'Clustering' could reverse the decline in innovation in the community sector, according to a report from umbrella body Bassac.
Sharing Without Merging says joint working between community groups can help compensate for a serious drop in core funding in the sector.
Groups can improve the quality of services they deliver by sharing functions such as human resources, ICT support or building maintenance, it suggests.
Ben Hughes, chief executive of Bassac, said: "There are interesting comparisons with the private sector in the way business clustering - into which the Department of Trade & Industry has invested £35m - has driven up innovation.
"We are clear that clustering is a good way to stem the worrying decline in innovation across the community sector, brought about largely by public service delivery funding policies."
The report says there are few examples of clustering because it is difficult to manage and calls for the provision of 'start-up' funds.
Hughes added that local authorities favoured clustering in the community sector but warned that it was not a "cheap and quick method of cutting the sector".