EOA Bigger Thinking Series part 5: Supporting the Spinouts

Rethinking how to deliver public services and consideration of how new delivery channels will be viewed by the public is a priority for leadership in every public sector body across the UK.

Whilst there is a growing acceptance by the majority of the public that the current models must evolve, the recent collapse of Carillion highlights a major issue for this evolution.

The same ownership structures or levels of governance do not bind such privately owned outsourced providers delivering many of these important public sector contracts. This creates a significant risk that has materialised in examples such as Carillion where the organisation’s Directors were able to continue to reap personal financial rewards without scrutiny, even as the business slipped towards disaster and delivery of public services and projects across the UK were threatened.

This evolution of new public service delivery structures is now seen in most sectors across the UK, and most recently there has been a resurgence in the support for employee owned public service mutuals or ‘spin outs’.

These type of businesses, in stark contrast to Carillion, not only successfully bid for and deliver essential public service contracts, they do so while engaging employees, innovating services, and delivering financial surpluses that are then reinvested into core service delivery or projects that create wider value and benefit to the communities they serve.

Local and regional government resources continue to reduce. Many services familiar to the public are, by necessity, now viewed as less essential (e.g. libraries, youth services, community hubs). At the same time, the pressure on social care delivery grows, caused by a growing and ageing population with ever more complex needs. It is therefore imperative to create new models of business to enable the continued delivery of public services necessary to provide the foundations of 21st century UK communities.

The Inspiration of the Mutual Sector

There is evidence that the employee owned mutual business sector is thriving despite ongoing challenges.

The recent report by DCMS, states that these businesses are operating at scale and have a combined turnover of £1.6bn in a diverse array of sectors, from health to education to employment. Against a backdrop of reducing financial resources, 92% of them made a surplus in their most recent financial year, and on average have grown by 50% since their launch. Because of their ownership structures and cultures, 90% of them reported faster or easier decision making than when they were in the public sector with 85% of them stating that a key benefit for the business is having happier and more engaged workforce.

Whilst DCMS is now championing more mutuals through its Mutual Support Programme 2, challenges exist for the sectors growth potential. A major challenged cited by many mutuals who are members of the Employee Ownership Association are that they are not being supported in the way that was intended by the Social Value Act, primarily due to attitudes and behaviours of commissioners.

Specifically, the Act has failed to address the continued ‘default’ attitude of commissioners that cost considerations outweigh all others – with lowest price frequently determining procurement outcomes. This position tends to favour very large suppliers such as Carillion, able to loss lead, price discount, cross subsidise or, where it is a procurement advantage, demonstrate sizeable balance sheets.  In contrast, the Act has been unable to offer the majority of commissioners sufficient reassurance to actively favour non-price factors such as service quality; community impact; local sourcing and employment; diversity and security of supply; corporate governance standards; or employee wellbeing.

Of course, there are other challenges too, not least the need for employees, used to the structural constraints of the public sector to embark on a cultural journey that allows them to flourish and thrive in an independent, employee-led organisation.

However, these and other challenges associated with doing things differently must be addressed as the public service mutual model offers arguably a unique solution to the ongoing dilemma of delivery of public services whilst delivering great benefits for employees, service users, communities and the wider economy.

Community Dental Services

Health care provider Community Dental Services specialises in dental services for the most vulnerable members of society. Recently named ‘Heart of the Community Business’ in the Bedfordshire Business Awards as well as the Health and Social Care Social Enterprise of the Year in this year’s Social Enterprise UK Awards, it also won the prestigious accolade of Employee Owned Business of the year in the UK Employee Ownership Awards 2017.

Formed in 2011, Community Dental sought to become a trusted community health care provider, and an employee-owned organisation with clear rules about how surplus is spent to always ensure reinvestment to further their ‘social mission’. The model however, though competitive in a commercial market, is very different to the PLC private healthcare model. Although the business competes in its market, missing are the motives of personal financial gain and external shareholder interests.

What Community Dental has done to receive extensive plaudits for their output and business model, is retain a public service ethos with the innovation and dynamism of a business. Formed from the NHS and emerging with a vision and a belief that being a competitive, well-run and profitable business is the best way of achieving social aims, the organisation opted to become an employee owned social enterprise Community Interest Company with resounding success. This is not privatisation, but an employee-owned reimagined structure driven by people and not profits.

Not only does their work empower employees and serve communities, its approach also provides wider benefits that have been credited with saving the NHS in the longer term by resourcing emergency treatment for those who are hard to reach groups.

City Health Care Partnership

There have been similar ‘spin outs’ within in health care that have shown how the mutual approach to services can flourish within a community. The City Health Care Partnership (CHCP), employee-owned and another social business investing its profits back into service delivery, saw that 96% of all of their patients recommended their services based on their experience.

With no external pressure from shareholders, CHCP agreed a mission ‘to grow a socially responsible commercial business that contributes to the wider well-being of the communities in which they provide services’. The organisation recognised that becoming employee-owned creates a model where employees and the surrounding community benefits from all commercial activity.

The CHCP business model also sets out to give staff a sense of belonging, accountability and the right to have a say about the running of the organisation along with visibility of plans and opportunities. And with the principles of employee ownership so closely aligned to those of a social enterprise, a ready-made business model is proving a strong foundation for spin outs particularly in health care.

A sector worth supporting

The evidence shows clearly that the economic contribution of employee ownership to the UK is significant and growing and should therefore inspire all sectors to consider it as a new way of doing business. Healthcare is just one of many sectors that is seeing the benefits of adopting such a people-focussed commercial perspective. Retaining the ethos and values of a public sector organisation within an employee-owned community-centric business is a recipe for holistic success.

Unlike their corporate competitors, public service mutuals deliver a corporate structure and culture that reinvests its surplus in the business, the service users and the communities in which they serve. However, these businesses only start to thrive (and therefore become better able to compete with corporate competitors in the marketplace) once they are able to unleash the innovation, enterprise and commitment of their employee owners – through the development of a culture of ownership.

We must continue to help the mutual market to thrive and successfully develop the ownership culture that will be its biggest differentiator; to encourage more to spin out, to support those that exist to grow and prosper – and to future proof public services from Carillion-like collapses.

To find out how EOA membership can benefit your organisation, email us at @info@employeeownership.co.uk or call us on 01482 667122.