The Opportunities and Challenges of the Changing Public Services Landscape for the Third sector in Scotland: A Longitudinal Study (2009 - 2013): Year 4 and Final Report

4 Organisational Responses to Change

Summary of Key Findings

Chapter 4 considers more general organisational responses to the policy and funding changes discussed in previous chapters.

Partnerships and External Relationships

• While third sector organisations recognise the importance of partnership working, in times of economic pressure organisations many tend to defend their own interests.
• Specific funding streams and the Public Social Partnership model were cited by third sector organisations as providing the momentum for developing partnerships.
• There is considerable variation in the relationships between third sector organisations and local authorities in different areas.
• The turnover of Scottish Government officials moving posts caused difficulties of knowledge, consistency and duplication for third sector organisations.
• Participants perceived that third sector involvement in local authority decision making processes was usually tokenistic.
• By Year 4 nearly all of the participants had heard of the third sector interfaces, but engagement with them was low. Participants continued to be involved with intermediary organisations such as SCVO, using their information services for example.
• Partnerships and relationships with private sector organisations are increasingly important e.g. because of their leading role in the delivery of the Work Programme; and the importance of corporate social responsibility for private sector organisations.

Governance and Leadership

• Across most of the organisations participating in this research there has been change to senior management teams, boards of trustees and governance structures during the period 2010-2013.
• In Year 4, the composition of board members appears to have stabilised in many, but not all, of the third sector organisations, compared to earlier years.
• The composition of boards is changing, in general their role appears to have become more professional and more closely integrated into the overall strategic direction of the organisation.
• Maintaining staff morale in a time of economic uncertainty and dealing with the pressure on organisational budgets are some of the key challenges faced by managers.
• The Self-directed support agenda means that leadership structures are likely to change.

Changing Organisational Structures and Working Conditions

• The internal structure of third sector organisations participating in this research has changed significantly over the period 2009 to 2013 e.g. the structure of senior management teams; the function of Boards of Trustees; the terms and conditions for staff; the mission and purpose of organisations.
• Cost savings were being made through front-line staff wage freezes. This has meant a real terms decrease in pay for many third sector staff. Cost savings were also being made through redundancies and reduced working hours for other staff.
• Under personalisation, services (and staff) will have to be more flexible and responsive to the needs of the customer.

4.1 Overlapping with the responses to specific policy and funding changes, discussed above, there appeared to be major developments within our participating third sector organisations in terms of partnership relationships with external bodies, organisational leadership, and changing organisational structures and working conditions.

4.2 Partnership working is a key tenet of Scottish Government policy concerning the delivery of public services. The aim is to deliver efficiencies and innovative synergies in the way in which the services are designed and delivered. This section explores the third sector organisation's experiences of partnerships and relationships more generally with external organisations (national and local government, other third sector organisations, intermediary organisations and the private sector) over the four years of the project.

Trends in Partnership Working

4.3 In Year 1 a number of participants felt that partnerships would become increasingly important in the future in order to continue to deliver services in a tight financial climate. By Years 2 and 3, this view had gained even greater currency. Accessing funding as well as more 'joined up' working were key drivers towards partnerships. For example:

"If anything I think there is a slight move towards more competition because there is less money around and I think there is more organisations looking to get into space that others are in so that they're being quite competitive" (Senior Manager, Employability Provider)

4.4 However, while the participant narratives indicated the importance of partnership working, between Years 1 to 3, participants also expressed the view that the sense of being in 'competition' with other similarly focused third sector organisations had been increasing. This may be dependent on the area of service delivery, with one organisation delivering health and social care arguing that the area they worked in was so small that third sector organisations worked together rather than in competition, as follows:

"There is always that competitive element but I think it is contained…We have to work together really. So it's in all organisations' interests to be nice to each other" (Senior Manager, Health and Social Care Provider)

