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Introduction Counties face the challenge of circumstance which causes us to question every aspect of the way we work. Time and again pressures have kindled in councils a spirit of enterprise that allowed even the most daunting financial challenge seem surmountable. The survey conducted by Capita at the CCN Conference on council attitudes towards commercialism demonstrates this commitment to innovation and change as local authorities work to safeguard core services. Over 75% of senior executives questioned thought increased commercialism was either fairly or very effective when addressing the financial challenging facing their authorities. Over half put significantly increasing commercialism as either the most important or amongst the most important action their organisations would undertake to tackle their financial challenges. But the interest in commercialism was not simply defensive. Commercialism does not solely mean increasing the number of functions a council contracts out. Instead it represents a commitment to creative entrepreneurialism, from changing the culture of our councils to generating revenues from a wider array of sources, to looking at the very structures we have in place to work with partners. Fundamental to this process of creative reinvention is reengineering the way local authorities commission services. 9% of respondents thought greater commercialism as either important or very important for successfully underpinning their approach to commissioning. Alongside the role within commissioning, counties saw commercialism as vital for maximising the value they can realise from their assets, another vital step in responding to funding reductions. Working with a wider range of partners and with established partners, like Capita, in new ways was seen as powerful spur for applying greater commerciality in the way local authorities operate. Just as the transitions in local government funding have caused local authorities to change, partner organisations in the voluntary and private sectors are transforming to meet the needs of their public sector partners. Fundamentally, the survey reveals county councils as both confident in the their capacity to innovative and possessing a firm commitment to maintain services in the face of the hard decisions that will need to be made as funding pressures intensify. As county and county unitary councils transform to meet future changes, whatever their final shape, it seems certain greater commerciality will be embedded into their organisational DNA. Cllr. Philip Atkins Leader, Staffordshire County Council and CCN Spokesman for Public Service Reform 2
Commercialism Executive Summary The challenges of the austerity decade are bringing forward council creativity as never before. One dimension of this is commercialism councils unlocking a spirit of enterprise to achieve financial and other objectives. It is useful to understand the breadth of opinion about relatively new topics such as commercialism, which is why we commissioned a survey of CCN members. As befits a world of localism, a majority of councils are very keen on the idea, while others have chosen not to go there. Our survey found that the main reasons why becoming a more commercial council is attractive are: to support the development of commissioning councils cultural change becoming more business-like generating income a significant fraction of councils want to generate more than 2% of their income from commercial activity to help local business be successful. There are a variety of routes which councils will follow to achieve this, some growing their own, others working in partnerships with commercial and other organisations. Whatever the route, we will see more councils becoming more commercial, and we hope this survey will provide information and context for members and officers who are thinking about whether and how to achieve that. As such, this survey sits alongside our discussion paper on council commercialism which can be accessed here. 1. Introduction In autumn 212, Capita, working with the County Councils Network (CCN), conducted a survey of CCN member councils. That survey asked respondents to consider a number of ways in which local government might address ongoing financial challenges in the period 215-22 and beyond. Amongst these was Significantly increasing the commercialism of your council/authority, developing income streams and commercial activities in an entrepreneurial way, building the capacity of your organisation to bid effectively against others for work. Here, 61% of respondents 1 said this would be an effective 2 solution to the financial challenges of the next decade, and 57% thought it a step their council/authority would take 3. For our 213 survey, we ve revisited the theme of commercialism, to examine whether councils still regard it as important, and for those that do why is it important, what they want to achieve with it, and how will they do so. 3
2. The role for commercialism A key message reinforced by this year s survey is the definite role that respondents anticipate for greater commercialism in helping to address pressure on budgets across the local government sector. In line with the 212 research findings, a majority of this year s respondents (64%, rising to 77% of our senior leadership subset) continue to see significantly increased commercialism as an effective 4 potential solution to the financial challenges facing their council/authority, although more think it will be fairly rather than very effective (see Chart 1). Chart 1 Addressing the financial challenges facing your council/authority: effectiveness of significantly increased commercialism as a potential solution? Very effective 22 26 212 n=89 19% Fairly effective 42 51 43% Fairly ineffective 4 1 16% Very ineffective 2 2 1% Don't know/not stated 17 23 22% All L/CM/CE/CT Base: 86 (all respondents) and 53 (all respondents who are Leader/Cabinet Member/Chief Executive/County Treasurer), CCN/Capita survey of CCN member councils, 3 September-3 November 213 4
