Transforming services: is the feeling toward social enterprises mutual?

Much has been made of the potential of employee ownership to transform the delivery of health and social care services by freeing up entrepreneurial staff.

A recent government commissioned review called for greater freedom for NHS organisations and emerging integrated care providers to become staff owned mutuals.

‘Pressing practical and commercial issues will need to be addressed first’

However, pressing practical and commercial issues will need to be addressed first.

The staff engagement report by King’s Fund chief executive Chris Ham points to the sense of liberation staff get from operating within a flatter hierarchy with:

• speedier decision making;
• the powerful sense of psychological and emotional ownership which they feel towards their organisations; and
• the consequent benefits for patients, such as faster innovation, more patient centred care and improved performance.

Short of the target

A growing body of evidence suggests employee owned businesses are more sustainable and generate jobs more quickly than traditional forms of enterprise.

They often enjoy lower rates of absenteeism, reduced staff turnover, lower production costs and higher productivity.

The vision announced by Cabinet Office minister Francis Maude in 2011 was for 1 million public servants to be working in mutuals by 2015. There are now 100 operational public service mutuals, employing 35,000 people: some way short of that target.

If the government is serious about introducing mutuals into NHS services on a grand scale, the ground needs to be properly prepared.

‘The government has shown it is open to new models involving private providers’

As defined by the government: “Public service mutuals are organisations that have left the public sector but continue delivering public services.  Employee control plays a significant role in their operation.”

The government has shown it is open to new models involving private providers. These could include joint ventures, or partnerships between employee mutuals and private sector or third sector partners. Private or third sector partners may have skills in business planning, procurement, HR management systems and access to finance.

A co-owned joint venture to deliver public services, bringing together NHS employees and private or third sector partners, may harness the best of both worlds in a new form of partnership.

Critics argue, however, that these hybrid models could be used as a Trojan horse for privatisation.

The desire to encourage public service mutuals has been supported at regular intervals by a series of coalition government initiatives, most visibly in

• the policy Open Public Services, which heralded the creation of an individual’s legal right to choose their provider of public services; and
• a push for greater diversity of suppliers including the establishment of more social enterprises by frontline public sector staff.

Practical obstacles

A programme of financial and business support has been taken forward under the Mutuals Support Programme, which now incorporates the Department of Health’s social enterprise investment fund, and the Delivering Differently programme.

In the NHS the “right to provide” has seen the launch of a handful of large scale employee led “spin-outs” by the provider arms of primary care trusts. The rest have been much smaller scale operations for discrete service areas.

However, the decision of NHS Gloucestershire in 2012 to abandon the proposed transfer of 3,000 staff and services to a community interest company following a successful judicial review demonstrates the difficulties involved in winning hearts and minds, and gaining support from key stakeholders, including trade unions.

There remain some very practical obstacles to progress.

First is the attitude to risk among NHS managers. Although frontline staff may be keen to spin out their services, senior managers are often quick to pour cold water on their ideas.

‘EU procurement rules have been a barrier to progress’

There needs to be a sustained programme of education and training to make the policy work. The disruptive innovators need to be nurtured, not neutered.

Surely this is an area where an innovative partnership between the DH, commissioners and business schools could play a role?

Second, access to start-up funding is still very limited.

The Cabinet Office launched a fund to provide “in kind” business support to public service mutuals, but cash grants for start-ups to develop their initial business plans are very hard to find.

Despite the recent launch of lending programmes targeted at the social enterprise sector, new mutuals invariably lack a suitable trading history to meet funding criteria unless they have a guaranteed contract worth several million pounds.

Third, there is a requirement for business planning skills, effective human resource management and marketing expertise – all of which may be lacking in teams of public sector employees.

Expecting frontline managers to develop their plans while still doing their day jobs simply will not work; there needs to be a sustained programme of protected time, training and coaching to achieve any kind of scale.

Fourth, EU procurement rules have been a barrier to progress. Commissioners may find it difficult to award contracts to a preferred spin-out supplier if the opportunity needs to be exposed to competition laws because of its high value or likely cross-border interest.

The new regime

Article 77 of the new Public Procurement Directive, which should come into force early next year, may provide some assistance.

It allows commissioners to restrict participation in a contract award process for certain types of health and social care services to only those organisations with a public service mission and a level of employee ownership.

The new regime still does not permit a direct award without some degree of competition.

‘NHS staff will want to know that others have already trodden the path and been successful’

Some commentators advocate using the “Teckal exemption”, which allows public bodies to award contracts to entities they control.

However, creating a wholly owned subsidiary of an NHS body is – at worst – an artificial device, legally difficult and seems to fly in the face of the independence and autonomy required for a truly innovative healthcare provider.

The other side of the coin is the commissioners’ awareness of the benefits and possibilities of a mutual model and a willingness to entertain innovative proposals.

The Commissioning Academy programme has had some success in providing commissioners with an understanding of mutuals and associated business models to enable them to develop processes that will open up markets, but there is more work to do.

The Cabinet Office published more guidance for commissioners on 31 July.

Realise the vision

Finally, there is still a lack of well publicised shining examples.

NHS staff will want to know that others have already trodden this path and been successful.

There is a better selling job to do on the benefits of mutualism.

Government ultimately will need to actively manage the market and promote opportunities to ensure a pipeline of successful projects.

The transformative power of mutuals and spin-outs in changing the way health and social care services are delivered has clearly been recognised by the government.

Now there is more practical work to do to realise the vision, first articulated in 2010, that the NHS should be the “largest social enterprise sector in the world through the liberation of foundation trusts and handing over of services to NHS staff”.

Mark Johnson is a partner in the public services team at Geldards LLP