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05/25/93

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Development Office faces fund-raising challenges

STANFORD -- It is often said that you have to spend money to make money.

These days, the university has less money to spend on making money - that is, the Office of Development sales force it sends out seeking gift support from alumni, friends, corporations and foundations.

That would not be a problem if demand for fund raising had been satisfied by the successful Centennial Campaign, which brought in $1.269 billion in gifts between 1987 and 1992.

However, fund-raising expectations are stronger than ever, according to Vice President for Development John Ford. He attributes that to the university's budget problems and pent-up demand in areas not emphasized during the Centennial Campaign period.

Ford's unit is less well-equipped these days to market Stanford to the outside world: In three years, the Office of Development's budget has been cut by $5 million, and total employees in the central and school-based development operations reduced from 264 at the peak of the campaign to 230.

On top of that, Ford on May 18 announced 14 additional layoffs - several of them senior managers - with the salary savings to be invested in the annual giving program, donor relations and cultivation, including gift processing and acknowledgment, market research, and information systems.

"By reorganizing and streamlining," Ford wrote in a memorandum to his staff explaining the cuts, "I will be able to recapture and reallocate approximately $1 million to pursue activities I deem crucial to Stanford's long-term fund-raising success." The reorganization includes "removing layers of management wherever possible."

Much of the "innovation by substitution," Ford said in an interview, will be directed toward attempts to broaden the base of annual fund support - the annual solicitation of alumni for ongoing, expendable support as opposed to targeted major gifts. Only 23 percent of alumni donate to Stanford each year, compared to 40 percent to 50 percent at some selective colleges and universities.

This is where the term "development" is most applicable, Ford said, explaining that the word has long been used in his department's title rather than "fund raising" because the focus has been developing long-term gift potential.

"Stanford has done exceptionally well," he said, "on the shoulders of a very few donors who've given very large sums of money over the years."

Now, Ford said, it must invest in such areas as student and young alumni activities, and a cooperative effort on undergraduate reunions with the Alumni Association.

"We want to get more alumni involved and sensitive to the importance of philanthropy at Stanford," he said.

"We will likely redesign the way we contact people by phone and mail, and integrate that with a much more effective technical marketing research and assessment capacity. That is something a sophisticated 21st-century development operation should have."

"We, like the rest of Stanford, also have major computer systems problems," Ford said. "We have a difficult time assessing the effectiveness of our fund-raising activities and we do not have a very advanced capacity to analyze markets and our clients. We are not on the cutting edge in this area."

Less service all around

In the major gifts area, the office will move toward more selectivity, cutting four more field staff and focusing on fewer and better donors and prospects.

Field staff are the "salespeople" sent by Stanford to solicit gifts from major donors, corporations and foundations. Of the 216 employees remaining in development, 33 represent the university as a whole in the field and 43 represent particular schools.

"Each field staff person can cover a certain number of clients," Ford said. "When you cut them, there are that many fewer clients you can attend to. It's that simple. We've had to cut the sales force."

The cuts, on top of earlier ones, inevitably will result in less personalized service both to faculty and to donors and prospects, and in less ability to showcase faculty and students, Ford said.

"There are just fewer of us trying to do more work, which is a common characteristic in many corners of the university," he said.

One method of showcasing faculty that has fallen to the budget ax is a 30-year-old program called University Seminars, used to thank high-level donors and cultivate potential donors. The two- and-a-half-day program would open with dinner at the president's house, attended by many senior officers and faculty. Guests spent the next two days in special classes led by faculty members, in the process learning about Stanford's academic programs.

Faculty have always played an "extraordinarily positive role in the success of development at Stanford," Ford said. "We'd like to continue serving the faculty in ways we did during the campaign, but there just aren't enough of us to respond to individual initiatives or smaller projects in the schools. We have to focus on priorities determined by the president and provost."

Those priorities, recently endorsed by university trustees call for emphasis on student financial aid, faculty support, unrestricted gifts and earthquake recovery. In addition to those universitywide priorities, each school has its own list of priorities (see Campus Report, April 28).

Wave of the future

Ford sees his reorganization as part of a growing trend at Stanford and in other institutions and business.

"These kinds of decisions have to be made if we're going to continue to have the capacity to innovate," Ford said. "Development is all about taking the longer view."

University trustee George Hume, who chairs the Stanford Development Program and the board's Financial Policies Task Force, agrees. Removing management layers and pushing responsibility downward are business trends that "you may see a lot more of in universities in the future."

Hume said that development "is a classic case where you have to spend money to make money, but there also is a law of diminishing return.

"I'm a great believer," Hume said, "in a vibrant development effort." He said Stanford's fund-raising record has made it "the leader in the country."

Nevertheless, given tight funding and the structural deficit Stanford still faces in 1995, he said, "we are going to have to find ways to make do with what we have."

As part of the annual budget cycle earlier this year, Ford sought more than $1 million in a combination of one-time and permanent funding for 1993-94 and beyond from Provost Gerald J. Lieberman. Lieberman gave the department $100,000 for new initiatives.

"We saw a series of investment opportunities that we thought would reap long-term benefits for Stanford," Ford said.

"The provost obviously was not in a position to respond to that kind of request with any more than a modest investment, which he did make. We fully understand that, given the very few dollars available for innovation at Stanford.

"Now the challenge," Ford said, "is to take our diminished resources and invest them in ways that will pay off down the road."

