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ESRC/TSRC/ACEVO Policy Seminar

Third Sector Service Delivery: Marrying

Scale and Responsiveness?

Tony Bovaird, March 2012

Topics• Conventional wisdom on public services?• A new model of local governance?• Self-organising and self-help• Co-production • So, what does ‘scale’ mean?• Importance of ‘economies of scope’ and

‘economies of learning’• Evidence of potential for third sector

contributions: neighbourhood and community level public services

Conventional wisdom for some years (e.g. Beecham, Christie) has suggested that:

• Transactional services have big economies of scale, so should be centralised at county, regional or even national level, but subject to competition and regulation (applies to TSOs as well)

• Personal services have few, if any, economies of scale, should be ‘commissioned’ (often procured externally) and increasingly co-produced with users and communities (usually through TSOs)

• Infrastructure-heavy services should seek flexible solutions, which can be delivered with other services and partners to ‘sweat the assets’ in service hubs (at different spatial scales) (so other assets can be ‘left to the community’, through TSOs)

• Regulatory services should be determined by ‘economies of scope’ – at what scale can ALL specialisms be hired necessary for a function?

• BUT THE ANALYTICAL GOALPOSTS HAVE MOVED:– ‘transactions’ are now seen to be holistic, with ‘social component’– ‘personal’ and ‘infrastructure’ services are seen to have multiple outcomes

and therefore ‘commissioning’ is multi-stakeholder– regulatory services can now be partly externalised – economies of scale can be reaped by partnerships, not by mergers

Organisational differentiation and integration

• Adam Smith: greater efficiency through specialisation (‘division of labour’)

• Greater specialisation allows more expertise to be developed in each aspect of provision and to organisational differentiation

• These specialised providers can either set up different organisations (each producing their specialist products) or differentiated units within an the organisation (or a partnership)

• Differentiation can also lead to economies of scale (as can many other factors, e.g. technical, financial strength, procurement discounts, etc.)

• Within an organisation or partnership , there is a need to integrate these differentiated units in some ways – e.g. through reporting to the same manager, having some joint staff, having joint meetings, having shared targets, etc.

• The trajectory of management in organisations (and in sectors) is often a series of waves of differentiation and integration (Lawrence and Lorsch, 1967)

So what does ‘scale’ now mean?• Economies of scale: where an increase in

inputs brings a larger increase in returns ... (e.g. handling all customer contacts in one system?)

• ... but an increase in WHICH inputs?• Up to now, there has been major attention to

inputs made by or paid for by public agencies• This is misleading in terms of the ratio of

outcomes to costs in the community ... (e.g. the extra time taken by housing clients to get their repairs done through a multi-purpose joint venture call centre)

• ... but we would need to measure user and community inputs in the future if we wanted to take account of this

• Warning: many empirical studies suggest constant returns to scale, others also find diseconomies of scale

Informal economy outputs

Informal social value-adding outputs

Value-adding outputs in market, public and third sectors and in civil society – how big are these different circles?

What’s going on ‘out there’?

Formal volunteering

Private and third sector

market outputs

Public sector outputs

Informal social value-adding outputs

Economic, Social, Political &Environmental Value Added

REAL Value for Money is about the OVERALL supply chain for outcomesSource: Modelling Birmingham – the conceptual brief

Importance of ‘economies of scope’ and ‘economies of learning’

• Only in 1980s did importance of economies of scope become widely appreciated – savings which occur when the RANGE of activities undertaken by an organisation (or partnership) increases (because they have joint costs) – e.g. where the ‘meals on wheels’ staff check and report back on wellbeing of meals recipients

• ... and importance of economies of learning – where savings occur over time as staff AND users learn how to co-produce the service better – e.g. getting inquirers to have details with them when they call the call centre, getting ‘meals on wheels’ deliverers to respect agreed time of delivery and users to wash yesterday’s reusable tray and dishes

– means we should avoid disruption - ‘churn’, ‘initiativitis’

Implications of economies of scope

• Activities which gain from being done together SHOULD BE done together – either in a single multi-purpose organisation or in a ‘seamless service’ in a partnership