However, the adoption of significantly increased commercialism is very much a work in progress. Whatever their views on the appropriate extent of commercial activity in local government (see below), none of our survey respondents believes that a desired level has already been reached in their authority. In this context, 45% told us that significantly increased commercialism remains amongst the few most important actions their council/authority is likely take in the next few years, if not the most important (see Chart 2). Chart 2 Addressing the financial challenges facing your council/authority: how important is significantly increased commercialism likely to be? The single most important action you take 6 6 Amongst the few most important actions you take 4 45 As important as any other action you take 35 34 Amongst the few least important actions you take 5 6 The single least important action you take Not applicable - we're already at the desired level of commercialism for our council/authority Don't know/not stated 9 15 All L/CM/CE/CT Base: 86 (all respondents) and 53 (all respondents who are Leader/Cabinet Member/Chief Executive/County Treasurer), CCN/Capita survey of CCN member councils, 3 September-3 November 213 5
There is clearly an appetite for significantly increasing the amount of income which councils generate. In total, 22% of respondents ideally want to generate more than 2% of their income from commercialism (3% of the senior leadership group), and 17% and 23% respectively feel that they will realistically achieve this (see Chart 3). Chart 3 Proportion of total income derived from commercial activity: currently vs. ideally vs. future likely [summary] % 1 % 1 % 1 <1% 1 2 <1% 1 2 <1% 1-1% 42 53 1-1% 17 17 1-1% 21 26 11-2% 8 9 11-2% 17 21 11-2% 16 19 21-3% 5 8 21-3% 16 21 21-3% 14 19 >3% >3% 6 9 >3% 3 4 Don't know/not stated 28 43 Don't know/not stated 3 41 Don't know/not stated 32 44 All L/CM/CE/CT All L/CM/CE/CT All L/CM/CE/CT Base: 86 (all respondents) and 53 (all respondents who are Leader/Cabinet Member/Chief Executive/County Treasurer), CCN/Capita survey of CCN member councils, 3 September-3 November 213 6
3. Why become more commercial? Respondents who rated significantly increased commercialism as an important action 5 (the commercially positive group) were asked to assess the relative importance to their council/authority of four potential reasons for wanting greater commercialism across local government services. Only a minority (between % and 4%) say that any of the reasons we suggested are unimportant 6. However, while three in four (74%) describe to better understand, and so better support, the needs of local businesses as an important 7 reason for more commercialism, nine in ten (9%) say it is important to underpin a successful approach to commissioning (see Chart 4). Importantly, senior leadership respondents are significantly more likely than average to say that increased commercialism is important to underpin a successful approach to commissioning (98%, with 73% saying it is very important) and to change organisational culture (98%, with 76% saying it is very important). Chart 4 Importance for your council/authority of potential reasons for wanting greater commercialism in the local government sector To underpin a successful approach to commissioning 65 25 9 To change the culture of your organisation, by adopting some of the attitudes, behaviours and features of good commercial organisations to become more business-like 58 26 6 9 To generate profit, replace lost revenue from elsewhere, and/or keep down Council Tax bills in a creative way 43 3 13 3 1 To better understand, and so better support, the needs of local businesses 35 39 13 3 9 Very important Neither/nor Not at all important Fairly important Fairly unimportant Don't know/not stated Base: 69 (all respondents who say significantly increased commercialism will be single most important action/amongst few most important actions/as important as other actions taken by their council/authority), CCN/Capita survey of CCN member councils, 3 Sept-3 Nov 213 7
Reflecting the findings described above, respondents as a whole most frequently identify to underpin a successful approach to commissioning as the single most important reason (39%) for wanting greater commercialism in their council/authority (see Chart 5). However, it s worth noting that officers are three times more likely than members to say this (6% versus 19%). Conversely, members are more than twice as likely as officers to say that changing organisational culture is the most important reason (44% versus 17%). Chart 5 Potential reasons for wanting greater commercialism in the local government sector: most important reason for your council/authority To underpin a successful approach to commissioning 39 42 To change the culture of your organisation... to become more business-like 29 36 To generate profit for your organisation... in a creative way 13 14 To better understand, and so better support, the needs of local businesses 4 6 Don't know/not stated 4 12 All L/CM/CE/CT Base: 69 (all respondents) and 45 (all L/CM/CE/CT respondents) who say significantly increased commercialism will be single most important action/amongst few most important actions/as important as other actions taken by their council/authority, CCN/Capita survey of CCN member councils, 3 Sept-3 Nov 213 8