4.5 In areas where there is a more 'saturated' market e.g. employability, the sense of competition is arguably more acutely felt (in addition, with regards to the employability field, it could also be the case that a heightened sense of competition could be due to the market orientated mechanisms used by the UK government in the Work Programme for example). This view was repeated by some participants in Year 4 (although specific examples were also given of the importance of developing networks of third sector organisations and the strength these networks could have in dialogues with local authorities for example). Organisations tended to defend their own interests under pressure and could be less inclined to share. Funding constraints made it difficult for organisations to work in partnership, although many wanted to, for example:

"…generally in the age of austerity and public spending cuts and massive cataclysmic changes in welfare, there is generally I suppose a feeling of certain suspicion. I think people are wanting to keep their cards maybe a little bit closer to their chest" (Manager, Employability Provider)

4.6 In Year 3, some interviewees perceived that funders and commissioners were often keen on partnership working, but felt there was less understanding generally about the complexities and legal issues involved. The importance of outlining the scope and mechanisms of partnership at the beginning of the process (i.e. when a joint bid was submitted) was cited by a participant in Year 4 as being important to ensure that the strengths of partnership were best exploited. Others also stressed the importance of communication more generally if partnerships were to be successful.

4.7 In Year 4, some participants reported the development of new partnerships (and also the further development of pre-existing partnerships) with both public and private sector organisations. In some instances, specific funding streams and the Public Social Partnership model were cited as providing the momentum for developing partnerships (although others mentioned that the specificities of funding could hamper the development of partnerships). One participant whose organisation had accessed one of the Change Funds^[10] (which a few other organisations had also accessed) felt that this funding was helping organisations work together, as follows:

"The Change Fund has been the singularly most impactive development to push organisations towards greater collaboration…It is pushing organisations together in an area where they are speaking to each other much more evidently than I ever saw in the first three Years" (Senior Manager, Employability Provider).

4.8 Another organisation identified that another funding stream that they were involved with had helped to develop linkages with other organisations as all projects had to be delivered in local partnerships. A government review had meant that one organisation was developing different linkages with the Scottish Government as they were now invited to sit on committees. Previously their linkages with the Scottish Government had been through their campaigning work.

4.9 Partnerships are not solely between organisations but can be identified within organisation. Participants from one organisation reported that partnerships between different projects within the organisation had developed, and instead of bidding against each other for funds, they were now putting in joint bids for example.

Partnerships and Relationships with Local Government

4.10 There were considerable variations in the relationships between third sector organisations and local authorities in different areas between Years 1 and 3. A number reported good communication over the years. However, there had been and remained a number of challenges e.g. trying to maintain relationships with representatives in local authorities during a period of local government structural change. In Year 4, some participants did not feel that there had been any significant change in their relationships with local authorities. Some participants continued to report positively about some of their relationships with local government e.g.: relationships becoming much more partnership based; opportunities to influence thinking and contribute to group discussions around solutions against particular problems; co-production etc.. However, organisations working across many local authority areas identified variation across them, and participants continued to identify challenges in working with local authorities. The narratives in Year 4 show how relationships with local authorities, and experiences of localism, were shaped by funding concerns and the policy priorities of local authorities.

4.11 One participant described how they were invited to attend meetings with different parts of a local authority. However, they felt that the third sector representation was tokenistic and that their opinions were not taken on board, and on occasion there was a lack of respect for the third sector. They said:

"…they want you to attend all these meetings…and they're just a token seat sometimes for the third sector, I feel as well. And it's a waste of my time but I have got to go because if I don't go they're on the phone to [Chief Executive] that there's no representation of [third sector organisation]…it just feels like you have got to answer to a lot of people that aren't actually giving you money. So that can get a bit overbearing sometimes…" (Manager, Learning Provider)

4.12 Feelings of a lack of trust and respect for the third sector were reiterated by other participants, as follows:

"There are some areas where it is complete tokenism, if we're involved at all; we're invited to the party but we're invited for the last half hour and sent away without getting a drink and a bit of food" (Senior Manager, Employability Provider)

