The Opportunities and Challenges of the Changing Public Services Landscape for the Third Sector in Scotland: A Longitudinal Study Year Three Report (2009-2012)

EXECUTIVE SUMMARY

Introduction

This report outlines findings from the first three years of a longitudinal research project examining 'The Changing Public Services Landscape in Scotland: Opportunities and Challenges'. This work was commissioned by the Scottish Government and, using qualitative case studies and focus groups, has been tracking the way in which a selection of third sector organisations (TSOs) have responded to the changing opportunities and challenges over a period of three years starting from 2009/2010.

The Scottish Government has acknowledged that the third sector has a key role to play in delivering public services that are high quality, continually improving, efficient and responsive to local people's needs. This work will inform future partnership-working with the third sector.

Specific objectives for the research are summarised below:

• identify the role and distinctive added value of TSOs delivering public services
• identify features of effective partnership-working between the public sector and TSOs
• assess the impact of Scottish Government and local government policy and budget priorities on TSOs' changing practice and management
• track the impact of the economic downturn and budget limitations on TSOs' roles in public service delivery
• describe how TSOs contribute to progress on the Scottish Government's national priorities and national outcomes
• describe how TSOs contribute to progress on Single Outcome Agreements and the work of Community Planning Partnerships
• enable TSOs to articulate views on the appropriateness of funders' oversight, evaluation and management procedures

Methodology

The methodology involved qualitative research within 20 third sector organisations based in Scotland over a period of three years. The methodology involved two key components: (1) in-depth case studies with eight TSOs and (2) three focus groups involving twelve additional TSOs. Appendix C outlines the methodology in further detail.

Context and Impact

Changes to the policy and funding environment

Over the three years of the research there had been significant political and policy changes that had important consequences for TSOs in Scotland. Alongside the general financial climate of low or negative economic growth and public sector spending cuts, these represented huge challenges, as well as potential opportunities, for many organisations.

From 2007, the SNP has led the government in Scotland - firstly, as a minority government and then, following the May 2011 elections, as a majority government. Localism and personalisation are key policy priorities for the SNP government. The 2007 Concordat between Scottish Government and local government included the principle of more local control over planning and services (called 'localism'). While this principle was often supported by TSOs, the impact on TSOs in practice had been more problematic in terms of negotiating with numerous local authorities, a lack of clarity and cohesion, and decreased ability to see the 'bigger picture' across Scotland.

Personalisation (or self-directed support) in Scotland was becoming increasingly important on the agenda of TSOs providing services in health and social care. Most were supportive of the principle of devolving power to service users and a number of TSOs were developing personalisation for their own services. The move towards personalisation was perceived to be both an opportunity and a challenge. It potentially means a very different way of contracting services and being more client-focused. However, there were some concerns about moving to a way of working flexibly enough to meet potential demand.

With the formation of the UK Coalition government from May 2010, significant policy changes were put in train that could have impacts on TSOs, particularly those involved in the provision of employability. The Work Programme was introduced in 2011 across the UK and replaced existing employability streams. No TSOs had been selected as a 'prime contractor' for the programme. Of those sub-contracted to the programme the numbers of referrals received by year three had been limited. However, over the longer term the Work Programme may have a major impact on TSOs who provided employability services in Scotland. The Welfare Reform Bill in the UK had started to have adverse effects on some TSOs and their clients, particularly those working with single parents, carers and people with disability.

In year three, one point commonly made by interviewees concerned what they perceived as 'disconnected' policy. For instance, that there was a lack of clarity in how policy would work in practice, a lack of 'joined up' policy, contradictions between policies at different levels, such as at UK and Scotland, and differences between local authority policies.

The shifting nature of policy priorities presented on-going challenges and opportunities for TSOs. The perceived low priority of volunteering in policy was an issue for some TSOs who relied on a volunteer base, while it was not entirely clear how the 'Big Society' agenda would impact in Scotland. The context of ever-tightening resources meant regulation had become increasingly burdensome for some.

Increasingly, tendering was the main method by which funding was contracted. However, there were variations in approaches between local authorities and no standardised approach on which services should formally go out to tender.

The picture was mixed in terms of the level and extent of funding cuts and new funding opportunities. Many organisations had received continued funding but with no inflation up-lift or with a reduction in the budget (cuts were up to 30% in some cases, although around a 5% cut was more common). At the same time, some organisations had secured new additional funding for specific work.

Impacts

The pattern of changes in demand for services was mixed with continued high demand reported in some areas but a decrease in demand in others. This may have reflected differences in services and areas as well as referral patterns.

