As councils grow their commercial approaches – whether from trading internal services or creating housing companies – having a clear strategy is crucial.
A strategy guides what it means to be commercial, what a council wants to achieve and how it can realise its commercial ambitions. It will help provide the focus for where public resources are deployed and how the commercial work will be governed, including monitoring return on investment and managing risks.
Honest conversations about strategy with elected members, management, partners and staff not only helps to locally tailor the focus but allows ownership by all those involved in the commercial approach.
In my experience, it also prevents well-intentioned commercial projects or business plans being dismissed out of hand, demotivating staff and partners.
Commercial strategies should stem from the council’s vision and political priorities for its area. They should be based upon a good internal analysis of the council’s present assets, strengths, culture and risk appetite.
It should also be honest about its red lines. Some councils wish to reduce workforce costs such as pensions, while others wish to embrace the living wage and avoid creating a two-tier workforce. It is for each council to decide, but these strategic conversations are needed.
Some of the best commercial strategies help internal and external audiences with a corporate overview of all aspects of what ‘commercial’ means.
One council I advise on implementation and governance arrangements for its commercial strategy has brought together six strategic themes: land and property, regeneration, trading, companies, commissioning and procurement. It is building on this strategy to increase commercial capability, culture, skills and governance.
As noted above, it is also vital to define what the council means by commercial. For some it is purely about financial return, but for many it is also about social good. There may be different strategies for different commercial ventures.
As an example, a commercial strategy for housing development and regeneration will help in defining the council’s key projects, the type of returns it seeks and its investment approach.
A council I recently worked with had different political views about the focus for their housing companies. For some it was about financial return, and for others it was about affordable housing. A clear strategy helps to manage tensions within the council and provides clear direction on where resources should be focused.
This brings me to governance. A strategy must clarify the arrangements for governance and define how commercial ideas will be encouraged, developed and appraised.
When we judged 2017’s LGC Entrepreneurial Council award, the winner, Rushcliffe BC, had clear structured governance that flowed from a focused strategy, adding value to its community needs as well as generating income. This meant sound management of funding and risks, while allowing innovation and staff creativity.
Governance arrangements, especially for arm’s-length vehicles such as companies, are commonly an issue and demand strong mechanisms for performance and risk management, alongside wider oversight. A good strategy should give the principles for governance but allow flexibility and adaptability.
I have also found it is important to refresh commercially strategies regularly. Over time a council may have developed trading arms or companies but as times change or original objectives are met, these will need updating. You can always learn from the past.
Creating a successful commercial strategy
- Be clear about what you want to achieve and how you will measure success
- Consider the social return as much as the financial ones
- Involve stakeholders, especially councillors and staff, in defining the approach
- Ensure the governance is right for commercial projects and companies
- Recognise and invest in developing capabilities, skills and culture
- Focus on strategy, leadership and governance
- Recognise the process is not simply about creating companies
- Avoid making the process transactional
- Do not assume risk is simply about a risk register
- Expect returns not to appear overnight
- Avoid using commercialisation to do things contrary to the council’s values and policies
Manjeet Gill, managing director, Chameleon Commercial & Business Improvement
Read LGC and DWF’s full report: Commercialisation: Safeguarding the future of local public service delivery
Manjeet Gill: Commercial activity needs a clear, fresh strategy