4.13 Some participants felt that policies and understandings among senior policy makers were not always carried through at operational levels, for example:

"I think it's that local authorities have not yet, the senior people you hear them talk about partnership and they get it right, it's a bit like Swinney, he gets it. But when it's at officer level and they actually have to do something they take the shortest, fastest, the way that they're most familiar with and that's not partnership. It's we'll have a meeting with ourselves and then we will tell you" (Senior Manager, Employability Provider)

"So the actual statements of Ministers and the intentions of Ministers are circumvented by the weaknesses in the actual process and the bureaucracy of the process" (Senior Manager, Employability Provider)

4.14 Others identified that they were not invited to contribute to the design of strategies, their views only being sought later on in the process after key decisions had been taken; rather they were being treated as an external provider and not a core partner. In Year 4, personalisation was seen as changing the relationship between local authorities and third sector organisations; this was more anticipated although some cited that local authorities were starting a process of re-tendering services in the build-up to the roll out of personalisation.

Partnerships and Relationships with the Scottish Government

4.15 In terms of relationships with national Government, in Years 1 to 3 some reported that they had close contact with specific individuals or departments within the Scottish Government and felt that they were able to have direct input at that level. Some reported increased involvement with the Scottish Government in Year 4. However, others did report that they had increasingly difficult relationships with the Scottish Government (and other funders and commissioners) because civil servants did not remain in post for long so there was little time for them to build up knowledge. Or civil servants were extremely busy because of workforce reductions, therefore it was hard to build links. This could increase work for third sector organisations as they often needed to repeat justifications for projects (sometimes getting different answers on eligibility). For example:

"One of the consequences of people moving around to the level that they are, is that you don't have the same level of trust" (Senior Manager, Employability Provider)

"I think they have changed all of the staff that understand the eligibility criteria. So we now are being asked and having to spend time and re-justifying everything we have done in the past" (Senior Manager, Employability Provider)

4.16 There were similar experiences regarding relationships with officers in local authorities. A participant noted:

"The impact of workforce reduction and people moving roles is resulting in inconsistency in decision making, if any decision making…it is hard to get civil servants to sit across the table with you. And it's not that they're actively taking it as a strategy, it's that they are just so busy and they're all trying to do different things" (Senior Manager, Employability Provider)

4.17 In Years 2 and 3, a number of organisations had put more emphasis on campaigning to influence policy on issues that affected their client group and/or raising their organisational profile among Scottish Government policy makers as well as funders and commissioners. In Year 4 this trend continued. For example:

"So it is not enough to say you provide just to say we provide good quality services, as a charity campaigning is a big part of what we do and there's also a cost to being a campaigner, the people you have to keep up to date with all the policy changes, so we employ people in that area and the challenge for us is not to just get the message out, it's to filter it" (Senior Manager, Health and Social Care Provider)

Partnerships and Relationships with Intermediary Bodies

4.18 Intermediary bodies (sometimes called umbrella bodies or local development agencies) are those third sector organisations that exist to support the work of other third sector organisations. They can be generic ones that cover all functions (such as Third Sector Interfaces), ones that serve a particular group of third sector organisations or ones that support a particular function. They can also exist at the local community, regional or national level (such as SCVO). In Year 4, some reported being heavily involved with intermediary organisations whilst others reported a withdrawal from intermediary organisations.

4.19 From April 2011, new local intermediaries for the third sector were established in Scotland - the 'Third Sector Interfaces'. Each local area had a newly established interface with clear links to Community Planning Partnerships (CPPs) and Single Outcome Agreements. The purpose of the interfaces is to provide a single point of access to support and advice for the third sector within the local area and, to also provide strong coherent and cohesive representation for the third sector in the Community Planning Partnership. In Year 1, CPPs were perceived by third sector organisations as the key way in which the third sector were involved in community planning, and issues related to which are outlined in the Year 1 report. In Years 2 and 3, third sector organisations were asked specifically about their knowledge of third sector interfaces. Given that the interfaces only came on stream properly in April 2011 it is therefore perhaps not surprising that many participants had not heard about these forums in Year 2. By Year 3, a number of participants had been involved with their local third sector interfaces. However, their experiences of the interfaces at local level were mixed. Some reported good positive relationships, while others felt they had made or would make little difference.