• Transactions costs of SEPARATING activities which naturally have ‘joint outputs’ may override economies of scale – e.g. joint needs assessment rather than single needs asssessment

Some potential market typesEconomies of scale

Economies of scope Both

Differentiated demand – niche markets

Large-scale providers of single services to specific client groups

Niche providers with client-specific packages (going as far as ‘personalisation’)

Large-scale multi-service packages for specific client groups (‘Mass customisation’ - Toyota – financial services)

Multi-service consortia for specific client groups

Undifferentiated demand - mass markets

Mass production(‘Macdonald-isation’ – ‘easy-Barnet’)

Multi-purpose conglomerates (ACEVO?) or partnerships (HWBBs) for wide range of client groups

‘Tescoisation’ (Capita, SERCO?)

Partnership Forms

UmbrellaGroups

Consortia

Contracts

Diversity of Forms in Case Studies • Welfare to work supply chains- private primes• Joint bidding consortia • Shared services organisations –trading • Umbrella groups – UK-wide federations• Mergers and Group structures – continuum• With charities – support for small and local• With public sector agencies & users – place

based commissioning and service redesign• With private sector – more transactional?

Partnerships Continuum

AUTONOMY‘LOOSE’ PARTNERSHIPS

CONTRACTSALLIANCES

JOINT VENTURESGROUP STRUCTURES» MERGERS/AMALGAMATIONS» INTEGRATED UNITARY ORGANISATIONS» DEPENDENCE

Independence decreasesIntegration increases

Transaction Costs increase, Scale Economies decrease

TSRC Findings on Impacts and Outcomes of Partnership Working

• Rare to consult users on outcomes, except through Place Survey• Impacts of partnerships on services and users: often too early to

say, or not monitored • Concern about how to measure impact on services, especially in

downturn • Hard to find evidence for cost savings, especially where it wasn’t

the object of partnership • Better evidencing of savings from mergers in Housing • It’s hard to compile evidence about benefits or otherwise of

partnership – because of ‘warm glow’ and attribution issues• Nevertheless, partnerships strongest where there is external

funding to be pursued AND partners have ownership, AND clear (shared) purpose AND potential synergy – conversely externally mandated & steered partnerships the LEAST SUCCESSFUL

Building blocks: Identifying which public services can be devolved to TSOs at neighbourhood level?

• Identifying outcomes desired – e.g. Children’s Act (healthy, safe, enjoy & achieve, positive contribution, economic wellbeing)

• Unbundling the activities contributing to outcomes – i.e. ‘service value chain’ (governance, commissioning, prioritisation, planning, design, financing, management, delivery, assessment)

• Identifying cost-effective configurations of organisations in providing these activities to achieve these outcomes – and roles of citizens, councillors and other stakeholders in these organisations

• Identifying resilient service systems, given the risks of failure

• POTENTIAL LESSON: Almost ALL services are able to be devolved to neighbourhood level, AT LEAST IN PART, in future – it’s not ‘EITHER/OR?’, it’s ‘HOW?’ and ‘TO WHAT EXTENT?’

Example: Potential neighbourhood level input to adult social care services

• Outcomes: Quality of Life through Control (‘independence’), Personal care (‘satisfaction’), Food and Nutrition, Accommodation, Safety, Social participation, Occupation (Employment), Dignity (NB: not all have indicators, ignores research on ‘friends, confidantes, company)

• Activities: governance, micro-commissioning, prioritisation, planning, design, financing, management, delivery, assessment

• Cost-effective configurations of organisations: Mix of public, private and third sector suppliers

• Roles of users, citizens and other stakeholders: Contact with citizens critically important to priority outcomes of users – needs to be built into commissioning, design, delivery and assessment

• Resilient systems: Failure is common, likely to increase – need for public sector ‘emergency intervention’ role, probably 3rd sector delivered

• Lesson for TS working at neighbourhood level: Important to include neighbourhood representatives (e.g. users) in governance and assessment of both local commissioning process and providing organisations – also important to build their capabilities into delivery – LIMITS ECONOMIES OF SCALE, PROMOTES ECONOMIES OF SCOPE

Bottom-up analysis• Average London Borough has 245,000 population and spends 50% of its

budget on fewer than 10,000 people (Barry Quirk) – 4% of population• 120,000 problem families said to cost nearly £8bn to national public purse

(Eric Pickles, 17.10.2011) – by spending £14,000 per family on a more co-ordinated service, the state could save £70,000 per household (actually £52,000!). Should we let contracts one at a time to support these families?

