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Solace blog

31st August 2017

Exploring new methods to bridge the funding gap

Today’s austerity climate demands commercialisation strategies and partnerships within local government which will deliver increased efficiencies as well as boost income.

Recognising this, 94% of local authorities now share some services with another authority and 58% own a trading company. But how do you recognise and develop the right commercial skills across your organisation and broker successful partnerships that make financial sense?

Our 2016 report, ‘The Commercial Imperative’, examined how reduced central government funding has driven local government senior management teams to adopt commercial strategies and identify alternative income streams to plug the funding gap. However, a lot has happened in the last year, including the continued tightening of public sector belts and the impact of Article 50 being triggered – not to mention another general election looming. In light of this, Civica hosted a recent Leadership Forum with over 20 senior leaders across the public sector to discuss how the
landscape has changed and whether the success factors outlined in the original report were still valid.

Small steps can be key

One constant since the original report is the need to adopt targeted commercial models. This has become more crucial than ever as the political landscape remains in flux. In fact, today 91% of local authorities use assets, such as the land they own, in an entrepreneurial manner to generate income. One successful example of this is Wychavon District Council in Worcestershire, which has adopted a sophisticated land strategy, including purchasing land, developing, sales and rental initiatives. A key programme is its regeneration of Droitwich town centre, which involves
building a new supermarket and generating rental income from the tenant. While this has led to local economic benefits and increased footfall in the town centre, it’s also allowed the council to generate a higher income from business rates as well as increase employment, thus reducing benefit spend.

However, while commercialised approaches and options are plentiful, finding the right strategy to deliver genuine and reliable returns while supporting community priorities is a task that few local authorities have found easy.

Despite this, the Leadership Forum agreed that many commercialisation strategies have seen great success to date, with one attendee stating that, “If you added up all the returns made from local government commercial schemes, it would be greater than the profits of a major UK supermarket chain.”

Nobody can deny that risk is a big factor in the current climate. To replace lost government grant funding, some councils are taking on risks perhaps unthinkable a decade ago. Councils need to commercialise as they’re forced into an increasing world of self-funding but the sector must stay mindful that investment returns must be properly balanced against risk. To mitigate against this, many local government leaders are taking smaller steps rather than one giant leap. In fact, 35% of council leaders and Finance Directors polled in ‘The Commercial Imperative’ report said they
were focusing on smaller, less risky project to bring in additional income.

Skills, culture and brave leadership are key to success

The Forum agreed with the initial report that the public sector needs to up-skill to deliver successful commercial models. While this includes traditional skills including legal, marketing and political awareness, it also includes more subtle attributes, such as working in alliances, good governance, and stakeholder management.

A cross fertilisation of skills is needed to provide the right leadership and share skills across the organisation. As a Forum member noted: “We must not be afraid to learn from best practice elsewhere – bringing people in from the sectors we are targeting who can provide the right leadership and also share their skills across our organisations.” To achieve this, you need a transformational leadership community which is willing to collaborate. This often comes down to the culture in an organisation. The Forum agreed that local authorities will make enormous commercial decisions if they feel it’s in the best interest of citizens. However, they are held so accountable that any false moves are often met with strong criticism. Unsurprisingly, our research found that 40% of council leaders and Finance Directors across the UK believe that commercialisation is being held back by a risk-averse culture for fear of retribution.

While it can be harder to reach consensus and decision making in the public sector, one delegate commented: “If you have a common vision, with trust and coherence around aims, the ability to make decisions can be as quick as you like.” It comes down to the commercialisation culture in the organisation and the ability of officers and politicians to manage this process.

Outcome-based results are crucial

For public sector organisations, outcome-based results will always be the driver as the ultimate driver for council members and politicians is their democratic mandate. The entire Forum agreed that all commercial actions must be transparent and show deliverable outcomes. Just as the private sector battles with tight budgets, an unstable economy, increasingly complex demands from customers and rapidly innovating competitors, authorities must be passionate, skilled, committed and disciplined to drive successful commercialisation projects forward.

Local authorities are juggling a wide range of transformational activities. While adding commercialisation to the mix may seem daunting, with no sign of financial and service demand pressures abating – it’s essential, as is building teams with the best skills. As always, those who make the journey with the most passion, commitment to success and flexibility will be the ones who see the best results. And ultimately will be the ones who most improve the lives of the communities in which they operate.

By Paul Bradbury, Executive Director of Business Development, Civica