4.20 By Year 4, nearly all of the participants had heard of the third sector interfaces, but engagement with them was generally low, although a small number were heavily involved. Some felt that they were irrelevant or did not present opportunities (but a minority did express more positive feeling that they provided useful information). For example:

"I am laughing because I remember this coming up last year and I remember us just sitting and going 'no'. I am aware of it but I have not had any involvement. I can remember we spoke about and looking at it and dismissing it" (Senior Manager, Health and Social Care Provider)

4.21 The Scottish Council for Voluntary Organisations (SCVO) is a membership organisation promoting the interests of the third sector in Scotland. It offers a range of services to members including: lobbying and campaigning on behalf of the sector; networking and development opportunities; information and advice; and payroll services (among others). In Year 2, most of the third sector organisations in this study were involved with SCVO, to varying levels. Many felt that the SCVO provided a useful forum for representing the interests of the third sector and for supporting its work but others were concerned about the ability of SCVO to represent the sector as a whole. In Year 4, participants again reported that they were involved with SCVO (using their information services etc.) but to varying levels.

Partnerships and Relationships with the Private Sector

4.22 Partnerships and relationships with private sector organisations became increasingly important components of the participant's narratives over the four years. One part of this was the introduction of the Work Programme, with two private sector prime contractors in Scotland. As reported previously one organisation had a good experience of the Work Programme and had developed a valuable relationship with the prime contractor they were working with: they were keen to challenge the assumption that the private sector was inherently 'bad', as follows:

"What people are doing all the time is trying to generalise [about the Work Programme] and it's almost like the prime contractor is evil and all third sector organisations are good and virtuous. Well they're not in either direction. We have a good relationship with the prime contractor and they are very demanding, but what's wrong with that" (Senior Manager, Employability Provider)

4.23 Other organisations did report having more difficult relationships with private sector organisations in relation to the Work Programme, but also through other partnerships.

4.24 The reasons that private sector organisations were looking to work with third sector organisations often centred on issues of corporate social responsibility. The participating organisations were also encountering private sector organisations as competitors for tenders (apart from the Work Programme).

4.25 An important issue concerned the distinctiveness of the third sector compared to the private sector. With third sector organisations becoming more competitively driven, there is a danger that what distinguishes them from their private sector competitors may be lost. A participant said:

"So it is almost looking at that whole field and seeing where the risks are and what is the added value of it being a third sector organisation over and above a private organisation. So I think there is a risk of losing something that a lot of the officers don't see that added value of why third sector organisations" (Senior Manager, Learning Provider)

4.26 The third sector has undergone a period of significant change across the four years of this research, both to its external environment and internal structures. One indicator of these changes is the way in which organisations have altered their leadership and governance structures. Across most of the organisations participating in this study there has been change to senior management teams, boards of trustees and governance structures over the period 2009-2013. Some change in personnel would be expected over a four year period as part of normal staff turnover. However, change was also driven by deliberate strategic efforts to ensure that organisations could respond to emerging opportunities and threats in the external policy and funding environment.

Boards

4.27 In Year 2, several changes to the role of directors and trustees were noted. The Board of Directors/Trustees was increasingly required to apply their professional skills and experiences to strengthen the activities of the organisation. In Year 2, several large organisations had conducted skills audits of their Boards to ensure that the skills of Board members were aligned with the strategic direction of the organisation. In cases where Boards were found to lack specific skills or experience then new Board members were recruited with relevant skills - the importance of having Board members with relevant skills was mentioned again by participants in Year 4. Increasingly, in Year 3, organisations wanted Board members to have broader experience and networks beyond those related to the client group and their work. They were keen to include members with private sector and policy and government backgrounds. For instance, some of the new members on Boards included people with backgrounds in IT, finance, law, human resources and government. The experience that was brought to the organisation by these individuals was seen to strengthen the oversight and guidance function of boards. These changes took place against a background of considerable uncertainty for third sector organisations. The impact of public spending reviews were anticipated but remained unclear, while the personalisation agenda was anticipated to have an impact but it remained unclear how exactly that would affect service delivery. Organisations therefore also looked inwards and sought to make changes that would prepare them for the impact of these changes.