• OR what about forming a FamilyRing network for every 10 families, taking the families out of most public services - £520,000 p.a. per FamilyRing? How much would a TSO be prepared to bid for such a contract?

• OR what about 30 different services in 8 different public sector organisations?

• OR one public sector organisation with all functions for families with multiple functions?

• OR one public sector organisation with ALL functions for ALL citizens?

• THEN – what kind of organisation should deliver to the REMAINING 96% of population?

Scaling up provision (including third sector) from neighbourhood to council-wide, regional or national levels

• In absence of clear a priori arguments for relative strengths of economies of scale and scope, we should remain market-structure-neutral and launch experimentation ...

• ... ‘fail early, fail fast, fail cheap’ – LEARN SMART• This needs to be based more on analysis of potential risks to citizens

and service users and less on risks to the decision makers and their organisations

• There needs to be proper planning for dealing with (increasingly inevitable) failures in provision (and commissioning)

• Part of this ‘failure planning’ is designing resilience into communities, public services and partnership arrangements

Conclusions All change … with huge risks … but risks from both change and ‘non-change’ Huge latent willingness of citizens to become more involved … … but only if they feel they can play a worthwhile role If this happens, all previous public service models which have

privileged ‘economies of scale are suspect Needs experimentation – none of the emerging new service

configurations are well understood, none can be regarded as ‘reliable’ – this experimentation needs to be across sectors

Experimentation needs resilient systems, ‘last resort’ intervention plans, slack resources – primarily public sector role

Must be ready for scary world of ‘trusting’ –users, citizens, trusting partners, voters – surfacing likely outcomes, risks and impacts

All radical change will cost resources – ‘neighbourhood’ and ‘community’ interventions, even when based on ‘co-production’ and ‘community assets’, are not ‘free’ – TSOs cannot facilitate and enable this ‘brave new world’ on goodwill and fresh air alone

Contacts

David Mullins d.w.mullins@bham.ac.ukJames Rees j.e.rees@bham.ac.ukTony Bovaird t.bovaird@bham.ac.uk

OPTIONAL SLIDE: Why ‘user and community co-production’?

• After 10 years of Best Value and ‘Transformation’, we’re MUCH LESS CERTAIN that we are doing things the best way – but still uncertain about what ‘better’ looks like (the outbreak of ‘humility’)

• We now realise that service users and their communities know things that many professionals don’t know … (‘users as thinking people, communities as knowledge bases’)– E.g. co-design of services, co-authors of user manuals

• ... and can make a service more effective by the extent to which they go along with its requirements (‘users and communities as critical success factors’)– E.g. self-medication, self-management of long-term conditions

• ... and have time and energy that they are willing to put into helping themselves and others (‘users and communities as resource-banks and asset-holders’)– E.g. peer support (Knapp et al, 2010); expert patients programme

• TS organisations are a key mediator of these relationships

OPTIONAL SLIDE: Different types of co-production

• Co-governance of area, service system or service agencies – e.g. neighbourhood forums, LEPs, HWBs, school governors

• Co-commissioning services – e.g. personal budgets, participatory budges, devolved grant systems

• Co-planning of policy – e.g. deliberative participation, Planning for Real, Open Space

• Co-design of services – e.g. user consultation, user-designed websites, Innovation Labs

• Co-financing services – fundraising, charges, agreement to tax increases, BIDs

• Co-managing services – leisure centre trusts, community management of public assets

• Co-delivery of services – peer support groups, expert patients, Neighbourhood Watch

• Co-monitoring and co-evaluation of services –user on-line ratings, tenant inspectors