4. Ways of becoming more commercial Turning to ways in which councils/authorities might adopt greater commercialism, our research findings again reinforce the work in progress nature of related activity. Asked to consider 12 potential ways of achieving greater commercialism, only a minority of respondents (in the range 3%-15%) told us they d already taken any one step and didn t need to do more of it (see Figure 4.1). In fact, all but two respondents reported that at least one of the suggested commercialismboosting activities is underway or is planned 8 in their council/authority, and nine in ten respondents (92%) note the ongoing or planned adoption of at least three activities (see Chart 6). Figure 4.1 Ways of achieving greater commercialism Action We ve already done this and don t need to do more (%) This isn t something we ve done nor plan to do (%) Taking a longer-term view of investment 15 5 Bringing in expertise for a fixed period to get things started 12 11 Recruiting people with relevant expertise into the organisation on a permanent basis Changing remuneration structures so that higher earnings than now are possible for those who are delivering at the highest level Creating our own commercial entity (such as an arms-length company or a spin out) 11 14 11 43 9 2 Making greater use of the commercial skills of elected members 8 15 Doing more to identify and unlock potential assets 6 3 Encouraging/allowing staff to think and work in an entrepreneurial way Changing our organisational structure to reflect a more commercial approach Changing our performance management to reflect a more commercial approach 6 5 6 14 5 2 Adopting a less risk-averse mindset 3 9 A partnering arrangement with a commercial organisation 3 18 Base: 65 (all respondents who rated their council s/authority s capacity to become more commercial) 9
Chart 6 Ways of achieving greater commercialism (ranked by actions planned) Doing more to identify and unlock potential assets Encouraging/allowing staff to think/work in an entrepreneurial way 88 87 85 89 Adopting a less risk-averse mindset Changing our organisational structure to reflect a more commercial approach Bringing in expertise for a fixed period to get things started Taking a longer-term view of investment Changing our performance management to reflect a more commercial approach Recruiting people with relevant expertise on a permanent basis A partnering arrangement with a commercial organisation Making greater use of the commercial skills of elected members 83 77 82 74 8 74 76 69 78 68 76 66 67 63 67 89 Creating our own commercial entity Changing remuneration structures (higher earnings potential for highest performers) 37 49 62 62 All L/CM/CE/CT Base: 65 (all respondents) and 45 (all L/CM/CE/CT respondents) who rated their council s/authority s capacity to become more commercial in the future, CCN/Capita survey of CCN member councils, 3 Sept-3 Nov 213 As can be seen from Figure 4.1, there is only one action with a particularly low planned take-up 9 : changing remuneration structures. However, those in the senior leadership subset are significantly more likely than average to identify changing our organisational structure, permanently recruiting people with relevant expertise and changing remuneration structures as planned 1 actions. Comment: Directors in Veredus, Capita s executive resourcing business, have had significant recent success in recruiting commercial talent for the local government sector, even without adjustments to remuneration structures. However, our view is that there is a relatively limited market of people who can be tapped into in that way, and that sooner or later the issue of market-level remuneration is going to have to be addressed, for certain roles. 1
Naturally, greater commercialism in the local government sector will depend on the capacity of councils/authorities to achieve it for example, by offering products and services that others will want to buy, or having people with the necessary skills and expertise to create or maximise commercialism opportunities. Our survey findings reveal a fair degree of uncertainty among respondents about just how well-placed their council/authority is to become more commercial in the future, with only half (51%) describing their place of work in this way, and with more saying it is fairly rather than very well-placed (see Chart 7). However, a quarter of all respondents, and nearly a third of those in the senior leadership subset, say their council/authority is not very well-placed to become more commercial in the future, while a further one in four respondents overall does not feel able to assess their authority s capacity. Chart 7 Capacity of your organisation to become more commercial in future? Very well-placed 6 8 Fairly well-placed 45 47 Not very well-placed 24 3 Not at all well-placed Not applicable - we're already at the desired level of commercialism for our council/authority Don't know/not stated 15 24 All L/CM/CE/CT Base: 86 (all respondents) and 53 (all respondents who are Leader/Cabinet Member/Chief Executive/County Treasurer), CCN/Capita survey of CCN member councils, 3 September-3 November 213 11
This question mark over capacity to become more commercial in future has some bearing on the frequency with which respondents say a particular activity is underway or planned in their authority (see Chart 8). Chart 8 Ways of achieving greater commercialism (ranked by actions planned) Doing more to identify and unlock potential assets 81 88 91 Encouraging/allowing staff to think/work in an entrepreneurial way 67 85 93 Adopting a less risk-averse mindset Changing our organisational structure to reflect a more commercial approach 71 83 84 81 77 8 Bringing in expertise for a fixed period to get things started 74 75 71 Taking a longer-term view of investment Changing our performance management to reflect a more commercial approach 52 74 75 71 69 77 Recruiting people with relevant expertise on a permanent basis 68 68 67 A partnering arrangement with a commercial organisation 43 66 77 Making greater use of the commercial skills of elected members 52 63 68 Creating our own commercial entity Changing remuneration structures (higher earnings potential for highest performers) 24 37 43 52 62 66 All Well-placed Not well-placed Base: 65 (all respondents who rated their council s/authority s capacity to become more commercial in the future), 44 (respondents who rated their council/authority as well-placed [very + fairly]), 21 (respondents who rated their council/authority as not well-placed [not very + not at all]), CCN/Capita survey of CCN member councils, 3 Sept-3 Nov 213 12