4.28 In Year 4, while the composition of Board members appears to have stabilised in many of the third sector organisations, a few organisations had vacancies, some organisations had developed or were developing ways in which service users could be involved with the Board, and some organisations had recruited new Board members to fill vacancies. Over the four years the role of the Board in general appears to have become more professional and more closely integrated into the overall strategic direction of the organisation. A senior officer from a learning provider described how their Board was more willing to get involved in day to day activities, as follows:

"The people who are on our Board at the minute are more ready to roll their sleeves up I think and quite hands on. They've been doing some of the fundraising, one of them co-wrote a qualification with me so actually a very active board" (Senior Officer, Learning Provider)

4.29 Another organisation described a similar experience of a Board that was more closely involved in the functioning of the organisation and in ensuring that senior management were working towards fulfilling organisational strategy. They said:

"The Board have been working more closely with us. They want to see more regular, frequent and in detail financial information because of the financial position that we're in and that's absolutely appropriate... so we are meeting them more, we have met them more frequently as a Board…Individual Board members have offered more time and support" (Senior Manager, Employability Provider)

4.30 Senior managers described significant changes to the function of boards as third sector organisations themselves took on additional responsibilities. One senior manager described how the governance structure of their organisation had become more sophisticated and there was greater scrutiny and higher levels of support from the board. Another senior manager described how the Board had developed new internal structures to improve oversight and accountability. The Board was to meet more frequently and senior managers were subject to more scrutiny.

4.31 In summary, there is considerable evidence that the role of Boards in third sector organisations has changed significantly in the period 2009-2013. The membership of Boards has been purposely changed to better reflect the strategic direction of the organisation, enabling senior managers to draw advice from Board members as they lead the organisation. Boards have also strengthened their oversight function with more regular Board meetings where senior managers are held accountable to ensure that the organisation is being moved in a direction that is aligned with the overall strategic plan. Crucially, Board members have been shown to have a more direct involvement in the strategic management of the organisation.

Opportunities and Challenges to Leadership

4.32 In Year 2, respondents identified a number of challenges for leadership. These included the pace of change which made it difficult to be pro-active when a lot of time was taken reacting to changing agendas and circumstances. This presented challenges in terms of giving strong, consistent leadership and direction to staff in the organisation. Yet at the same time, it also became more important to maintain staff morale as well as supporting staff to embrace the changes that were happening. In Year 3, senior managers continued to face a range of challenges. As well as adapting to new policies such as personalisation, one of the key challenges for many senior managers continued to be keeping staff motivated and positive at a time of considerable uncertainty and anxiety. In Year 4, both senior managers and managers reiterated the difficulties of maintaining staff morale in a time of economic uncertainty. For example:

"I suppose from a personal level I have got to try and keep my morale up and be positive but not be unrealistic so to speak, you can't be totally positive when there are issues. So it is difficult getting the balance right at times" (Senior Manager, Employability Provider)

4.33 In Years 2 and 3, the environment also presented challenges to leadership skills for some, particularly in smaller third sector organisations. It was not possible in smaller organisations to have specialist support roles, yet these were becoming increasingly important. It often fell upon the Chief Executive to embrace this wide range of roles, particularly because of increasingly limited staff resources.

