HomeMeetingsWorkshops & conferencesCommercialisation workshop 8 September 2017

Commercialisation workshop 8 September 2017

SEEC & SESL: COMMERCIALISATION WORKSHOP

8 September 2017 Broadway House, Westminster

Councils have an essential role in delivering quality, value for money services and outcomes for their residents and businesses. To achieve this many are becoming more commercial, for example by streamlining services or identifying potential new sources of income.

This SEEC-SESL event – free for member councils – enabled South East councillors and officers to debate the challenges and opportunities of commercialising and to learn from the good practice of councils that have successfully restructured, diversified or developed new income streams.

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See agenda here.

Strategy, leadership and philosophy of commercialising – Liam Booth-Smith
Commercial approaches and practices – Richard Harrison
Avoiding the pitfalls – Joanna Killian
Q and A Sessions

Case Studies:

Service redesign at Aylesbury Vale DC – Cllr Janet Blake and Caroline Wheller
Property investment – the Eastleigh experience – Nick Tustian
Commercialising shared services – the Orbis experience – John Stebbings
Bringing services in-house at Sevenoaks DC – Cllr Peter Fleming
Care and related services – the Worcestershire experience Jo Charles

 

Report of event

SEEC Chairman, Cllr Nicolas Heslop opened the event. He reminded delegates that commercialisation is important as budget pressures on councils are not going away. Council funding from central Government is ever-reducing or ending, while service demands are increasing and residents and local businesses rightfully expect good services, successful communities and economies.

 

Strategy, leadership and philosophy of commercialising

Liam Booth-Smith, Chief Executive, Localis, said that while the need to make cost savings and to modernise public services are driving commercialisation, it is also making services more user-focussed and place-based. He said that political leadership is critical to ensure there is an effective strategy that balances risk and financial returns, and builds a relationship with residents to open dialogue about these issues. Commercialisation is not an end in itself, it should deliver benefits for local people.

In terms of what services councils could or should charge for, Liam said that residents in general expect their council tax should pay for their bin to be collected. Apart from that, he said, in principle, any service could involve an element of self-funding – it is simply a question of political appetite. He added that it may be time for Government to allow council tax increases as part of the funding mix.

Liam identified unlocking the value of land and other assets as a key future commercial opportunity. Managing risk was the main challenge. He suggested councils look at the levers they have, such as access to ‘patient’ (long term) capital from pension funds and influence over the land market, and evaluate the potential for local commercial development.

 

Commercial approaches and practices

Richard Harrison, Managing Director, CIPFA C.Co, explained that commercialisation is not new. Victorian local authorities viewed municipal trading as key to driving public service outcomes. He cited the example of the Manchester Police Force, which in the early 19th Century built a gas-works to supply street lighting. Not only did the street lighting reduce crime, it also stimulated the night-time economy and surplus gas was sold – providing a healthy return on investment.

Richard said that when considering commercial opportunities ‘form should always follow function’. The principal goal should be to drive a public service outcome and then evaluate the commercial potential for paid-for services. For example, he said selling services to schools is a very competitive market but many councils view it as a way of maintaining strategic links and influence, rather than as a purely commercial opportunity.

He said there is no magic formula for ensuring successful commercial ventures – but for many councils, the starting point is to look at services they already provide and then expand the offer into additional services that can be charged for. He also emphasised the importance of having good governance arrangements and a concise Business Plan, containing a clear financial model.

 

Avoiding the pitfalls

Joanna Killian, Partner & Head of Local Government, KPMG spoke about some of the key challenges for local authorities as they develop a commercial strategy. She said it is critical to be absolutely clear about what you want to achieve and to understand the value that a commercial strategy can add. Joanna said councils’ motivations vary and can include controlling demand and reducing costs, generating income and improving public/ social value.

She said a key question to ask is ‘how do you know there is a market and where is your commercial capacity to deliver a unique proposition?’ Joanna cautioned against trying to enter competitive markets where there are already a number of good non-public funded organisations operating on low margins. This is particularly relevant in the South East with its buoyant economy – other areas may not face the same levels of competition.

She suggested a number of factors that are critical for long term success including:

    • Making sure the long term financial strategy recognises the increased levels of risk as well as reward. It should be robust enough to enable you to take on risk but strong enough to stop you taking on too much.
    • Not being afraid to bring in the right capabilities – organisations need to undertake an honest appraisal of whether they have the capability to make commercial decisions or to manage different VAT regimes.
    • Having a clear understanding of pricing strategy, performance management and an awareness of compounding risk and what happens when markets change.
    • Having a clear understanding of pricing strategy, performance management and an awareness of compounding risk and what happens when markets change.
    • Being careful not to distort markets – for example by buying up large amounts of land or property.
    • Ensuring good governance is in place for companies and having the right Non-executive Directors.

 

Q and A Sessions

Delegate questions during the day returned several times to whether there is a single definition of commercialisation. Speakers agreed it is not possible to have one single definition that works for all local authorities – it is up to individual councils to decide what works best for them and their local areas.

