Social enterprise
The Editor of the Guardian’s magazine Public examines new models of cost-effective public service delivery
Norma Auguste is a Matron at Epsom & Ewell Hospital. She does a familiar job. But Norma is also a trailblazer, because she no longer works for the NHS. Instead, she is one of 770 co-owners of her own organisation, Central Surrey Health.
It’s the first of a not-for-profit organisation that we may see more of over the next few years. It provides community nursing and therapy services, and is co-owned and run by its employees. Employee-owned organisations are just one of the new models being considered to solve the apparent impasse facing the public sector: how to maintain, or enhance, public services at a time of the biggest budget cuts in public spending for a generation.
From Westminster and Whitehall, from local authorities to universities and think tanks, there has been no shortage of suggestions about how to tackle this huge challenge. Most agree it will require radical innovation in how services are delivered.
This is no new idea. For as long as there has been thinking about public services, there have also been those who want to make radical changes. As David Walker, former Editor of Guardian Public, has written, “Enfranchising subjects is the oldest of constitutional themes and in public services the push to get better 
answers from professionals can be dated to the 1960s, and illustrated in the years since by the community development movement of the 1970s, marketisation in the 1980s and the adoption of new public management in the 1990s.”
In formulating its own transformational programme, the last government found that it held a similar viewpoint to the CBI, which in a report last year said that parts of the government were still using “outdated and inefficient approaches” to public services. This, said the CBI, was hampering innovation and failing both the people who need public services and the taxpayers who pay for them. “Continuing business as usual is not an option,” said the report, and the then-Cabinet Office minister Liam Byrne agreed. In February 2009, Byrne’s speech at the Guardian Public Services Summit highlighted the government’s eagerness to regain momentum on public service reform, with Byrne arguing for decentralisation, ‘people power’ and the involvement of the third sector in delivery.
But if the process of public service reform has been underway for some time, the pace has certainly quickened with a new government. This government wants a radical restructuring of public services, with the NHS the most ambitious example.
The White Paper announced in July by Health Secretary Andrew Lansley proposes moving spending decisions worth £80 billion into GP consortia. The aim, says Lansley, is to provide more freedom to foundation trusts and give GPs more commissioning powers, in order to create nothing less than the world’s “largest and most vibrant social enterprise sector”.
In the current system, primary care trusts help decide what treatment a patient should have; in future, England’s 35,000 GPs will do that. Instead of each GP surgery being given a budget to employ people and run its premises, the partner-GPs who run it will be handed a multi-million-pound budget with which to pay hospitals for treating their patients. Lansley’s definition of social enterprise has been widely debated. It is clear, however, that this government intends to explore new ways to deliver services, including the expansion of service provision by charities, voluntary organisations and social enterprises. The use of the term ‘social enterprise’, howsoever defined, highlights the present government’s determination not to baulk at major change in service delivery models. And there are many models to consider, ranging from joint ventures and shared services with other government bodies, to co-designing and co-producing services with the people who use them.
The government is exhorting a major rethink on who should provide public services. It should be remembered, of course, that many existing ‘public’ services are already delivered by non-public bodies; the market for private delivery of public services is already worth at least £75 billion and many voluntary bodies already supply a substantial range of public services. This market is set to grow substantially, with charities and non-profit bodies, as well as commercial organisations, being asked to come up with radical – and cheaper – services. It’s a move, according to Steve Johnson, corporate director of Capital Ambition, London councils’ improvement body, that is similar to the shift from buying food at a market counter to the self-service model we all now use in the supermarket.
The underlying principle is that of partnership and collaboration. In whatever ways public services are reshaped, they will depend far more on the often complex inter-relationships between different parts of government, the public, private and voluntary sectors, and on greater collaboration between those who provide services and those who use them.