4.34 In Year 4, there continued to be pressure on senior managers to meet the challenge of pressure on organisational budgets. A Chief Executive had accepted a reduction in working hours to reduce the cost of their employment to the organisation. However, this did have strategic implications for the organisation - their role was now more about day-to-day tasks rather than forward thinking about the directions to be taken by the organisation. They said:

"I reduced my hours initially from 35 to 28 and it's down to 21 now. That's driven purely by the funding and trying to make sure that the infrastructure support in its most basic form, which is admin, IT, finance and front line staff support, stays in place. And that becomes almost self-defeating because you are so busy on just 21 hours per week, just taking care of day-to-day stuff, you can't be looking forward to where is your next opportunity for growth and development?"

4.35 In other instances staff had to cut their hours which could have implications for line management and leadership on the ground within organisations. There was a widespread recognition that at a time when funding for front-line services was under pressure, and there was difficulty in accessing core funding for headquarters and infrastructure costs, then senior managers had to create leadership structures that were responsive and flexible, and create clear lines of accountability throughout the organisation.

4.36 In Year 4 it became apparent that leadership structures had also changed to reflect the anticipated impact of the SDS agenda. One organisation had created a new post to establish a clear link between the service users (customers) and the senior management team. The new post reflected the changing relationship between service users, care providers and local authorities under the new SDS agenda. Service users were increasingly seen as customers choosing from alternative care packages in a consumer marketplace. By controlling their own budget and exercising choice over the provider and the composition of that care package, third sector organisations were responding to this more commercial approach by ensuring that service users had a voice within the senior management team of a large national social care provider. For example:

"…that's treating our customers very commercially, its making sure they're not just getting a service from us…they've got our customer services department as you would get elsewhere. If you want to complain, if you want to get more from us, if you want to say things to us, there's mechanism in place to support our customers not just through service delivery" (Senior Manager, Health and Social Care Provider)

4.37 Over the research period the third sector organisations have responded to the challenges presented by the changing policy and funding environment. This section explores how organisations responded to the challenges through: cost savings, restructuring, organisational review, diversifying funding and adapting services.

Restructuring and Organisational Review

4.38 The internal structure of third sector organisations participating in this research has changed significantly in the period 2009 to 2013. Changes have taken place to: the structure of senior management teams; the function of Boards of Trustees; the terms and conditions for staff; the mission and purpose of organisations; and increasingly to the way in which organisations are adapting to new funding and income generating models. A major driver of these changes has been the anticipated and actual cuts in funding described by third sector organisations. As noted in Year 3 and also in Year 4, the experience of funding cuts was mixed with organisations describing a range of changes to funding arrangements from zero-uplift from the previous year to cuts of between 5% and 30%, and reductions in core funding. In many cases staff terms and conditions had been eroded, pay freezes introduced and increased workloads and reduction in hours were also becoming apparent. In Year 4 organisations also described the effect on service users when staffing levels had decreased and some services had to be cut back or potentially withdrawn completely. For example:

"I mean it is quite disconcerting and upsetting when you see services that you have built up over the years have to close. But I have to say that the staff directly affected have shown a high degree of commitment in what they have been focusing on, even if the administration and the base has to go so we can keep the service going" (Senior Manager, Health and Social Care Provider)

4.39 Changes to funding and internal reorganisation were also taking place alongside a tension between funding and maintaining organisational identity. The expansion of the third sector in the decade preceding the economic recession in 2008 created the perception that some third sector organisations were "chasing funding from government and local authorities" (Senior Manager, Health and Social Care provider, Year 2) with little regard for their core values. The widespread availability of funding in this period has driven the expansion of the social care sector. A participant noted:

"Lots of social care organisations in the past 15 years, ourselves included, have grown quite significantly in size. It would have taken criminal negligence not to have grown over the last 15 years, there was that much money about the system. Because there was a lot of money and we are trying to maintain infrastructures that are based on a different period of time and business models that were based on 5 years ago are no longer fit for purpose" (Senior Manager, Health and Social Care Provider)