While some TSOs had made reductions in some services because of cuts, most had avoided this by absorbing the effects through costs savings elsewhere or using accumulated underspends from previous years. However, the latter in particular, was not a viable long-term solution. Some organisations were able to provide new services through winning new funding.

TSOs were keen to minimise the impact of cuts or standstill funding on clients, although choice and flexibility for clients was threatened, in particular the provision of more expensive outreach services.

The impact of the policy and funding changes was felt most acutely by staff within TSOs. There had been redundancies, reduced hours, changes to terms and conditions of staff contracts as well as increased workloads. This had created a general atmosphere of uncertainty and anxiety among many staff in TSOs, in some cases having a negative impact on staff morale. However, good communication during a time of organisational change could help maintain positive staff relations and morale.

Key cross cutting themes

Governance and leadership

Senior management and Boards within TSOs faced a number of challenges presented by the changing policy and financial environments.

The pace of change created a need for strong, consistent leadership and the provision of direction to staff. Additionally, there were challenges in maintaining staff morale and supporting staff through the changes which demanded skills in managing change as well as leadership. Managers in smaller organisations often had to embrace a wider range of roles since increasingly important specialist support roles were not available to them, e.g. marketing, information technology, human resource management, operations management. Senior managers carried considerable responsibility for organisations which could sometimes have an impact on their own wellbeing.

Boards of Directors and/or Trustees of TSOs could potentially offer valuable skills, knowledge and experience to support CEOs/Directors in their role. A number of organisations noted a welcomed increase in involvement of their Boards in order to support organisations in meeting the recent challenges. A good spread of knowledge and experience among Board members was valued, and having some members from the private sector could provide valuable business experience.

Performance and outcome measures

A number of TSOs felt that funders had become more focused on measuring outcomes over the three years, and in particular 'soft' outcomes. As TSOs felt this was an area where they could particularly add value, this was generally welcomed. In order to demonstrate the value they added to the client experience, some organisations also provided additional evidence to funders on the impact their service had on clients over and above what was formally required.

A number of organisations had explored innovative ways to demonstrate client progress to clients and funders. This included measuring 'soft' outcomes, particularly in relation to clients whose literacy and numeracy were limited. Some had made significant steps towards adapting and/or developing tools which would both demonstrate progress to the client, as well as the value added by the service to funders. While there was still no standardised way of measuring outcomes, some TSOs were making important steps towards developing tools flexible enough to be applicable across a number of different projects and funders.

Partnership working

TSOs were aware of the importance of partnership working as a means of meeting the challenges created by the policy and funding changes. Accessing funding was a key driver for partnerships and many were keen to be involved in more 'joined up' working. However, the 'sense of being in competition' with other similarly focused TSOs increased over the three years because funding cuts and increased tendering created a more competitive environment.

Since April 2011, each local area in Scotland had its own third sector interface to provide a single point of access to support and advice for the third sector within the local area. By year three, some interviewees had been involved with these interfaces, although experiences of them were mixed. Many interfaces were still relatively recent and were 'still finding their feet'.

Many TSOs had good relationships with local authorities, and a number reported improved communication and dialogue with more opportunities to discuss how services could be organised in the light of cuts. However, others found difficulties accessing local authority staff, particularly where the local authority had undergone major departmental restructuring and/or staff redundancies. In the longer term, the personalisation agenda is likely to change the relationship between local authorities and TSOs with local authorities seeing a decline in their role as a purchaser of services.

The system of competitive tendering usually involved a funder specifying the service required with limited scope for contractors to input into service design. Public Social Partnerships offer the potential for greater involvement of the third sector in the design of public services, although TSOs experience of these has been limited. Potential cuts had, in some cases, actually created more opportunities for some TSOs to negotiate the shape of services at local level. Local partnership forums such as community planning and provider forums also offered opportunities to help shape local services. However, tendering remained an obstacle to greater involvement.

Place and rural issues

There were additional costs associated with providing services in rural areas. This was because of the dispersed geography and additional travel required as well as limited access to public transport. In addition, it was difficult to achieve economies of scale for (usually) relative small local services.

Third Sector Responses

Mission, focus and identity

There was a potential tension for some TSOs between adapting their services to ever-changing policy priorities on the one hand and maintaining their organisational 'identity' on the other. This concern over the potential for 'strategic drift' had led many to take stock through strategy reviews that refocused and defined their purpose and strategic direction. Strategic plans had been developed within a number of organisations. These aimed to identify what the organisation needed to do in order to survive and develop, and provided a strategy to achieve these aims. These helped to guide organisations through particularly challenging times. Some organisations were looking at new ways of working to help reduce costs, and this trend looked set to continue as the personalisation agenda developed further.