The difficult part of this process is getting new models that fit a more ‘citizen-centred’ view of public services while meeting the tough Treasury criteria for spending cuts. In its framework for the October comprehensive spending review, which will set out public sector spending, the Treasury has posed nine criteria against which all future public spending must be matched. The criteria question, among other things, whether the activity is essential to meet priorities and whether it could be provided by a non-state provider, or by citizens, wholly, or in partnership.
This is the point at which the Prime Minister’s idea of a Big Society, in which citizens and voluntary bodies play a more active role in civil and public life, dovetails with the need to save money and to validate all government activity within the Treasury’s value-for-money framework.
One of the most interesting ways of bringing these two ambitions together is to pool all public sector spending in a particular place. The Total Place pilots run by the previous government took a step towards trying to eliminate wasteful duplication while focusing more on citizen-based services. How Total Place, or place-based budgeting, will evolve under the present government is unclear. But it will involve new partnerships, bringing together, for example, a council and a primary care trust (or, in future, GP consortia). Furthermore, it will require people who use services to think about how they should be delivered. This is part of the personalisation agenda: the In Control social enterprise says there are now some 60,000 users of social care services who have personal budgets, which they are able to spend on their preferred services.
The public sector is not short of ideas, nor of potential partnership and collaborative models. There are already many different kinds of delivery models available for consideration. But there are some real challenges facing both politicians and managers wishing to bring in new models of public sector delivery. For a start, new ways often require upfront investment, which is unlikely to be forthcoming in these difficult times. The NHS reorganisation could cost up to £3 billion – an amount that will have many organisations, who could benefit from much smaller amounts of upfront funding for their own restructuring, looking on in envy.
There are other challenges. It has proved particularly tough for the public sector to take innovative ideas that work in a small organisation and scale them up to the level required to deliver major public services. This has resulted in the well-known phenomenon of pilot-itis that has bedevilled much previous work on transformation in the public sector. It certainly is possible to scale up services – one good example is the productive ward concept, from the NHS Institute for Innovation and Improvement, which focuses on improving ward processes and environments to help nurses and therapists spend more time on patient care. It uses techniques from other industries, notably manufacturing and aviation, and has now progressed from application on hospitals wards to other areas of the NHS, including operating theatres and community services.
Another challenge is that of organisational structure and culture; staff used to working within the public sector don’t always find it comfortable – or, indeed, feasible – to work in new organisations. There are big questions about a move from, say, NHS terms and conditions, to being part of a social enterprise, and the question of pensions has loomed large. Some of these issues were addressed in Lord Darzi’s NHS Next Stage Review in 2008, which made it possible for most healthcare staff to retain their pension if they moved into a social enterprise, and which gave staff a new right to request the ability to set up such an enterprise. This idea has been retained in the NHS White Paper, with a pledge that all staff in foundation trusts will have an opportunity to transform their organisations into “employee-led social enterprises”.
But life outside existing public sector structures can pose other challenges. It is not clear how many managers will want to opt for a new mutual or social enterprise. Similarly, new organisations keen to deliver services will have to compete with a host of existing bodies. Will innovative new ventures have the skills – and the financial resources – to compete? One of the fears of many social enterprises, and indeed smaller voluntary bodies, is that in the present financial climate they will get squeezed out of large contracts, where bigger organisations may be able to promise bigger savings. One answer will be the formation of consortia, where private sector bodies form partnerships with voluntary bodies and social enterprises; but these new partnerships will bring their own challenges. Non-profit bodies will be anxious to prevent their valuable contribution being seen simply as the social capital icing on a private sector cake.
There is also the question of accountability and scrutiny. If a public service is to be delivered by an outside body, there are some hard questions about both the procurement process, with many smaller bodies feeling that they could be overwhelmed by expensive contract documentation, and the monitoring and scrutiny of the services themselves. Voluntary bodies in general say that while they understand and have no objection to monitoring, scrutiny should be appropriate to the service being delivered. Nine hours of monitoring for a half-day service, does not, for example, feel proportionate.