Investing for future payoff

What will be the short-term and long-term effect of development staff cuts on gift revenue?

Any downturn is more likely to show up in the long-term than in the near term, Ford said, because development achievements are based on groundwork laid years earlier.

"Investments you make today pay off five, 10, 25 years from now," he said. "We are reaping the results now of the right types of investments made in the past by Ken Cuthbertson, Hank Riggs and others."

With one brief exception in the mid-1960s, Ford said, Stanford has made a steady investment in development and that has paid off with strong, steady growth in gifts.

Organized fund raising began in 1934 when a group of alumni formed the Stanford Associates and the following year - despite the Depression - raised $35,000. In the early years, volunteers did all the work.

Stanford's modern fund-raising era started in 1961 with a three-year $100 million drive called Plan of Action for a Challenging Era (PACE), launched with an initial $25 million grant from the Ford Foundation. The campaign exceeded its goal by $14 million.

In 1977, the five-year Campaign for Stanford topped its $300 million goal by $4 million, despite a deep recession in the mid- 1970s.

The recently completed Centennial Campaign came in $169 million over its goal of $1.1 billion, again in the face of economic hard times nationally.

Each of the three campaigns was the largest undertaken in higher education when it was launched, and a successful goal each time was to end with annual gift receipts at a new higher plateau. Gifts to Stanford, for example, were a record-high $92 million just 10 years ago. They were double that, $185 million, in 1991-92 when the campaign ended.

In fact, the $1.269 billion raised during the campaign is one-half of all gifts to Stanford dating back to 1907.

Ford hopes to raise $180 million to $200 million a year over the next five years.

Raising money: a bigger challenge

Stanford's past achievements have, perhaps, lulled the community into thinking its fund-raisers could achieve any goal thrust upon them.

However, the fund-raising business is becoming increasingly competitive and sophisticated, Ford said. Nearly all nonprofit organizations are struggling with the decline of resources, especially federal support, and most have increased their fund- raising efforts, going after what some consider to be a finite pie.

Raising money in the post-campaign era is more difficult, Ford said, because "you operate without the drumbeat effect of something big and exciting around which everyone can rally." Furthermore, "lots of people gave very generously during the campaign and are still fulfilling their commitments."

"We have a different set of challenges," Ford said "trying to raise money in a period of consolidation rather than growth."

And attacking the 23 percent alumni-participation problem is another challenge, Ford said, because "immediate return on investment is much smaller when you're trying to acquire new donors and get them in the habit of giving." Major gifts are more cost-effective to raise, but Stanford must grow a new crop of regular donors, from which the major donors of the future will emerge, he said.

"We clearly need much more sophisticated techniques to acquire new donors," Ford said.

Also, to a small extent, Stanford's Development Office is a victim of its own success. Officials there now sometimes find themselves competing against former colleagues who are raising money for other institutions.

It is somewhat akin to the dilemma of faculty who train top-notch graduate students and later compete against them for research grants.

"We're responsible for teaching a lot of places how to raise money well," Ford said. "We are copied and we've provided their personnel." Development Office alumni now head operations at Santa Clara and San Francisco State universities, the University of Michigan, and Dartmouth, Williams, Grinnell and Mills colleges.

Reorganization plan

At the conclusion of the Centennial Campaign, Ford expected one-sixth of his budget support to disappear. Those dollars funded fixed-term employees and special activities associated with the campaign.

Adding the 1990 repositioning and last year's cuts on top of the expected downsizing left Ford's budget for central and school-based development operations smaller by one-third. His 1993-94 operating budget will total $12 million, and an additional $5 million will be spent in the schools.

Ford said he reviewed his entire organization "from scratch" to see how he could free up money to make investments that will pay off 10 to 20 years from now. His plan calls for:

  • Eliminating the position of director of the annual fund, and putting the separate annual fund program directors under Associate Vice President Stephen Peeps.
  • Eliminating the communication division, including its publications unit, and in the future buying design and print services from Stanford Publication Services.
  • Eliminating the position of development services director and transferring responsibility for the computer services, operations support and gift processing to other managers.
  • Eliminating four more major gift positions, reducing the central field staff to 16 from a campaign high of 34 while removing a management layer.
  • Using savings to improve donor relations through events and publications, particularly those aimed at Stanford's most important donors and prospects.
  • Adding a professional responsible for marketing research and assessment, reporting to Peeps. The person in this position will study the market segments of the Stanford "family" and work closely with division managers, especially in the major gifts and annual fund areas to develop more sophisticated marketing plans. The position will be posted soon.
  • Improving the gift processing and acknowledgment system, and enhancing outdated information systems.
  • Adding a special assistant to the vice president, to help coordinate administrative activities with the president's office, the trustee development committee, volunteer leadership and other university offices.

Non-exempt employees whose jobs are eliminated will have opportunities for reassignment within the office. The changes are effective immediately, but staff members are being asked to stay varying lengths of time to wrap up projects.

Ford said further changes are a possibility in "these unpredictable times," but there is no second shoe to drop anytime soon. All his major reorganization plans were announced simultaneously on May 18.

"We are in a period when circumstances change rapidly," he said. "I am afraid none of us can expect guarantees of security. We shouldn't expect them at Stanford and we don't get them outside Stanford.

"Yet, I hope, as I know all my colleagues in Development hope, that Stanford's financial situation will stabilize to the point where we can resume a predictable pattern of investment and growth in our programs as our predecessors enjoyed the past forty years."

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