Spending reductions culminating in the phasing out of revenue support grant mean it is no surprise councils are increasingly looking to commercial activity.
But commercialisation is complex. Do all councils have the critical mass and capacity to trade, and a unique selling point? Will commercial competition, coupled with devolution, result in the collapse of smaller authorities? And how can councils equip staff with the skills they need?
At a roundtable held on the eve of the LGC Summit, supported by Civica, these questions were put to a selection of council chief executives. Each was asked what their council was doing to become more commercial, and what they understood by that term.
Paul Bradbury, group business development director, Civica
Gary Bell, managing director of Civica’s business process outsourcing business
Sarah Calkin, news editor, LGC - chair
Harry Catherall, chief executive, Blackburn with Darwen Council
Manjeet Gill, chief executive, West Lindsey DC
Trevor Holden, chief executive, Luton BC
Steve Jorden, executive director, South Hams and West Devon DCs
Alistair Stewart, chief executive, Shepway DC
Steve Jorden, executive director of both South Hams and West Devon DCs, said the two councils, which have worked together for years, were about to adopt a radically commercial strategy: “We’ve set up a trading company. We’re going through a huge change programme in the way we deliver services, in which three-quarters of the organisation will go into the trading company. We’ll then use that company to generate income and offset cuts to budgets.”
Trevor Holden, chief executive of Luton BC, said his council was using its ownership of Luton Airport – the fifth largest in the country – to drive commercial initiatives.
“On the housing side, we’re a stockholder, we’ve got our own repairs company that’s now delivering to the private rented sector, and we’re growing that business rapidly,” Mr Holden said.
He said commercialisation was not just about increasing income, but about managing demand for services to balance the books.
“Demand management is about making a positive economy, because in a positive economy you have fewer people coming through your door because they need your services,” he said.
Manjeet Gill, chief executive of West Lindsey DC, said she preferred to describe her council as “entrepreneurial”.
“We use the word ‘entrepreneurial’ because within that, one of the strands is commercial but the other strand is social capital,” she said.
Ms Gill said staff skills and responsibilities needed to be considered to prepare a council for commercialisation.
“The type of post we have in the local authority that we didn’t have four or five years ago is ‘sales’,” she said. “It’s the way our culture and ethos has changed. We’ve got business development people; we’ve got a commercial director.”
Mr Jorden said his councils had also considered staffing. “We’ve developed a model where staff have been appointed against behaviours and attitudes rather than skills and knowledge,” he said.
Mr Holden added that successful commercialism depended on having a culture that focused on citizen – or customer – needs: “We organise things around
departments; the rub is that the citizen doesn’t live that way. We need to have an insight on the customer.”
LGC news editor Sarah Calkin, who chaired the session, asked if the chief executives had found it difficult to shift the mindset of staff towards this goal.
Mr Jorden said his councils had taken firm action: “By making everyone under notice of redundancy and then reappointing against attitudes and behaviours, you end up with a workforce that is fully signed up to a vision of the organisation.”
He said councils must focus on the natural trend-setters within their own ranks.
“That shift can be challenging. You have 20% of people who we call ‘change terrorists’ [who do not like change] and you need to tackle them, either to turn them into advocates or out the door,” Mr Jorden said.
“[Another] 20% are stars, and you need to develop them because they are your advocates. The bulk of staff – the 60% – will look to either your terrorists or your stars.”
Mr Holden said that even when staff were not averse to change, the conversation about commercialisation must be handled carefully.
“There’s a challenge with cultural change because if you say to people, ‘everything you did was bad and we’re going to lead you to the promised land’, you’ll turn them off,” said Mr Holden.
He said that instead, it would be best to frame the conversation around “reinvigorating the core values of the organisation”.
Ms Gill said shifting senior staff’s thinking was also important.
“There’s a distinction between management and leadership,” she said.
“In the past we’ve been administrators; we’ve got a problem, we’re given a grant or a subsidy, and we solve it. Now it’s about we’ve got a problem, how do we find a solution with no money, or actually make money from it? That’s where leadership comes in.”
Paul Bradbury, group business development director at Civica, asked: “How do you train people in some of these new skills?”
Mr Holden said Luton had carried out a new form of budget training with a wider variety of staff.
“We started to introduce people to – rather than budget management – income and expense accounts. [This will help them] understand the value of what they were doing,” he said.
“In social care, we use a ‘care calculator’; the social worker is responsible for the budget they are dispensing. When they talk to their senior social worker and say ‘here’s the package, here’s the cost, and that’s the budget’, it’s not simply a case of saying ‘go and get some more money’.”
Harry Catherall, chief executive of Blackburn with Darwen Council, said his authority’s approach has been to encourage all staff to invest in services to cut costs and improve outcomes in the long run, rather than attempting to provide ever-increasing care.
“The past six years of cuts has been an opportunity to help practitioners appreciate that more effective use of resources can still improve outcomes,” he said.
“We encourage children’s social workers to look beyond the budget and said we need to invest, with reducing resources, in improving outcomes.
