Tuesday, 11 September 2012

The ripple effect of spin-outs: Improved services or just economies of scale?

Service providers are being enabled to spread their delivery model beyond the boundaries of geography and service type
aquatic centre
The Aquatic Centre in the Olympic Park is run by GLL, a company that has grown in the face of cuts. Photograph: Tom Jenkins
Recently a debate erupted on Twitter: would outsourcing services, where the focus is often on achieving economies of scale, be an obstacle to better services or an opportunity? While it's true that economies of scale are often treated with suspicion when it comes to the public sector, where the vision of private sector monoliths stacking it high and selling it cheap is understandably unwelcome, we are seeing a growing trend for service providers being enabled to spread their delivery model beyond the boundaries of geography or even service type. That's not necessarily a bad thing.
For our part, the Transition Institute entered the debate pointing out that while spin-outs can achieve economies of scale, we need to look at how that affects the quality of delivery. This is developed in our publication Scaling up your business: Expansion strategies for spin-outs, where the benefits to the service user are examined.
Once free of geographical or single institution administrative boundaries, spin-outs can spread quickly across boroughs and towns. A good example of this is GLL (Greenwich Leisure Limited), which started from one leisure centre in Greenwich, was threatened by cuts, and has now grown into a company that manages more than 100 facilities across more than 20 local authorities, including the Aquatics Centre in the Olympic Park, and is now looking beyond sports leisure facilities to libraries as possible services that could benefit from its model of co-operative ownership and community engagement.
This is how outsourcing service provision can achieve economies of scale, but how can that move also unleash innovation? Does the act of removing administrative boundaries enable providers to look outside the original site or district? Or can enlightened contracting actually encourage increased innovation?
A good example is the Innovation Unit, an organisation that started life as part of the Department of Education, from which it spun out in 2006. While it was part of the department, the unit supported innovative programmes for schools and was highly successful in doing so. It is reasonable to assume that the unit would have remained successful had it remained where it was; however, by spinning out the department and becoming a self-determining social enterprise, it established a model that enabled a coalition of ideas and innovations developed in studying education trends to other services, right the way across the public sector. As an early adopter of independent status, the Innovation Unit now operates in areas like environmental policy, health and social care and education.
By spinning out, it has made the transformative potential available to more public services than if it had remained a service managed within the public sector. It is our observation that this trend is helping to build data and models that could generate a more forward-looking and innovative public sector.
We are seeing more expert agencies that are able to operate beyond a single local authority and, in doing so, move tried and tested ideas from one site to another without the expense of repeated trial and error. A good example is Pure Innovations, which has developed an innovative approach to social care and employment services. Once it had spun out from local authority control, it has not only continued to diversify and grow, but also been able to establish consultancy services.
The public sector has started to benefit from agencies like Pure Innovations, the Innovation Unit and GLL, not only through the economies of scale they can generate, but also by looking beyond the sell-by-date approach often found in established but unchallenged public service delivery.
One final example is the Cleveland Fire Brigade, which we believe is the first fire and rescue service to spin out and that now plans to finance itself with additional revenue achieved in providing services as security consultants. If its model succeeds, it will have found a way to maintain a public service while also generating income from operating as experts in the market place. In this way Cleveland Fire Brigade could act as a useful example to other emergency and security services.
These trends are interesting in that they offer solutions at a time when budget cuts and increased demand are prompting commissioners to seek alternative approaches. When an organisation spins out, it could be a success story, not only by achieving economies of scale but by also improving service delivery and increasing the public awareness of a diversity of models beyond the perceptions of conventional public/private sector delivery. In this way these new, enlightened providers are helping to build a more efficient and resilient public sector, fit for the challenging 21st century.
Allison Ogden-Newton is former chief executive of Social Enterprise London