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

CHAPTER 5: THIRD SECTOR RESPONSES

Introduction

5.1 The year one report examined how TSOs responded to the challenges that they faced, for example by:

• adapting their services to fit with changing policy priorities
• organisational restructuring to remain competitive
• looking at ways in which they could diversify their funding bases

5.2 These issues had become more prescient in years two and three, with TSOs responding in a variety of ways to the challenges.

5.3 Table 3 (below) outlines some of the key responses made by organisations. Most organisations had carried out some kind of organisational review, ranging from fairly informal, internal reflection by senior managers and Boards, to formalised strategic reviews resulting in formal organisational strategic plans.

5.4 Actual responses by individual TSOs varied, but Table 3 tries to capture the variety of options that might be pursued by organisations. These include:

• Mission, focus and identity, where organisations may re-focus on their original mission, for instance, in relation to a particular client group, and/or may look at service adaptation in terms of responding to funding opportunities available. Some organisations were developing new ways of working in order to make cost savings (as well as adapting to new agendas such as the Work Programme and personalisation).
• Diversifying funding through a range of strategies which included seeking alternative sources of funding which might include: developing enterprising activity through business activity; increased fundraising activities, and; seeking finance and investment.
• Restructuring could be a way of making cost savings and remaining competitive. This happened in a variety of different ways including: revising job roles; reducing overheads through, for instance, reducing staff costs; rationalising assets such as properties, and mergers with other TSOs.
• Raising awareness included campaigning to influence policy on issues that affected the client group and/or raising the organisation profile among funders and policy makers.
• Performance management was a means of demonstrating the added value of the organisation thereby improving funding or re-funding chances.
• Forming partnerships, through for instance consortiums, could be a means of improving access to funding, particularly on a larger scale.

5.5 This chapter explores how organisations responded to the challenges through: mission, focus and identity; diversifying funding, restructuring and raising awareness. Performance management is discussed in 'Performance and outcome measures', and partnerships are discussed in 'Partnership Working'.

Mission, focus and identity

Organisational reflection and reviews

5.6 In year one a number of TSOs had adapted their services over previous years in order to take account of changes in policy and funding priorities (particularly on employability). In year two, the potential tension for some TSOs between meeting policy priorities on the one hand and maintaining organisational 'identity' (e.g. ethos and mission objectives), seemed to become more prominent. One worker felt there had become too much of the 'tail wagging the dog' reflecting a feeling that external policy had become too dominant over the original organisational purpose.

5.7 In year two, the changing policy and funding environment, coupled with the economy, had led many organisations to take stock of their purpose and strategic direction. This is in line with a recent (2011) on-line survey of 488 charities in the UK where 80% of respondents reported that they had performed a formal strategic review in the last year^[35]. Some argued that they needed to go back to their original reason for being a TSO and refocus on their core client population and activities, rather than chasing contracts and gradually moving into other areas which diluted their focus. The process of broadening out the range of services provided by TSOs was encouraged by the expansion of funding opportunities in the previous decade. Now TSOs faced the same dilemma but without the same funding opportunities: do they broaden out what they do in order to 'chase' the limited funding that is available, but with the danger of 'strategic drift' or stick with their core activity and hope that there is enough funding in that narrower area?

5.8 In year two, many organisations had reviewed their activities, with organisations at different stages in this process. A couple of organisations had carried out reviews earlier, resulting in them developing 'strategic plans'.

5.9 The process of internal reflection and organisational reviews continued for many in year three. Even those who had earlier established formal plans, such as 5-year plans, continually reviewed their situation. A number of organisations also noted that they had also become much more strategic about the funding that they applied for, for instance:

"In the past we have been very reactive, if the funding comes up or an opportunity comes up we will bid…on it. What we are aiming to do is to take a more planned approach to how we deal with development or issues".
(Senior Manager (3), Employability Focus Group, year three)

5.10 Sometimes internal reflection raised questions about the future of an organisation, as occurred in year two. By year three there were concerns about what to do if an organisation was to close and how to manage the 'wind down' of operations:

"My Board are actively saying 'Look, if we have to face the fact that times have changed so much that we no longer fit the landscape, then let's make sure we do this properly'".
(Senior Manager (1), Equalities Focus Group, year three)

5.11 While these processes presented challenges, many were positive about the opportunities this created:

"There's a positive side of having to look at what you're doing...having to look at a leaner, meaner...sometimes there's something quite exciting about taking what you did and look at how, from a business perspective, you could make more money with less effort at times..."
(Senior Manager, Equalities Focus Group, year two)

New ways of work organisation

5.12 By year three, a number of organisations were also looking at new ways of working that could help reduce costs. For instance, one organisation had previously supported high-needs clients with one-to-one support. While this remained important, the organisation had recently started to do more group work, which represented a progression route for clients and freed up some staff time to meet increasing demand. This innovation followed a period of internal reflection and an examination of how the organisation could work more cost-effectively. For an example see Lead Scotland case study (Appendix A).

