Embracing Commercial Approaches in the Public Sector for Sustainability
Victorian councils set the precedent by undertaking large investment programs through separate companies to enhance local lives and create jobs. Today, authorities are increasingly engaging in entrepreneurial activities to sustain services without cutting essential provisions or raising taxes. Commercial approaches like internal charging, trading, and strategic commissioning are being utilized across various sectors. Developing enterprising approaches in services such as school-traded services, adult social care, and accountable care organizations can generate income, improve service quality, and promote public service reform. Embracing a commercial mindset enables authorities to defend market share, increase productivity, and foster a more entrepreneurial culture.
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Presentation Transcript
How To Drive A Commercial Approach In The Public Sector Richard Harrison
Its nothing new Victorian councils embarked on large investment programmes Run as separate companies In response to market failure, to improve local lives and create jobs To deliver return on investment to fund municipal services such as parks and libraries 80% of Waterworks were municipal 30% of all Gasworks were Municipal. Municipal Ports, Tramways, markets across country Hull Corp first telephone Exch. Newcastle Airport 1935
Fast forward State of play today 94% of authorities share some services with another council; More than half of councils (58%) own a trading company, and A majority of councils (57%) operate a joint venture with the private sector; The sector s combined profits of externally traded services of 1.5bn between 2008 and 2013 exceeded that of companies like JD Wetherspoons ( 353m), John Lewis ( 885m) and Waitrose ( 1.25bn) 91% use assets such as land in an entrepreneurial manner 62% operate joint ventures with a neighbouring council, as well as 57% with the private and 54% with the voluntary sector 38% invest money in private sector enterprise Number of shared services doubled between 2012 and 2014 Without these entrepreneurial activities, eight out of ten councils say they would have to cut services and raise taxes Localis Commercial Councils
What are commercial approaches? Internal Charging and Trading Trading through a separate legal entity Commercial Procurement and Contract Management Investing; Return in Investment? Economic Growth? Social Return? Strategic Commissioning with Numbers
Which Services are developing more enterprising approaches? School Traded Services Adult Social Care Cultural and Leisure Trusts Environmental / Waste / Streetscene Children's Trusts Accountable Care Organisations (Health / Care) Back Office / Transactional Services Back Office Professional Services Soft and hard FM Property Development Co s Energy Companies
Why develop a more enterprising approach? Generate income / Defend market share Increase productivity / reduce costs To develop new skills / more entrepreneurial culture Improve the quality of services by becoming more responsive to needs To keep skilled staff in the market To promote approaches to better manage demand / incentivise co-production As vehicles for public service reform / integration To maintain a strategic link where they are being eroded (schools) More Funding Opportunities
What Makes a Successful Commercial approach? There is no magic ingredient to success Take a corporate view Never start with form always start with function Have a clear business case evaluate all options Have a detailed business plan Be clear on governance
Evaluating Options / Developing a Business Case What outcomes do we want to achieve ? Who can and who is best placed to manage and run this service? Does it give the customer what they need?
Identify the best deliver model Purchase From the Market Deliver Services Internally Purchase services from the market / potential for contractual joint venture around growth risk/profit share Look to increase productivity and maximise commercial capabilities / opportunities What is the most appropriate delivery model? Establish Alternative Service Delivery Vehicle (LATC, CIC, Trust, Mutual, etc) Integrate / Joint Venture / Shared Service
Develop a Clear Business Plan / Financial Plan Determine your ambition Understand your market How do cost bases compare Can you increase productivity How will you compete / win business? What resources and capabilities do you need? Understand and Manage Risk
Getting the Governance Right Clarity on Roles: 1. Internal Trading and Risk 2. Client 3. Commissioner 4. Contract Manager 5. Board of Directors (Company Law) 6. Shareholder Role Key Controls: 1. Contracts / Specification / Payment Mech 2. PMF 3. Reserved Matters / Business Plan 4. Reporting Mechanisms
Richard Harrison Managing Director of C.co CIPFA's New Advisory Service, CIPFA, The Quadrant, Sealand Road, Chester, CH1 4QR. 07422 509007 Richard.Harrison@WeAreC.co