4.40 In Year 2, the changing policy and funding environment, coupled with the economy, had led many organisations to take stock of their purpose and strategic direction. Some argued that they needed to go back to their original reason for being a third sector organisation and refocus on their core client population and activities, rather than chasing contracts and gradually moving into other areas which diluted their focus. Sometimes internal reflection raised questions about the future of an organisation. Over the following two years the effects of these reflections were being felt by the organisations, for example having to turn down potential contracts:

"I would struggle if somebody phoned me up and said there is 12 million if you do A, B, C which is absolutely nothing or only tangentially [to do with work of the third sector organisation], I think you have to be strong in yourself and manage yourself to be strong and you have to take your Board with you. To say someday like a director or chair I have just let go a funding offer of £12 million you are going to get shouted at. But if we have taken that, you don't get £12 million for nothing…" (Senior Manager, Learning Provider)

4.41 For some organisations this process of review was also changing the make-up of their workforce and the approach taken by employees to their work. For example:

"We have had to articulate our organisational values because we hadn't done it effectively. And it makes you think everything through again about who you are employing and why you have chosen them. And I think we have had to think some people are working in a way that meets their need to be valued rather than their ability to deliver a service" (Senior Manager, Employability Provider)

4.42 In Year 4, participants also spoke of staff having to become more focused in their work, only delivering what was required from them in contracts; as well as more general cultural changes within the organisations which could present challenges for leadership within the organisations. There was a little discussion as to how these cultural changes might affect the nature of the organisation itself. For example:

"We have had to be a bit more garrulous if you like,...things we previously would have just delivered on we have had to say if you want us to deliver on that you will need to pay for that and if you can't pay for it we can't do it because we don't have the money and the money has got to come from somewhere" (Manager, Learning Provider)

"We've actually had to pull people back to there's your job description, there's what's expected, these are the things that we don't want you to do anymore and that cultural shift with the staff is we all need to be focused on achieving what we get paid to do and not necessarily all of these add-ons because that is somebody else's job" (Senior Manager, Employability Provider)

"I would say that our biggest leadership challenge at the moment is getting that cultural shift and until we can actually bring in new staff, because there are people going, and actually get that culture. The cultural shift of what we are trying to achieve but also how we're going to work together" (Senior Manager, Learning Provider)

4.43 In Year 1, some organisations had anticipated the need to become leaner and move towards a more business-driven model. By Year 2, many more third sector organisations had been looking at how they could make cost savings and remain competitive, thereby maintaining resilience. In Year 3, organisations continued to try to find ways of making cost savings, including on-going restructuring, reducing staff costs, reconfiguring and property rationalisations.

4.44 During the four years of the project, some of the third sector organisations had merged or were in the process of merging with other organisations. In some cases, the main reason for the organisations to merge was to ensure the sustainability of existing projects and in other cases it was to ensure the survival of smaller organisations. Merger was mentioned again in Year 4 by some participants, but was something that had been explored by some organisations in an informal manner, rather than taking concrete steps towards it.

4.45 Across the participants there was widespread opinion that the public spending review by the UK Coalition Government would lead to a contraction in the sector and the merger or closure of many third sector organisations. In Years 1 to 4, several organisations involved in the study had reduced their staff numbers. However, downsizing could create challenges for the future direction of the organisations. An organisation that had downsized significantly was concerned about the implications for its ability to tender for larger contacts in the future due to reduced capacity. One small organisation had recently reduced its staff numbers and they were concerned that this number might not be enough to remain viable in the future.

Staff Terms and Conditions, Redundancies, Pay Cuts and Wage Freezes

4.46 In Year 1, many third sector organisations had experienced some impact from on-going standstill funding, including staff salaries being frozen. In Year 2, some third sector organisations indicated that they were able to negotiate the degree of cost savings to be achieved, either by reducing the quantity of front-line hours while keeping the quality (which seemed not to be favoured by local authorities) or by keeping the quantity of front-line hours and reducing the quality (i.e. reducing the level of training of staff).

