Regional Social Services Sector Demographics and Trends

I believe at least part of the reason I was asked to discuss demographics and trends in the region’s social sector is that, for the past 11 years, our group has conducted one of the very few annual surveys on local nonprofits. So I thought it would be helpful for me to share some of what we have learned from those surveys.

Specifically, I plan to focus on the findings from our last two surveys, conducted in 2012 and 2013. We had a total of 317 organizations respond to those two surveys, 183 of which identified themselves as human services or social services organizations. So I think they provide an accurate look at what our local social service agencies are facing.

The first thing to note about these social service organizations is that they come in all sizes. Slightly more than one –third of them — 39 percent — have annual budgets of $3 million or more. Slightly less than one-third has budgets of $1 million or less. Yet, interestingly as you will see as we go through some of the numbers, they all seem to share many of the same tendencies and same challenges.

So let’s take a look at what we have learned about these organizations.

Based on our research, there are six trends that appear to have commonality across organizations of all sizes:
1. Competition for charitable dollars is fierce, and many organizations are struggling to compete.
2. Demand for their services is up, way up in fact, and demand is rising much faster than their ability to respond.
3. Traditional funding sources are waning and different strategies are called for in many cases.
4. Many organizations are living on the edge, with a greater focus on survival than on growth or expansion.
5. At the same time, organizations are being asked to do many things for which they have neither the tools nor the training, including measurement and evaluation, marketing, and earned income strategies.
6. Finally, an increased emphasis on collaboration, outcomes measurement and leadership development are expected to dominate or sector in the years ahead.

Social service agencies are dealing with these trends in different ways, with varying degrees of success. So let’s take a look at each of these trends to see what’s working and where we need to do more.

Competition is fierce.

One only has to look at the numbers to realize that there are many more organizations out there going after the same pool of resources.

Between 2002 and 2011, the number of nonprofits in Missouri grew by 29 percent, to 22,000. In our St. Louis region, that number increased by 35 percent, to 10,000. Over the past few years, as our economy suffered, we’ve seen a number of these organizations operating at a deficit, and some have even shut their doors or been absorbed by others. Even in a historically generous community like ours, there simply may be a limit to how many nonprofits we can expect to support.

The good news is that the majority of social service organizations appear to have survived the recession and are trending back up. In our most recent survey, 52 percent said they met or exceeded their fundraising goal last year. Sixty four percent reported they raised more money last year than in 2011. And 62 percent predicted that 2013’s results will be even better.

The second trend of note is that demand for social services has increased dramatically in the past few years. In fact, the ability to keep up with growing demand for services was cited by this year’s respondents’ as the number one challenge they faced.

Last year, 85 percent of the agencies in our survey said that they experienced greater demand for their services. Twenty percent of them reported increases of 25 percent or more. Forty one percent reported increases of 10 to 24 percent.

On the other side of the coin, only 52 percent said they were able keep up with this demand. Most reported the only way they could do so was by cutting back on other programs or relying on untrained or less qualified volunteers.

It seems clear that this is a trend that is not sustainable over the long term. Organizations have a limited number of resources, and no matter how good or nimble they are at plugging the gaps, sooner or later the dam is going to burst.

While organizations are struggling to find ways to meet demand, they are also faced with having to find new revenue sources to replace what have long been their bread and butter.

A 2010 report by The Urban Institute said that 65 percent or more of the total revenue received by human service organizations comes form government funding at the federal state or local levels. Furthermore, 60 percent of these organizations count government grants and contracts as their single largest funding source.

We all know about the cutbacks being made in federal and state budgets. We’ve seen how the sequester is taking $1.5 million out of the Meals on Wheels program at the Mid-East Area Agency or how Grace Hill has had to cut 12 percent from its Head Start budget, meaning that 190 fewer children will received services this year.

In our own surveys at The Rome Group, too much reliance on government funding has been cited as one of the top two challenges facing social service agencies for the past two years.

It’s not just government cutbacks, of course, the recession caused many corporate funders to cut back, and even as things have improved, many of them have
Put more emphasis on in-kind and volunteer support rather than dollars. Foundations and even individual donors have emerged from the recession more cautious and selective about where to invest their funds. They have higher expectations and expect to see more transparency and accountability from those they support.