Diversifying the funding base

Many TSOs were thinking about how to diversify their funding base to become less reliant on public funding. Along with other activities such as organisational reviews and making cost savings to remain competitive, this indicates an increasingly 'social enterprising' approach to the management of TSOs. Many TSOs had also looked into the possibility of increasing income from business activity; although this was not appropriate for all TSOs.

Another means of diversifying funding included pursuing strategies to increase fundraising, for instance from private donations and legacies. Some organisations had accessed investment funding through, for instance, the Scottish Investment Fund, for capital equipment or in order to develop various activities in their organisations. With a few exceptions, accessing commercial loan finance was rare.

Restructuring, making costs savings and remaining competitive

Many TSOs had looked at or were looking at restructuring in order to make cost savings and remain competitive, thereby improving resilience. Strategies explored by organisations included:

• Organisational restructuring
• Redundancy planning and reducing staff costs
• Considering how to best utilise property assets, through for instance, property rationalisations (closing satellite offices and centralising into one space)
• Mergers with other organisations

Campaigning and organisational profile-raising

With the emergence of new policy trends such as the welfare benefit reform, a number of organisations were putting more emphasis on campaigning in order to influence policy that affected their client group. Some organisations were also active in increasing their visibility in order to raise or maintain the public profile of the organisation.

Conclusions

Over the three years of the research there had been significant political and policy changes that had important consequences for TSOs in Scotland. Alongside the general financial climate of low or negative economic growth and public sector spending cuts, these represented huge challenges, as well as potential opportunities, for many organisations.

TSOs that focused on employability-related activities tended to be more subject to changes of policy at UK level, although some funding did come through LAs. Policy determined at Scottish Government level was generally more relevant to TSOs who specialised in health and social care. However, since activities of TSOs often overlapped, most were affected by policy at all levels.

There was a significant time lag between the making of policy and putting it into practice at the level of the third sector. The full impacts of the Work Programme and Personalisation, for instance, were still unknown and unlikely to be clear until some time into the future.

While some TSOs had made reductions in some services because of cuts, most had avoided this through making costs savings elsewhere or using accumulated under-spends from previous years. They were also keen to minimise the impact on clients where possible. It was staff within TSOs who had felt the impacts most acutely with redundancies, reduced hours, changes to terms and conditions, no salary uplifts and increased workloads, creating an atmosphere of anxiety and uncertainty. However, good communication during a time of organisational change could help maintain positive staff relations and morale.

TSOs were undergoing a major re-shaping. Many had or were making significant efforts to respond positively and pro-actively to the challenges presented by the changing funding and policy environment. Many had taken the opportunity to look at their priorities and how they wanted to move forward (some had done this earlier). The majority had looked at a variety of strategies to cut costs and remain competitive, as well as diversifying the funding base (and social enterprise in particular).

It is important to recognise that there is no reductive response to the current economic climate, no 'one size fits all'. For some TSOs, mergers were an appropriate response, for others they were not. It is also important to recognise that innovation is only one response to the current situation. For others a more cautious 'sticking to the knitting' may be more appropriate. Proactive responses, like mergers and innovation, offer creative ways to respond to straitened times. However they can also consume resources unnecessarily, at a time of resource scarcity. What is required therefore is a contingent response by TSOs that matches the response to the needs of their organisation, members and/or users.

Senior management and Boards within TSOs faced a number of challenges presented by the changing policy and financial environments. On the whole, however, they had risen to meet these challenges suggesting that many TSOs were taking a dynamic approach to change.

A number of TSOs were also rising to the challenge of measuring 'soft' outcomes, particularly in relation to clients with complex needs and/or whose literacy and numeracy were limited. Some had made significant steps towards adapting and/or developing tools that would both demonstrate client progress to the client as well as show the added value of the service to funders. While there was still no standardised way of measuring outcomes, some TSOs were making important steps towards developing tools flexible enough to be applicable across a number of different projects and funders.

TSOs were aware of the importance of partnership working as a means of meeting the challenges created by the policy and funding changes. Accessing funding was a key driver for partnerships and many were keen to be involved in more 'joined up' working. However, the 'sense of being in competition' with other similarly focused TSOs increased over the three years because funding cuts and increased tendering created a more competitive environment. The experience of partnership working with local authorities varied, with some reporting better communication and dialogue while others reported lower levels of contact.

There were indications that opportunities for involvement in service design by the third sector may be increasing, with potential cuts actually creating more opportunities for some TSOs to negotiate the shape of services at local level. Local partnership forums such as community planning and provider forums also offered opportunities to help shape local services. However, tendering remained an obstacle to greater involvement.