4.47 In Years 2 and 3, some organisations were covering shortfalls in funding through other means, such as funding from charitable trusts, using money from reserves, making cost savings elsewhere, and fundraising. This was mentioned again in Year 4. However, using reserves was only a short-term solution.

4.48 In Year 2, a number of organisations had carried out redundancy consultations and a number had made some staff redundant. By Year 3, these same organisations had experienced minimal further staff changes, although one organisation had reduced their staff numbers by over a half. Cuts in staff were again reported in Year 4. Alongside redundancies, in Year 2, some third sector organisations had made changes (usually reductions) to the terms of conditions for staff. By Year 3, some continued to make some more minor reconfigurations to jobs, such as slight changes or additions to roles and some focused more on private sector experience and skills (especially for those tendering a lot). This continued in Year 4.

4.49 Most organisations had not given inflation-related pay increases for several years. In Year 4, some organisations had been able to give a pay rise (e.g. one organisation gave a pay rise of 3%), sometimes the first in a number of years. One organisation was following the government pay policy of a 0.1% increase. For other organisations while there had been no pay cuts there had been no pay rises either. For example:

"We had two years…of a zero increase. We then gave a £500 non-inflationary increase and then all staff will get a 1.5% inflationary increase from April" (Senior Manager, Health and Social Care Provider)

"We have not invoked pay cuts but we have stayed to the government pay policy so 0.1%" (Employability Provider)

4.50 Despite evidence of wage freezes for staff taking place across the third sector since 2010, one third sector organisation had made a commitment in 2012 to ensure that no staff received a wage below the living wage of £7.20. The senior manager in the organisation saw this as a way of ensuring that front-line staff felt valued and that their vital role in delivering services was recognised by the organisation, as follows:

"That's been well received by staff and welcomed and is an indication and gesture so hopefully staff see that despite the challenges that we're facing and the difficult decisions that we're having to make and we understand that their role is absolutely critical and is vitally important" (Senior Manager, Health and Social Care Provider)

4.51 In Years 2 and 3, there was a great deal of uncertainty and anxiety among staff in the third sector organisations, which had an impact on staff morale. In Year 3 it was noted that, at a time of significant organisational change, communication was important in maintaining good staff morale and relations. This was reiterated in Year 4.

"I think I suppose just being honest with people, understanding how they're feeling. Because if someone is expecting to get paid off obviously their motivation is not going to be you know high, and having a bit of empathy for that… But at the same sometimes as despondent as I feel that's not really for me to show that…[it's hard] especially if you don't know if your own job is secure" (Manager, Learning Provider)

4.52 In Year 3, many organisations wanted to maintain levels of training for staff, but this could be challenging since project funding did not usually cover this cost and core budgets were being reduced. By Year 3, a number of organisations were also looking at new ways of working that could help reduce costs e.g. moving away from one-to-one support towards group work, which represented a progression route for clients and freed up some staff time to meet increasing demand.

4.53 In Year 4, the major driver of change for services and staff for social care providers was the personalisation agenda. Personalisation was starting to impact upon staff in health and social care third sector organisations through changes to staff terms and conditions. It is anticipated that staff may have to be more flexible and work with several different service users. As personalisation enforces a move away from institutionalised service delivery, front-line staff in the health and social care sector will have to tolerate greater turnover in the clients to whom they are allocated. Personalisation is increasingly breaking the link between the local authority as the purchaser of care and the third sector as the provider. Service users operating in a deregulated care market now become the purchaser of care services. Third sector organisations are therefore anticipating that service users (customers) will in some cases want to change their primary carer. For example:

"What we're seeing in an organisation is us having to train our staff to change the mind-set, they're no longer part of an institutionalised service, it's an individual, it's about sitting down with the individual and saying here is your individual budget how do you wish to spend it. It's about us being more flexible. The biggest impact for us to come is that we will have to change our staff terms and conditions so that if a customer…wishes, doesn't like the staff they can ask for a new staff team" (Senior Manager, Health and Social Care Provider)