A number of questions addressed the issue of what commercial activities councils should not become involved in, and when do they cross the line from supporting the economic sector to competing with it? Speakers agreed that councils’ commercial activity should always include a public service outcome or generate new value for the community. One view was that selling a service that you have no history in – just because you can do it marginally cheaper than a commercial organisation and you don’t need as much of a return – is unethical. Another suggested that the key question is: what does the service displace? A common mistake made by local authorities when diversifying is to assume that 100% of new revenue generated is profit, but when the full cost of providing the service is analysed it actually makes a loss – and displaces local businesses by selling services below the market rate.

Several questions revolved around the issue of what central Government or other external controls and safeguards there should be over local authorities’ investment and borrowing strategies? Speakers felt that councillors should have freedom to make the best decisions for their communities – and be accountable for them at the ballot box. However, some also expressed concerns that very high risk strategies by a few councils could encourage Ministers to clamp down on all borrowing and investment – even for careful, prudent councils.

 

SESL Chairman, Cllr Martin Tett closed the event by thanking all speakers and highlighting some of the political questions that commercialisation raises, including:

• Do councils become better at servicing customers when they start charging them?
• Is commercialisation appropriate for all council departments?
• Should councils offer services that undercut local businesses?
• Have councils got the hard-nosed attitude to close down an under-performing council-run business or department?

 

Case Studies

Service redesign at Aylesbury Vale DC

Cllr Janet Blake, Cabinet Member for Business Transformation & Caroline Wheller, Corporate Commercial Strategy Manager, Aylesbury Vale DC set out how their council transformed from a traditional local authority into a £100m social enterprise that returns all profits back into services. The extra services that residents want – and will pay for – help fund core services for those that need them.

At the outset, the council identified that it had capable staff and plenty of good ideas but needed a customer-centric strategy. The transformation involved significant culture change, breaking apart silos to create an open, customer-focussed organisation structure in which all 400 staff now work either in customer fulfilment or community fulfilment. The council has very high take up of digital services, which reduces costs. It also has a number of successful revenue generating ventures and has made over £16m in efficiency savings.

 

Property investment – the Eastleigh experience

Nick Tustian, Chief Executive, Eastleigh BC outlined the council’s property investment strategy explaining that it had increased property assets from £55m in 2007/08 to £250m in 2017/18. The mix of operational, community and commercial properties has enabled the council to achieve ambitious regeneration plans and generate income. For example, the council bought the Ageas Bowl cricket ground, redeveloped it and built a hotel and conference centre. The site generated 500 jobs and a £50m per annum economic benefit to the area, along with a £4m annual surplus to the council.

Nick also explained the council had streamlined its internal processes to enable faster decision making to allow it to take advantage of commercial property opportunities, while retaining safeguards to manage risk and maintain adequate scrutiny. He said that while borrowing had increased from £6m in 2007/08 to £120m in 2017/18, it is not reckless, as asset values far exceed the level of borrowing and could be sold if necessary.

 

Commercialising shared services – the Orbis experience

John Stebbings, Chief Property Officer, Surrey County Council outlined how Orbis, a Public Sector Partnership between Surrey CC, East Sussex CC and Brighton & Hove City Council is on target to deliver £8m of efficiency savings by 2019.

John said that Orbis was set up in response to the increasing level of sophistication required to continue delivering efficiencies to councils’ back office functions. The partnership delivers finance, IT, HR, property, procurement, revenue & benefits and business operations across the three councils. Sovereign authorities retain any savings in proportion to the amount they put in. While it does not promote itself, Orbis has also attracted a number of new partners who want to tap into the greater efficiencies that can be delivered through partnership working.

 

Bringing services in-house at Sevenoaks DC

Cllr Peter Fleming, Leader, Sevenoaks DC, spoke about the journey to become the first financially self-sufficient council in the country. The transformation required huge culture change in terms of customer-focus and acceptance of risk. He said the decision was made to end to all outsourcing because people work better when directly employed.

Cllr Fleming said that in 2010 the Councillors took the view that Government funding would come to an end, and it is better to plan for it than to have it forced on you. In consultation with residents, the council took a third out of the budget and put in place a 10 year plan with a strategy of ‘buy, borrow and build’ – as costs should not just fall on council tax payers. A number of successful property and other commercial ventures – including a car park, a hotel and selling services to other local authorities in niche areas such as licensing – have enabled the council to become fully self-sufficient from Government funding.

 

Care and related services – the Worcestershire experience

Jo Charles, Head of Commercial, Worcestershire CC summarised the approach taken by the council to reduce the school and special needs transport budget by almost 50% since 2010 despite an increase in demand. She also spoke about the council’s plans to reduce costs by introducing new technology to social care.

Jo said that analysis showed that reverse auctions for transport routes had lowered costs but also driven down quality. The council introduced outcomes-based tendering, giving suppliers more flexibility over how the services are delivered, and extended contract periods to reduce the supplier risk and give them confidence to invest. Worcestershire was also helping special needs clients to use public transport, which would reduce future demand for specialist services.

In social care, the council plans to rollout new technology to reduce costs, improve services and enable better information management and monitoring of care users. Jo said it is a ‘spend to save’ model so cost savings take time – typically 3 to 5 years. Their first procurements are underway and the early indications are promising.