient campaigns. However, campaigns tend to raise less money after a merger. This appears to be the result in changes in the intensive, rather than the extensive margin. We find that merging tends to decrease average gift size but not average donor participation, which actually goes up.

Next, we plan to examine second-order statistics and test these patterns using a regression framework. (Campaign maps provided by the CFC will allow for important location-specific, time-varying controls.) We also will assess whether certain types of merging pairs (such as those with more initial similarities) perform better than others post-merger to gain insights about how merger gains might be maximized and costs minimized. In addition, motivated by institutional theories of organizational isomorphism, we plan to explore geographic and temporal proximity of mergers to other mergers. Finally, to investigate the idea that mergers decrease the amount of local customization in service provision, we will examine whether donor designations among local, national, and international charities noticeably change after a campaign merger.