Independent research with CIPFA across local authority CEOs and CFOs found that:
- 40% of local authority leaders say commercialisation plays some part in their current strategy
- However, only 4% of public sector CEOs and CFOs say they have significant commercial expertise
- Positive progress is being held back by a lack of understanding of what the market needs (36%) and concerns about the risks involved (56%)
- A restrictive culture (40%) and discomfort about new models (56%) is also having an impact
- Despite this, those with a commercial strategy say commercialisation gives them more control over developments in the community, builds closer relationships with the people they serve and supports the creation of new jobs
A new report published today by Civica, a market leader in critical software applications, digital solutions and outsourcing, in partnership with The Chartered Institute of Public Finance & Accountancy (CIPFA), reveals that local authority leaders understand the importance of a more commercial approach, but lack the experience and support to embrace it fully. The report, ‘The Commercial Imperative’, explores the role of commercialisation as a way for authorities to close the funding gap, become self-sufficient and provides step-by-step guidance on how to find the right path to achieve a sustainable commercial model.
Following increased financial uncertainty and another tough financial settlement for councils in England, whereby Government grants have been cut by 25% and organisations are expected to be financially self-sufficient by 2020, local authorities are looking beyond service reduction towards commercialising services. While commercialised approaches and options are plentiful, finding the right strategy that will deliver genuine returns is a task that few local authorities have found easy.
Rob Whiteman, Chief Executive, CIPFA commented: “Commercialisation is going to be one of the most important priorities for local authorities over the next decade. If they haven’t already, council leaders and CFOs must start thinking about short, medium and long term strategies for generating their own income. Reappraising their appetite for risk is vital to making these endeavours successful. Not every attempt will make money and as public bodies using the public purse, it’s a difficult position to be in. But a thorough review of risk management, cost and modelling systems, together with open conversation at a board level can make it easier.”
At a recent Leadership Forum, Civica brought together a group of local government and private sector leaders to discuss how to achieve a sustainable commercial model. The discussion and independent research across 45 local authority CEOs and CFOs, and the report it informed, outlined that local authorities must be passionate, committed and agile while battling against financial constraints, complex demands and rapidly innovating competitors – just like private businesses. This is the only way to generate the results required to state their claim in the commercial race and improve the lives of the communities in which they operate.
And, while 40% of local authority leaders said commercialisation plays some part in their current strategy, public sector CEOs and CFOs have admitted that they don’t have as much commercial expertise as they’d like. In fact, only 4% claim to have significant expertise in the area. Council leaders and CFOs across the UK believe that commercialisation is not only being held back by lack of experience but by concern about the risks involved, discomfort about new models (56%) and a restrictive culture in the public sector (40%).
Despite this, there are some ambitious and progressive local authorities in the UK that are leading the way with innovative commercial endeavours. For example, in 2015, Bristol City Council announced the launch of Bristol Energy, one of the first wholly-owned municipal energy companies to enter the market. The council has invested into the company based upon Market Economy Investor Principle (MEIP), along the same lines as private equity investors would do, including return rates from the investment, which are above 20%.
The research also found that 65% of council CEOs and CFOs surveyed plan to implement larger more radical projects to generate greater income streams, with 35% looking to implement smaller, less risky projects to do so. Hull City Council has successfully saved £165m by implementing multiple initiatives both big and small. Brendan Arnold, Director of Finance, Infrastructure and Transformation at Hull City Council, explained: “I think organisations make the mistake thinking that the small stuff doesn’t matter. It matters immensely and stacks up to numbers that really make a difference. If you ignore small opportunities and don’t exploit them, that is a missed opportunity.”
In fact, the Leadership Forum discussed four revenue generating opportunities that, in their experience, should be considered to address the severe funding gap:
- Trade directly with communities
- Make the most of existing assets & boost the local economy
- Share and sell services amongst peers
- Drive digital: To create efficiencies & new revenue streams
Wayne Story, Group CEO of Civica, concluded: “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 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.”
‘The Commercial Imperative’ outlines critical success factors influencing commercial journeys, four ways to generate revenue and six practical steps to help local authority leaders build a sustainable commercial model. It is the fourth installment in Civica’s‘Changing Landscape’ report series.