Organizations appear to pinning more of their hopes on two fundraising strategies that may not be the best choice. Ninety percent rely on special events, while 88 percent still focus on direct mail. Yet both of these strategies consumer valuable staff time, and anecdotally we hear that both are less effective than ever. Our survey respondents agree, even as they continue down this path. Fewer than half say special events are their most effective fundraising strategy and less than one-fourth list direct mail as their most effective approach.

As a result of this tightening on the revenue side of the equation, many organizations are living very close to the edge.

In this year’s survey, 4 in 10 agencies said they have only three months or less of operating reserves. Eighty percent have one year or less of reserves. It’s little wonder they have trouble meeting increased demand, since many have difficulty keeping the lights on.

Times are tight, which brings us to our fifth trend. Organizations are being asked to do many more things, yet they often lack the tools or the training to get the job done.

Take marketing and communication, for instance. Fifty five percent of respondents in our 2012 survey said they need to find new ways to communicate who they are and what they do to their stakeholders and potential funders. Yet one in three admit they lack the resources to do anything about it.

Technology is another example. Thirty percent said they need better technology and data collection processes. Again, they can’t afford the hardware or software, nor do they have the expertise to do what they know needs to be done.

Other examples abound. Sixty percent of social service agencies do not have a planned giving program established. Thirty percent still do no formal program evaluations. Nearly forty percent do not have a formal development plan.

Why, you ask? Because they don’t have the staff, the time, or the expertise to take on any of these items. They are simply too busy trying to keep up with day-to-day priorities.

Finally, what are the issues that will likely dominate the sector in the next few years?

First and foremost is leadership development, a topic that I imagine Barry plans to discuss in detail after me. So I’ll only cite a couple of statistics from our surveys.

First, 48 percent of social service agencies expect to have a senior leadership change in the next five years. That’s almost one in two!

Yet, only 55 percent of them have a leadership succession plan in place.

Our Philanthropic Landscape event this summer addressed this very issue in detail. Our panelists there pointed out several important facts:

91 percent of organizations say they try to provide professional development for their staff, yet they struggle to find enough funding for this purpose. After all, only 32 percent of the grantmakers who responded to our survey said they are willing to provide grants for training and professional development.

As one respondent to our recent survey noted, “The training resources in St Louis for nonprofit staff other than development staff are pretty limited and tend to be short, one-time seminars that only scratch at the surface. We need more programs for finance professionals, for HR, for developing managers/leaders that would cover leadership development but also finance for non-financial managers, understanding nonprofit boards, etc. The goal is to give new managers supervisory and leadership skills b and knowledge about running a nonprofit that goes beyond their own area of expertise, which is typically programming.”

Social service organizations say they want more creativity and innovation from their staff, as well as more diversity, but they can’t get there without help. Where that help will be found is a question that needs to be addressed.

Another dominating issue is collaboration. It may be the number one buzzword in our sector these days. Everybody talks about it. Funders push it as a solution to operating more efficiently and freeing up more resources for organizations to met increasing demand.

In our survey, 87 percent of social service organizations said they have collaborated with one or more other nonprofits, primarily in program delivery, lobbying efforts, marketing and communications, or sharing facilities.

So organizations recognize the value of collaboration, but effective collaboration takes time and must be nurtured, and organizations don’t have that luxury.

Finally, a word about measurement and evaluation.

Everybody wants more. Organizations say that the increased focus on measurement and evaluation is one of the biggest factors that will affect the sector in the next five years. All indications are that they are correct.

Yet 27 percent say they lack the resources to do an effective job at it. My own experience tells me that percentage is probably too low. To do truly effective, outcomes-based measurement and evaluation, it will take a lot more time, money and expertise than most organizations realize or are prepared to take on.

Increasing competition, rising demand, shrinking funding sources, living on the edge, growing expectations, and a greater emphasis on collaboration, outcomes measurement and leadership development. Those are the social service sector trends that we are facing and that call for better solutions.


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