Embracing Digital Transformation

The pandemic of the past year and its impact on our health, economies, and mental well-being have led to wholesale changes in our day-to-day activities. The nonprofit community was faced with extreme disruption, both internally from organizational disruption and in its role as a solution to many societal challenges.

As the markets grew more uncertain, demand for nonprofit services increased. Many nonprofits had to pursue their missions with fewer financial resources; many more had to send their teams home to work, for which few were prepared from a technological perspective. Years of using every penny to execute their missions left these organizations with outdated technology that would not support remote operations, not to mention the need to respond to calls for more services with less revenue.

Data breaches, email phishing campaigns, and ransomware have created additional challenges for nonprofits. There is a real risk to organizations’ data security as well as those of their donors and the people they serve.

While most nonprofit organizations want to invest in technology, recent events have made that a priority. Organizations have realized that adding technology creates efficiencies in how they deliver services and allows them to serve more constituents with the same staff.

Using technology to drive an organization’s strategy and impact its mission requires several considerations from the management team.

Digital transformation planning

Digital transformation involves integrating digital technology into all areas of an organization, fundamentally changing how it operates and delivers value to donors, constituents, patients, and other stakeholders. It requires a cultural change to continually challenge the status quo and get uncomfortable before getting comfortable again.

The organization needs to assess where it currently stands, not only in relation to its data, processes, and workflows but to on-premises and cloud technology and the organization’s temperature for enterprise-wide change.

Assessment

Digital transformation starts with an assessment to identify technology and workflow gaps. The assessment includes reviewing each area of the business to determine what workflow and business processes and applications are being used and a clear understanding of both hardware and software applications and the business processes each address. The assessment should involve not only management but the day-to-day line employees who carry out these functions and who often can provide the most relevant input.

Outsource or in-source

The organization must also decide whether to outsource its technology needs, both day-today and strategic applications or hire staff. Outsourcing is typically the more efficient choice for organizations with fewer than a hundred employees as they usually cannot hire the right combination of team members at a reasonable cost. Managed IT providers offer fractional outsourced technology, including such services as strategic direction, a help desk, project services, and cybersecurity and data protection, for a monthly fee.

When an organization has more than a hundred employees or has many complex applications or business units, it can likely justify the expense of an internal team. Larger nonprofits often have a chief information officer to drive the strategy and execution of their technology plan. The team might include one or more system engineers, network administrators, or application specialists. These organizations may also use outsourced providers to supplement their internal teams’ skill sets; even large organizations cannot always manage all the complex technical issues that arise.

On-premises or in the cloud

One of the bigger decisions organizations are grappling with post-pandemic is how much of their technology stack should be on-premises versus in the cloud. On-premises technology includes local servers in the building that require maintenance, upgrade, backup, data, and security protection.

Often, the software selections an organization makes determine whether it can be entirely in the cloud for its technology needs or require some hybrid approach. A hybrid approach may include a local file server and web-based cloud software. Almost all nonprofit organizations have chosen to have their email systems in the cloud with either Google or Microsoft, each of which offers significant pricing discounts for tax-exempt entities.

Security

Security around an organization’s infrastructure, data, and communications are of utmost importance and often insufficiently addressed by nonprofit organizations. No longer can an organization depend on antivirus software and firewall protection. Modern cyber attacks include attacking on-premises data using ransomware and often encrypting both the original data and backups. Phishing campaigns with simulated emails misleading employees into initiating improper wire transfers have become commonplace.

Many organizations are employing additional security measures, including:

• Two-factor authentication for out-of office access

• Security awareness training

• Compliance management

• Encrypted off-site data backup and disaster recovery

• Email encryption

• Vulnerability scans

• Dark web monitoring

Application Integration

Nonprofit organizations have often failed to integrate their various business applications. For example, a nonprofit might use a donor management database to track its development activities, a program management application to track attendance at various events, and an accounting or ERP application to manage finances but haven’t implemented the capability for these systems to talk to each other or exchange data. This leads to inaccurate and duplicate data across disparate systems and a lack of controls from an audit perspective. It also most likely leads to duplicate work among team members and the related inefficiencies and wasted resources.

Solutions include implementing software applications that are part of a “suite,” that is, all from the same vendor and that seamlessly integrate, or “best-in-class” applications from various vendors that integrate out of the box or with some additional software.

Often the assessment will determine which software is needed and where it needs to integrate. The goal is to enter data once and then share it across the organization and its other applications.

Business Analytics

An organization may “track a lot of data” but have no easy way to get the information into easily read reports and dashboards that management can use in a timely manner. Cumbersome manual spreadsheets are often created from various reports and require hours or even days of man-hours to complete.

A more effective solution is using a business analytic tool, such as Microsoft Power BI to pull and aggregate data from various systems into easy-to-read dashboards. Such tools allow the organization to retrieve financial information from the general ledger and member demographics or donor information from one easy-to-read report for dynamic scenario-building. Some modern ERP software platforms also allow reports and dashboards that combine financial and non-financial statistics to be built within the system, allowing the CEO, CFO, and other key management team members to manage the organization with the most timely and accurate information.

Communication and Collaboration

The pandemic taught us that effective remote communication and collaboration are vital to maintaining operations, holding onto company culture, and enabling teams to communicate without travel.

An organization needs to reconsider not only its phone, email, and instant messaging platforms but its video conferencing, website, and intranet. It should allow many of its applications to share information, secure them from hackers, and train team members on their use and protection.

In today’s workplace, where a hybrid environment of the office and remote workers will likely continue, nonprofits need to replace antiquated analog and digital technologies with cloud-based phone systems and messaging platforms.

Moving forward

The most successful nonprofit organizations will come through the pandemic with a renewed respect for and sense of prioritizing technology. Adopting more cloud-based technology, including accounting and donor management software, implementing enterprise-level cybersecurity protections, and outsourcing many day-to-day technology tasks are all part of moving the mission forward most efficiently. These organizations will realize that equipping their teams with up-to-date tools and technologies will increase retention, reduce headcount, and streamline operations.

Read the full Summer issue of HBK Nonprofit Solutions quarterly newsletter.

About the Author(s)
Tom is the Principal-in-Charge of the Clark, New Jersey office of HBK as well as the Principal-In-Charge of the HBK IT division of the firm. Tom is also a member of the firm’s Executive Management Committee. He has more than 25 years’ experience providing tax services to private and family-owned businesses as well as tax-exempt organizations. He specializes in working with lower middle market and family enterprises on organizational issues. He has worked with many companies on developing their technology plans as well as implementing new ERP systems and other digital transformation projects. He has consulted on a variety of transactions in the for profit and nonprofit space including mergers and acquisitions, succession planning, and recruiting talent. Tom works with a variety of industries, including third party logistics, distribution, manufacturing, and technology. In the nonprofit sector, he has worked with YMCAs, membership organizations, labor unions, and trade associations. He is a Certified Sage Intacct Implementation Consultant and a Certified Information Technology Professional. He was the former managing partner of Spire Group PC, which merged into HBK in 2018. For more information contact Tom at (732) 453-6536; or by email at tangelo@hbkcpa.com.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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