5.13 This same organisation was also using technology in order to reduce staff costs. As a small national organisation with staff geographically dispersed they received some funding to invest in capital equipment such as video conferencing and Adobe Connect, which allowed staff to communicate without incurring the travel costs.

5.14 Personalisation also represented a significant driver to change ways of working in some health and social care organisations, and some of these are discussed in 3.10-3.24.

Diversifying the funding base

5.15 In year one many organisations were considering how they might move forward to best meet the challenges presented by the current policy and funding environments. By year two more organisations were talking about diversifying their funding base to become less reliant on public funding which may indicate more of a 'social enterprise' approach being taken (see year one report). In year three, organisations continued to look at ways to diversify their funding base and a number were also looking at developing new activities, including increasing fundraising and additional commercial activity.

Developing enterprising activity

5.16 Many organisations operated some form of commercial activity, from the provision of childcare (see Rosemount case study, Appendix A), to operating several social firms (see Forth Sector case study, Appendix A). However, as highlighted in the year one report this was not just about the establishment of 'social enterprises' as organisational forms, but rather the adoption of a range of managerial activities (such as marketing, business planning, strategic positioning, etc.). Some of the activities discussed earlier in this report, such as organisational reviews and making costs savings to remain competitive, were also argued as being part of this 'enterprising' approach to the management of TSOs.

5.17 In particular, participants in the workshop carried out in June 2011 agreed that there was an increasing 'blurring of the lines' between TSOs, businesses, social enterprise and the public sector, and the growth of 'hybrid organisations' across these sectors and that 'social enterprises' represented only a small subset of the overall sector. What was most significant was not this smaller subset but the way that TSOs, as a whole, were responding to financial and service pressures by becoming more enterprising.

5.18 Some respondents did voice concern that the "Social Enterprise model" was problematic as it was not necessarily geared towards social need, while others described the current practice of commissioning public services as meaning that all TSOs were now forms of 'social enterprise'. It was pointed out that across most Boards of Directors/Trustees, trustees are increasingly selected for their business skills and experience, though there was disagreement over whether this was evidence of a more performance related focus on organisational mission or a replacement of the 'voluntary ethos' by a business one.

5.19 Specifically, in year one there had been some discussion about the pros and cons of social enterprise activity whilst subsequently most of the participants admitted to exploring a range of approaches to a more business-like approach to their mission-critical activity. However, such an approach was not universal. One TSO said that it had considered such an approach but ultimately dismissed it because they could not identify a current viable market for their potential training products. In year two, participants highlighted a number of challenges around social enterprise activity including: having a viable business idea; potential issues working with vulnerable or high needs clients; a competitive business environment; recruiting for business skills; government regulation; lack of knowledge among funders of implications of the social enterprise business model; accessing and understanding social enterprise intermediaries; the need for 'serious investment' to develop a business, and difficulties developing an existing organisation.

Increasing fundraising activities

5.20 In years two and three, a small number of organisations explicitly mentioned pursuing strategies to increase fundraising within their organisation. These included increasing the amount from private donations and legacies, and encouraging members of the organisations (including volunteers and clients) to engage in more fundraising activities on behalf of the organisation. By year three, fundraising activities were reported to have increased although incomes generated were relatively small. For one organisation in particular, fundraising was an important part of their overall strategy, and by year three they had established a small fundraising team. However, it was too early at that stage to gauge the team's effectiveness.

Seeking finance and investment

5.21 In year two, many TSOs had not considered applying for private loan finance. Some thought they would not be eligible because they had limited assets, security and private income. There were a number of issues limiting the ability of TSOs to access private loan finance, particularly for smaller organisations; in particular, having suitable security and ability to pay the interest on a loan. However, one large TSO had successfully accessed private finance by going into partnership with another TSO in order to purchase a new head office building which they shared together. In addition, a small number had also received a loan through the Scottish Investment Fund. In one case this had gone towards the costs of the purchase of new premises.

