Federation: A Model of Scaling

The McKinsey Quarterly in 2004 wrote about Federation (need free registration), the system of managing local affiliates “that share a mission, a brand, and a program model but are legally independent of one another and of the national office”.

As McKinsey says, out of the 20 largest not for profits in America, 16 operate within a structure called a Federation that is rare outside of the not for profit world.

Meet the Federations.png



More from the article:

Why Federate?

For a federation to realize its potential, the national office must focus on supplying affiliates with four main benefits: a valuable national brand, a reliable system for measuring performance, shared administrative services, and coordinated fund-raising services. Stepping up a federation’s game in these areas might require a delicate rebalancing of power between the national office and the affiliates, but any federation that succeeds will be more than the sum of its parts.


Federations do have advantages. The federation structure is the nonprofits’ response to the classic management tension between centralization and decentralization. It gives affiliates the autonomy to adapt their programs to meet community needs and to attract local resources—money, staff, volunteers, and board leadership—in a way that centralized national organizations find difficult to emulate. It also offers affiliates the benefits of national scale, which they otherwise wouldn’t have, in areas such as branding and reputation building, fund-raising, administration, and advocacy. Federations, at their best, share their experience on what does and doesn’t work with their affiliates and replicate successful programs across the country.

The Effective Federtation

A nationally recognized brand that communicates social impact and integrity is likely to be a federation’s single most valuable asset, helping in everything from the recruitment of volunteers and staff to fund-raising.


The role of the national office, then, is to define the brand and to communicate its attributes to donors and local communities, just as a for-profit company would. The national office should develop a culture in which everyone in the network strives to nurture and safeguard the brand—for example, by establishing and enforcing rigorous logo and naming standards.


Faced with a substandard affiliate, most federations have a choice of living with it or, as a last resort, revoking its charter. A well-run federation, by contrast, develops specific program and administrative standards that help it to review and benchmark the performance of its affiliates and to share best practices. One such federation is the Girl Scouts. To solve the problem of uneven performance among affiliates, the organization developed a tool that lets it evaluate each of them according to a range of criteria, including success in building and retaining a diverse membership.


Few federations have taken full advantage of the economies of scale to be had in back-office functions such as finance, benefits, information technology, and purchasing. Quite the opposite: many are plagued by a costly duplication of effort. At a certain federation, the affiliates’ persistent distrust of one another and of their national office’s supposed centralizing tendencies has prevented the organization from realizing cost savings of up to $150 million annually—equivalent to 25 to 35 percent of its combined administrative budget. In some cases, the national office provides shared services that affiliates don’t use: one federation found that almost half of its affiliates ignored the Web-hosting and employee benefits services supplied by the national office



Well-coordinated fund-raising can help the national office tap into elusive community support. Affiliates, in turn, can get access to national sources of revenue that would otherwise be out of reach. To make the system work, the federation must divide up responsibility for different types of donors (such as corporations, high-net-worth individuals, and foundations), draw up guidelines for the transfer or sharing of resources, create procedures to resolve conflicts, and institutionalize opportunities to share lessons and practices within the organization. All parties must be flexible enough to adjust to changed economic conditions. Typically, the national office owns relationships (such as developing major new donors) that require long-term or up-front investment. It might also undertake fund-raising activities that benefit from scale, such as direct mailing. The affiliates take responsibility for developing local, community-based relationships and should be free to experiment with new fund-raising ideas.



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