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'Strategy, accountability and legal structure can ensure commercial success'

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In developing our report on commercialisation, DWF and LGC looked to better understand the type of commercial activities being undertaken across local government, the challenges and the barriers that authorities face and some of the biggest successes to date.

We hope that some of the fantastic insight that this report contains will help you shape future commercial strategies, and we wanted to highlight some key points.

1. Develop a sound and supported commercial strategy

It is vital to have a formal, concise commercial strategy that clearly articulates what you want to deliver, as Manjeet Gill showed in setting out what steps she took as a serving chief executive. The strategy should be supported by senior executives and approved by elected members. This public document should inform employees of the corporate values and culture of the authority, providing a rallying call to commercialisation.

2. Make the right people accountable for delivery

Commercialisation will not happen without a concerted effort and needs to be implemented effectively. You should consider appointing a champion within the organisation who is responsible for delivery. We have seen an increasing number of commercial directors appointed over the last few years with a mandate to generate income, while other authorities have delegated authority to section 151 officers or other senior executives.

Once your strategy has gained full support, accountability for delivery should be incorporated into any delivery model. Whether it is the CEO of the new company or a head of service, when collaborating or contracting with other public sector partners the responsible individuals should report into the authority on performance against the business case. Monitoring and budget setting should be enshrined into the governance arrangements.

3. Adopt the right legal structure and document it

As we have seen in this report, local authorities have options available to them to deliver their commercial objectives. Before embarking on any commercial activity we advise that you conduct an assessment of which model best meets your needs.

The choice of model should only be made once you have a clear view on what you want to achieve; where the money is coming from; an understanding of the law which may require you to adopt a particular model or satisfy procedural requirements; implications of tax, insurance, employees, pensions, state aid, procurement and other regulatory requirements; and a business case and plan.

Once the legal structure has been selected, the new arrangements should be documented and kept up to date. This is not to be taken lightly, or omitted, as without it the formal glue supporting the new arrangements will not exist and as corporate memory fades, accountability and performance monitoring can falter.

4. Prepare a business case

Before proceeding with any commercialisation project, participating authorities will want to establish a robust financial analysis of the likely costs, the risks and anticipated financial benefits. This should cover budgeting, monitoring expenditure, income and cash flow, producing statements of accounts, audit requirements and taxation. The purpose of the business case is:

  • To demonstrate to members, potential investors and the company board that the business is a viable enterprise, with an identified market, an achievable set of business objectives, and adequate managerial and other necessary skills and experience
  • To assure potential clients the business is well-run and has the capability and resources to ensure reliability and quality
  • As an internal management tool to ensure that all parts of the business work together towards common and consistent goals, and that these goals are based on sound analyses, assumptions and are consistent with the authorities’ objectives

The business case will enable you to decide whether or not you should proceed with the commercial activity. You should not view it as a failure if the assessment results in the proposal being rejected. This is good governance (and financial prudence) in action.

5. Be brave and relentless!

Commercialisation involves varying levels of risk and it is important to tailor the level of scrutiny that you undertake to the level of risk. Many authorities have already taken significant steps to embrace the commercialisation agenda and we hope that through our work with LGC you feel better informed about what others are doing to develop and deliver commercial strategies.

We strongly advise that you reach out to others within the sector to learn more about how they have delivered their objectives. We look forward to working with the sector as it continues to embrace commercial agendas.

Jonathan Branton, partner, head of public sector, DWF

Read LGC and DWF’s full report: Commercialisation: Safeguarding the future of local public service delivery

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