Mutual spin-outs: a flash in the pan?

Front line public service staff are being encouraged to take responsibility for their own future and that of the service they provide by spinning out to form independent social enterprises. An encouraging number of staff groups are already rising to this challenge… but cast your mind five years down the line…are mutuals delivering a substantial proportion of public services and are they thriving in a sustainable market? or have they faltered and given way to larger private sector providers – in other words have they been nothing more than a flash in the pan?!

We will be running a workshop on Tuesday morning between 10 and 12 to consider this critical issue. We will be discussing what the dream scenario is, what the nightmare scenario is and what needs to happen to ensure that mutual spin outs positively change the way public services are delivered forever!

It would be great if you could come along and share your views!

This theme is being led by Andrew Laird.

One Response to Mutual spin-outs: a flash in the pan?

  1. What can be understood from last week’s news that the Coalition Government will be scaling back plans to outsource large parts of the public sector but looking to partnerships between private investors and new public sector mutuals?

    One example of this is Circle Healthcare which is owned 49% by its staff and with significant minority shareholdings for venture capital backers and the senior management of the company itself.

    There are three reasons why this makes sense, from the Government’s point of view. Firstly, this brings private capital into play instead of public funding being required. Remember, each ‘Right to Request’ spin-out from the NHS has cost the Government tens, sometimes hundreds of thousands of pounds. A private partner with a long credit line can bring much-needed capital to a cash-strapped public sector.

    Secondly, a private partner would bring expertise. Public sector spin-outs tend to be led by passionate teams of people who, certainly early on, lack the commercial nous to run a business at scale. Plus they have to set up all sorts of things from scratch – such as back-office, HR etc – which is simply very hard work. A good private partner could provide all sorts of help to the newly stepped-out organsiation.

    Thirdly – and this is the big one – partnerships of this type could be set up quickly and at scale. Average times for spin-outs, from conception through to execution run, from my experience, at 18 months to two years. Much of that is due to the internal approvals process, but much is due to the fact that the poor people leading it have to do this on top of their day jobs. It is a long firewalk, meaning few people have the energy and time to do it. A partner could make this easier.

    So, there’s the case-for. But will this work? There’s a few big questions here. One concerns the nature of partnerships between mutually-owned and for-profit organisations, particularly those from the world of private equity. One, essentially, is driven by a range of goals, often including social ones, the other mainly by short-term bottom-line. Who wins out – or rather how a compromise is arrived at which satisfied both sets of owners is an interesting question. The truth of the matter is that commercial capital will not settle for sub-optimal returns given the risks involved here. So where the goals of mutualism – or social goals – will fit in remains a moot point.

    Another big question concerns the meeting of cultures. Although this sounds less significant, I don’t think it can be underestimated. Every single person who I have met who leads a stepped-out organisation is motivated by social purpose. They strongly identify with public sector values, albeit ones which see social enterprise as the appropriate vehicle for this. Culturally and politically, they are mostly people of the Left, who are sceptical about the values and motives in the UK private sector. Essentially, you’re talking here about mixing oil and water.

    A final question in my mind concerns the scale of ventures. Most mutuals or social enterprises tend to be defined by geography or function. A passion for people, place or profession is often a big element in these ventures. They aspire to be local, to be connected, to be human-scale. The dynamic of the private sector is around scale, either by organic growth or takeovers. The natural tendency among providers with private partners will be to seek to maximise value by taking over other organisations by merger or acquisition, strip out costs, find economies and so on. You see this right across the health and social care sector now, leaving us with very large providers, hugely efficient but also somewhat remote and soulless, with ownership often based overseas or in sovereign wealth funds.

    While some degree of mutual ownership would mitigate all of these three problems, I wonder how far this would be the case – given who will hold the purse-strings and whether, in the end, even this approach, while well-intentioned, might lead to a fairly poor set of outcomes, when viewed from a social point of view.

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