Commercialisation – Alternative Models of Service Delivery CIPFA in the North East Professional Update Day Gavin Barker, Senior Manager Wednesday 16 March 2016, Rivergreen, Durham

Commercialisation – Alternative Models of Service Delivery What we’ll consider today What is commercialisation / and do we have commercial skills? The drivers for commercialisation in local government Some of the alternative models of service delivery that have emerged Governance and risks The role of the public finance professional

Commercialisation – Alternative Models of Service Delivery Do we have the commercial skills we need? Does the public finance professional have commercial skills (compared to the private sector)? -Less than -About the same -More than

Commercialisation – Alternative Models of Service Delivery What is commercialisation / what are commercial skills? Commercialisation /commercial skills; What do these terms mean for you?

Commercialisation – Alternative Models of Service Delivery Definition of commercialise “Manage or exploit (an organisation, activity, etc.) in a way designed to make a profit” (Oxford English Dictionary) Public sector context – use business methods including profit motive to do something that has social value as well, and is sustainable? Commercial skills: Different skills or a similar skill set with a different set of terminology?

Commercialisation – Alternative Models of Service Delivery What will commercialisation be like? More business planning Financial forecasting with many assumptions and unknowns Focus on keeping costs low / generating more income More timely management accounts / monthly balance sheets - cash flow becomes critical Profit and loss v income and expenditure Producing / considering company accounts Needing to be more responsive, innovative and seize new opportunities Constant change Is it really that different to what we do anyway?

Commercialisation – Alternative Models of Service Delivery The drivers for commercialisation in local government? Public sector austerity

Commercialisation – Alternative Models of Service Delivery “Local government and the wider public sector is facing greater change and transformation than ever before, driven by austerity, significant cuts in public spending and a sharper focus on improving services and achieving better outcomes for local people.” Self financing – council tax and business rates Less central support for areas of deprivation Devolution

Commercialisation – Alternative Models of Service Delivery Significant changes are likely to include: new and innovative models of service delivery commissioning services rather than directly providing them making services more self financing and sustainable managing demand and reducing reliance on the public sector working more closely with partners and the voluntary sector building community capacity and resilience

Commercialisation – Alternative Models of Service Delivery Some of the alternative models of service delivery that have emerged

Commercialisation – Alternative Models of Service Delivery What are the options? Create a new entity or work within existing parameters? Keep things in-house Shared services Private sector outsourcing Local authority trading company Mutualisation Local asset backed vehicle Joint venture partnership

Commercialisation – Alternative Models of Service Delivery Governance and risks Governance and risk management starts with the public body Option appraisal and developing the business case Consider appropriate models and structures If creating a new entity, align its objectives with what the public body is seeking to achieve Although a new entity may bring benefits, its likely to create more complicated governance arrangements When choosing a preferred option, ensure the governance framework is fit for purpose … from the outset

Commercialisation – Alternative Models of Service Delivery Make sure you address Legal structures and governance arrangements Articles of Association / Shareholder Agreements Depending on the model, may exercise control or influence; or just a contracting relationship Strong leadership – the Board / Managing Directors Wider Board representation to bring different perspectives Consider conflict of interest risks, and address them Trading issues – Teckel exemption / State aid Tax – Corporation tax / VAT Contract monitoring / reporting progress to the Council Appropriate financing / asset base

Commercialisation – Alternative Models of Service Delivery Pressure points Culture Motivated, skilled, empowered workforce More competitive workforce TUPE? Reduced terms and conditions? Voluntary or compulsory redundancies? No more final salary pension contributions? Support services

Commercialisation – Alternative Models of Service Delivery Do we have the commercial skills we need? Having discussed this further, have your views changed of the public finance professional’s commercial skills (compared to the private sector)? -Less than -About the same -More than

Commercialisation – Alternative Models of Service Delivery Any questions?