Figure 4.2 highlights the Top 6 planned/underway actions most frequently identified by respondents in well-placed authorities versus those in not well-placed authorities. Respondents in the latter are significantly less likely than their colleagues in the former to identify encouraging/allowing staff to think and work in an entrepreneurial way, changing our performance management to reflect a more commercial approach and a partnering arrangement with a commercial organisation as activities underway or planned 11, 12. Figure 4.2 Top 6 planned/underway actions by capacity to become more commercial in the future Well-placed Not well-placed Encouraging/allowing staff to think and work in an entrepreneurial way Adopting a less risk-averse mindset Doing more to identify and unlock potential assets Doing more to identify and unlock potential assets Adopting a less risk-averse mindset Bringing in expertise for a fixed period to get things started Changing our organisational structure to reflect a more commercial approach Changing our performance management to reflect a more commercial approach A partnering arrangement with a commercial organisation Changing our organisational structure to reflect a more commercial approach Taking a longer-term view of investment = Encouraging/allowing staff to think and work in an entrepreneurial way = Recruiting people with relevant expertise into the organisation on a permanent basis Base: 65 (all respondents who rated their council s/authority s capacity to become more commercial) 13
A degree of doubt over commercialism capacity also has some bearing on how respondents answered our final two questions (see Chart 9). Chart 9 A commissioning council? I would say that we are now a commissioning council Strongly agree 14 42% Tend to agree 28 Neither/nor 21 Tend to disagree Strongly disagree 3 12 15% Those who disagree (n=13) now are also more likely to disagree (n=6) than agree (n=3) that they ll be a commissioning council within the next five years Don't know/not stated 22 Base: 86 (all respondents), CCN/Capita survey of CCN member councils, 3 September-3 November 213 Overall, more agree 13 (42%) than disagree 14 (15%) that they work in a commissioning council, but a further one in five respondents neither agree nor disagree and the same proportion says they don t know. On the one hand, this pattern of response may reflect an assumption on the part of some survey participants that we at Capita see commissioning and commercialism as synonymous with outsourcing (for the avoidance of doubt, we are very clear about the distinction): The Council of the future will be a mix of direct and contracted provision that is commissioned and managed strongly and with good commercial nous and grip it will be folly to state that the Council is simply a commissioning council as this will be politically unacceptable to many Labour politicians who cringe at such statements. Chief executive We have not gone down the route of contracting work out to Capita-type organisations, although of course we use contractors to deliver services like highway maintenance and 85% of adult care is by private contractors. Leader It is just one of the possible options for delivering effective services. The cost and quality of the service is more important than who provides it. Opposition member 14
On the other hand, the survey findings indicate a lack of consensus within the sector as to what commissioning council and commercialism actually mean: I think we need to be clear at a local authority level what our definition of commercialism actually means. This is as important to debate with members as it is officers because understanding if it is about profit, or being able to operate in a commercial market, are often confused. Chief executive Commissioning council is (in my view) much overused. Don t we all commission in some way (internally or externally)? Some do it better than others but they may not be the ones that describe themselves as commissioning councils it s a way of working through systematically. County treasurer Define commissioning and commercialism simply will help, we spend too long discussing what this means without actually doing anything. County treasurer Either way, respondents working in well-placed authorities are significantly less likely than those representing not wellplaced authorities to disagree that they are a commissioning council (9% versus 33%) 15. 5. What next for local government commercialism? The area of increased commercialism of councils is an area where we feel particularly qualified to help, and some of our successful commercial models (such as joint ventures which have been invested in to achieve the desired outcomes) stand as testament to that. Our leadership businesses (such as Veredus and Capita Learning and Development) and our consulting business (Capita Consulting) have a range of offerings to help councils become more commercial in their outlook. If you would like to discuss any of these ideas, as we develop our own thinking, we would be pleased to hear from you. 15
Endnotes 1. Base = 89; CCN/Capita survey of CCN member councils, 25 October-9 November 212 2. Combined very + fairly effective 3. Combined certain to take + very likely + fairly likely to actually take this action 4. Combined very + fairly effective 5. Combined The single most important action... / Amongst the few most important actions... / As important as any other action... you take 6. Combined fairly unimportant + not at all important 7. Combined very + fairly important 8. Combined we ve already done this but we need to do more + this is something we plan to do 9. This isn t something we ve done nor plan to do 1. Combined we ve already done this but we need to do more + this is something we plan to do 11. Combined we ve already done this but we need to do more + this is something we plan to do 12. Indicative finding: small base sizes 13. Combined strongly + tend to agree 14. Combined tend to + strongly disagree 15. Indicative finding: small base sizes 16