The commercialisation of services in local government is not a novel endeavour. Local authorities have been seeking to maximise revenue from existing income sources for some time. However, local authorities are now challenging themselves to deliver commercialisation on a scale of which they have never done before and that could bring about a new and transformative chapter for the sector.
Over the last decade, the local government sector has been subject to significant financial pressures, with an overall 28.6% real-terms reduction in spending power from 2010/11 – 2017/18, which includes a reduction in government funding of 49.1%. Coupled with the uncertainties resulting from the outcome of the EU referendum and the unknown impact it will have on local authority finances, it is reasonable to expect the period of transformation of government services to continue for at least another decade.
“Despite greater freedoms to increase council tax bills and one-off short-term funds from government, local authorities are struggling to juggle higher demands and cost pressures against significant central government funding cuts of nearly 50% since 2010/11”.
(National Audit Office report into the Financial sustainability of local authorities 2018)
The continued pressures of the financial environment on vital services such as social care and special educational needs have led a number of local authorities to explore commercialisation of services as part of their transformation agenda; radically rethinking their approach to delivering all services.
The risks of commercialisation are significant and not to be underestimated, this is taxpayers’ money after all, but the rewards could allow local authorities to improve local services and in the long term create new opportunities that enhance the role of local government in the community.
In this article, we’ll describe four elements that can help a local authority and its executives create strong foundations for commercial growth.
A driver for increasing commercial activity in the sector may be the financial environment and reduced funding from central government, but it should not define the purpose of such activity.
Local authorities must be able to make a pitch to both their: employees, community, and customers, that makes them feel compelled to support it and be a part of. Every business venture from a small startup to a multi-national company must be able to define the problem they want to solve in the market and why they are best placed to solve it – the value proposition.
There needs to be strategic consensus and unity that this is the right thing to do within the executive team, parallel to a recognition of the risks.
Having the right advisors around the table that are able to give ongoing and long-term support to commercial activity is also critical. This means building your commercial capabilities by getting advice from key internal departments such as finance, HR, marketing, communications and legal as well as individuals with an understanding of building commercialised services.
Building consensus is important because just like any new venture there will be bumps along the way that aren’t foreseeable and you’ll need a team available that can stay the course, solve problems and that recognise that success will not come in the short term, it will take time to build.
Local authorities are positioned excellently to pivot into the private sector in ways that startups don’t. They already have office infrastructure, access to technology, meeting rooms and support services such as IT, human resource, finance, to name but a few. By releasing some capacity from their existing activities, local authorities should leverage their existing scale, assets and resources to help a new venture get off the ground. These initial investments of time and resource may seem cumbersome, but can be offset against future returns as part of the start-up costs.
Words like profit and gross margin are not part of the typical local authority lexicon, but cannot be avoided. Without honest and frank discussions about these metrics, the sector cannot start tuning in to the complex nature of selling and measuring its success. We need to talk about profit when there is none, just as much as when there is some.
In building the organisation’s commercial capabilities, decision makers need to get used to talking openly about business plans, the sales strategy and financial performance. In doing so the local authority can then have open conversations about the opportunities worth pursuing that will bring profit back in to support vital services.