For-profit senior living operators have learned that there is a point of critical mass for the operational success of their communities. Opening multiple communities within a single geographic area often provides the ability to share resources and strengthen their competitive position. These communities might offer different product choices and price points, or they may be communities with enough geographic space that they do not compete. This geographic clustering model, which has been successful for larger for-profit operators, can also be successful for smaller non-profit communities. Where small non-profits lack size, they can create alliances or partnerships to achieve the same results.
Creating Alliances + Partnerships
One of the reasons this strategy has worked well for larger operators is the efficiency of resources. While there is a minimum cost necessary to open a successful community and mobilize operations in a specific area, a second community can draw upon the resources of the first community, thus creating a more robust and durable network. A reasonable amount of redundancy also allows for greater resiliency. When disaster strikes a community, the second or third community can supplement any loss of services or, in the worst of circumstances, facilitate the temporary evacuation and relocation of a community.
Smaller non-profit providers can learn from this model and rather than strain their financial position while trying to grow beyond their existing capabilities, form strategic partnerships with like-minded communities to share resources achieving similar results.
A non-profit alliance can also be used to share a burden which may otherwise be too large for any one community to shoulder. Every community has a building which needs to be maintained. If you own the building you operate, you may find it a financial burden to have a full-time maintenance staff. Instead, if two or three communities with small maintenance needs align themselves with one another and share the financial expense of the full-time staff, they all will reap the financial benefits.
An alliance can also have a positive impact on the purchasing power of a smaller community. Bulk orders of supplies are often more cost effective than small orders, but the reality is your community may not consume the resources quickly enough to warrant a bulk purchase. By aligning with other communities, a bulk order is more financially viable.
Comparative Advantage = Strategic Partnerships
Another way to think about this strategy is through the economic principle of “comparative advantage.” This principle is one that is often referred to when discussing trade between two economies. A comparative advantage refers to the ability to produce something at a lower opportunity cost than a trading partner. One prominent example of this are call centers for U.S. companies located overseas as some countries with lower wages have a comparative advantage for such work. In for-profit senior living communities, we sometimes see third-party vendors providing physical therapy or other medical services. The third-party vendors have a comparative advantage to produce that service because it is their focus and they may distribute their staff across multiple communities and operators.
While a non-profit community can also bring in third parties to provide services, a strategic partnership may prove to be more rewarding, as well as financially sustainable. If, for instance, one operator has a comparative advantage in their wellness program and another operator has a comparative advantage in their culinary program, the two operators would be better served to form an alliance with one operator handling the wellness program for both communities while the other handles the culinary program for both communities. This will free up resources in both communities to focus on their strengths. Through such a partnership, the communities become more resilient and can provide competitive services to their residents. A garden managed and maintained by a group of communities also has the potential to share in the rewards of a novel farm to table initiative. The garden could be maintained at one community that distributes the harvest to a network of communities with a shared expense or perhaps a centralized garden between the communities accessible to all for harvesting of produce, day trip activities or other community gatherings.
Sharing Goals, Beliefs + Missions
While a partnership with other communities can have a financial benefit, there is no reason the benefits need to stop there. Finding other communities within your region that share your goals, beliefs and service mission can also strengthen other aspects of your community. A joint ethics committee, for instance, has the benefit of different points of view and can result in stronger organizational practices and policies. Emergency preparedness, operational efficiency and infection control protocols can all benefit from group discussions, and the list could go on, only limited by the imagination. Sharing lessons learned across multiple communities’ benefits all of the communities engaged.
While forming new partnerships, you may rediscover the adage: there is strength in numbers. We are interested in seeing how your organization could benefit from partnering with another community. Reach out and I would be happy to discuss.
Dan Schindhelm, AIA