One former chief executive of a major charity says the issue is whether new organisations are part of the state, in which case they will have to meet stringent existing public sector scrutiny and contracting criteria, or whether they are intended to provide additional functions, such as social capital, in which case they may be permitted, he suggests, to retain different ways of doing business. Already, we are hearing voluntary bodies complain that they are being swamped by monitoring procedures and paperwork. Will the government find ways to meet accountability criteria while lifting the ‘burden’ of scrutiny, as they promise to do for commercial businesses?
One of the difficulties this presents new organisations is that they need to combine all the best bits of all three sectors, public, private and voluntary. They need to be reliable and reassuring, business-like, cost-effective and competitive, but also bring the extra elements of social capital and partnership.
It’s a tall order, and to meet it, managers are going to need every ounce of ingenuity they possess.
GSTS: a groundbreaking partnership
GSTS Pathology, Serco’s joint venture with Guy’s and St Thomas’ NHS Foundation Trust, is the UK’s largest independent provider of pathology services and the first partnership of its kind in the NHS. Pathology is involved in 70% of decisions about patient care.
Pathology services in the UK are fragmented, with hospitals often running their own laboratories. So when the Carter Review recommended consolidating them into more efficient regional hubs, the Trust saw an opportunity to build a sizeable business and reduce its costs; it brought in Serco to help achieve this.
The resultant joint venture guarantees year-on-year reductions for the Trust, as well as a share in the new business. Its board draws members from both the Trust and Serco, and is responsible for appointing and overseeing the management team.
The joint venture has changed the way pathology services are run, drawing on Serco’s experience of instilling a private sector culture into a public service. One example is the introduction of a highly visible performance management system, which provides the pathology teams with a clear understanding of their performance and enables them to respond quickly to any issues.
GSTS Pathology has already halved its cervical screening times and introduced its own swine flu test at record speed. It has also won a ten-year contract to provide services to Bedford Hospitals NHS Trust.
Welfare to work: building a network
Serco’s model supports the current welfare-to-work programme by bringing together a network of partners to deliver frontline services. It draws on the best national providers and integrates them effectively with local, specialist, community-based organisations. Serco currently has approximately 60 suppliers, around one third of which are from the voluntary sector.
This model allows Serco and its partners to create a programme that suits individuals’ circumstances, drawing on specialist support such as debt counselling and vocational training. It gives customers access to service providers with different capabilities.
This model is expected to deliver more sustained jobs at a lower cost because it directs resources to those organisations best placed to support jobseekers. It also allows small organisations to benefit from large government contracts, which they would not otherwise have the scale to bid for. The Work Programme emphasises payment after results have been delivered, which requires strong, well-funded organisations and means that smaller providers need a larger partner to take the lead.
NPL: the appliance of science
The National Physical Laboratory (NPL) is a world leader in measurement standards, science and technology.
When the government decided to commercialise NPL, it chose the Government Owned, Contractor Operated (GOCO) model. This means the government retains ownership of NPL, its laboratories and the ‘intellect’ it creates but a contractor, Serco, runs it. Serco has been entrusted with the care and enhancement of a vital national asset with valuable international reputation and influence. At the end of the contract, Serco must return NPL as a fully functioning, independent going concern.
Serco takes the risk on costs such as staff, pensions and utilities. Guaranteed funding during the contract life enables Serco to plan for the long term, and a partnership approach means that the contract has open-book accounting, with the government sharing profits above a predetermined margin.
The GOCO model allows the government to define policy and outcomes, while Serco decides how best to deliver these. At NPL, Serco must deliver world-class measurement science, retain NPL’s international status and influence, generate real benefits for the public economy and sustainably grow NPL’s business. In consultation with government and advisory groups, it formulates NPL’s programmes so that they match current and future needs of public and private sectors.
Ensuring its work is directly relevant in this way has trebled NPL’s third-party income. It works with more than 2,000 companies a year and is estimated to deliver more than £2 billion per annum benefit to UK GDP.