“It’s not ‘more care is better care’. We’ve now got some really creative individuals, who wouldn’t say they’ve got a commercial approach but it’s very commercial indeed, giving frontline workers the permission to design new approaches. The children’s services budget is in balance for the first time in many years. It wouldn’t get into the mindset of making profit, but what I mean is stretching that resource as far as possible.”
The panel then discussed how councils dealt with the risks of commercialisation.
Ms Gill said appetites for risk varied within organisations, making the first commercial steps difficult. “Risk appetites differ, managerially and politically,” she said.
“Where the social return is high, the appetite is higher to take the risk, and for the lower social return [projects], or where we break even, the appetite is there, because in the old days we would have done it with a subsidy.”
Ms Gill added that local authorities struggled to break the habit of trying to do everything themselves, which was not necessarily cost-effective in a commercial context: “We’ve got to start looking like the private sector, where they join up in partnership or buy it in.”
She said West Lindsey was looking into offering grounds maintenance services to parishes and schools, and that developing the service in-house was “the natural reaction for managers”, but that this could be achieved more easily by buying a small company.
Aside from selling services, Mr Holden said, local authorities had to break their habit of buying bespoke products and services in order to ensure total political sovereignty and think more like businesses to secure better deals.
“There are 350 or so local authorities and we buy the same things 350 times from the same supplier. The customer-supplier relationship we are allowing to happen is perverse,” said Mr Holden.
He said local authorities were “rushing to deliver” secure online portals through which residents could interact with the council.
“We’re all doing it our own way and it’s just stupid. A common standard, delivered centrally, bought once, rolled out 350 times, would make far more sense. We’ve all been quite parochial, because it matters what colour the bin is or what’s on the side of the refuse lorry,” he said.
Part of the problem, Mr Bradbury said, was that the private sector supplying local authorities was used to selling the same product to each local authority, rather than working with a variety of authorities on a more suitable solution.
However, Mr Jorden said collaboration was not necessarily the key to success: “Collaboration undoubtedly has benefits, but as soon as you share, your share drops and from a commercial point of view it doesn’t always make business sense.
“There are councils that are going to leap ahead and develop something that others want to buy; that is the commercial model.”
Ms Gill said some authorities simply opposed commercialisation.
“When some of the fraud services were centralised, some councils made a decision just to cut their fraud function. We tried to persuade them to take a collaborative approach, but people didn’t want to listen, so we thought: here’s a commercial opportunity. Our fraud officer is earning twice her income in profit now, because those authorities did away with [fraud functions] and suddenly realised there was residual [work].”
Mr Catherall said a commercial approach could influence the spending of other public sector agencies: “The NHS has been protected in the budget cuts and has significant resource base. Local government must influence those resources, using those commercial skills, bringing multimillion pound investment into sustaining our public services.”
Alistair Stewart, chief executive of Shepway DC, said his council had struggled to engage other authorities in commercial collaboration.
“We have a successful grounds maintenance team. We offered to our neighbour to help sort out their team at no cost to them and no profit to us, and they didn’t want to, so we just went and sold the services to someone else, which I find sad,” he said.
He added that it was important to recognise that all partners needed to gain something from a commercial venture: “When we’re designing properties that
are ours, some of which are actually council houses and some that have been bought out of the general fund, we’re kitting them out with telehealth technologies, when we know private sector partners are making money out of it.
“We’re not the least bit concerned, because people are coming out of hospitals and easing the pressures of our health partners. We’re getting a good return from the rents we take and we’re using that money to run back around to assist other people.”
The conversation then turned to how far commercialisation could go towards solving the local government funding crisis.
Mr Stewart said it could be enough to support some local authorities, but not others: “The danger is, if I can’t persuade you to collaborate, I’ll just make sure my local authority is OK, and the authorities by the side could lose out. I don’t think that benefits the sector.”
Mr Jorden countered: “Commercialisation is part of the solution but I don’t think the small district councils have enough critical mass to make it pay for itself.
“We’re not going to be able to continue to deliver services with the funding gap that we’re facing, so we’ve got to be smarter and that has got to be about some really strong councils developing a model around commercialisation that others either buy into or accept they’re going to be taken over.”
Ms Gill suggested that far from being a lesser alternative, delivering services on a commercial basis may actually improve outcomes: “I never quite understood why if we’ve got a problem, we get some money and have a load of initiatives.
“The commercial approach is that when you design a product, you’ve got to start with understanding the problem and the market, because otherwise, the product fails and you go bankrupt. The skills required for being commercial in terms of market segmentation probably are better to deliver an outcome.”
Mr Bradbury added: “The key area for every local authority is about how you can enhance the service in a commercial way. We ask our partners why they don’t offer weekly bin collection. If it’s £10 a week and [residents] have to pay it, is it going to cost councils less than £10 to deliver it? If it is, why wouldn’t you do it? The core service remains free, and if residents want an enhanced service, they could pay for it.”