5.22 In year three, few organisations had accessed commercial loan finance. However, a number of organisations were seeking capital investment to develop various activities within their organisations. Funding was sought from a variety of sources, including the Scottish Investment Fund, the Enterprise Growth Fund and the Big Lottery. In year two, one organisation had sought a mixture of funding sources to develop a purpose-built employability hub. Due to delays in one source of funding, this had still to be confirmed. For examples, see case studies for Forth Sector and Rosemount (Appendix A).

5.23 Since year two a number of organisations had applied for investment funding. One had been successful in obtaining capital equipment. As a small national organisation with staff geographically dispersed they received some funding to invest in capital equipment such as video conferencing and Adobe Connect, which allowed staff to communicate without incurring the travel costs. Another had been successful in gaining funding to expand an existing social business. Another was still awaiting a decision on their plans to refurbish premises and develop a community café and learning space.

5.24 However, some interviewees felt that the finance made available from existing sources such as the Scottish Investment Fund and Enterprise Growth Fund were small compared to the level of investment required in the sector to make it effective.

Restructuring, making cost savings/remaining competitive

5.25 In year one, some organisations had anticipated the need to become leaner and move towards a more business-driven model. By year two, many more TSOs had been looking at how they could make cost savings and remain competitive, thereby maintaining resilience. In year three, organisations continued to try to find ways of making cost savings, including on-going re-structuring, reducing staff costs, reconfiguring and property rationalisations.

5.26 Over the three years, many organisations had taken part in or were undergoing organisational restructuring. This included: restructuring at head office; integration of services; and restructuring leadership teams.

5.27 By year two, a number of organisations had made staff redundancies resulting in reductions in overall staff numbers. By year three, a small number of additional organisations had made staff redundancies. For an example see The Wise Group case study (Appendix A). A number had chosen to reduce staff costs by reducing staff time. For example see Lead Scotland case study (Appendix A). One organisation had adopted a policy of not automatically replacing a staff member. Another had frozen recruitment. Others had, or were, looking at altering terms and conditions for staff in order to reduce costs and increase flexibility, particularly in relation to responding to the personalisation agenda.

5.28 A number of organisations had or were considering how to best utilise their properties. In one organisation this involved closing satellite offices and centralising staff into a fewer number of central offices. Another organisation had rationalised their properties onto one main site.

Mergers

5.29 In year two, three of the TSOs had merged or were in the process of merging with other organisations^[36]. In two cases, the main reason for the organisations to merge at the current time was to ensure the sustainability of existing projects:

"You come to a window of opportunity, if we [merge] now we are an attractive offer. If we do it in 2 years' time, that may not be the case. So do you [stick] it out…and hope that you've got the platform in a couple of years' time to grow again or do you say actually we're attractive now, let's just do it now, and we can follow that growth model through?"
(Senior Manager, Employability Focus Group, year two)

5.30 The benefits the TSOs hoped to achieve by merging included:

• making savings on central costs, such as administration and management, through sharing some of these facilities
• to gain benefits of development synergies in activities
• efficiencies of scale
• to extend services beyond existing provision

5.31 The advantages were perceived to be:

• greater stability
• to be able to offer more to clients
• a positive culture change in the organisation
• focus on direct delivery
• greater ability to attract private funders
• reduced competition (by merging with competitor)
• opening up access to 'new' pots of money

5.32 By year three, one of the organisations involved in a merger had been subsumed within another larger organisation, and no longer existed in its original form, although it kept its name in relation to one programme running within the larger organisation. The other organisation involved in the merger agreed to take part in the research. They believed that there had been good complementarity between the two organisations, with the original organisation working with broadly the same client group. There are now more opportunities for clients to progress through programmes within the organisation: "I think the pace of the journey is much quicker, the cohesion is much stronger". This organisation felt it had been able to "find the best bits of both and make it work", particularly in terms of capacity and services. However, there had been some challenges in terms of integrating different organisational cultures and bringing both sets of staff together, as well as establishing a new culture representing both organisations. The original organisation became a "very distinct, discreet programme" with the larger organisation, but there were "some challenges in that they lose part of their identity, their independence".

5.33 Another organisation had also merged with a larger organisation, but maintained their own identity. They felt they had learned lessons about the shift in authority, although still lacked some clarity about the new roles of senior managers and the Board, since the power now lay with the larger organisation:

"I think that the issue of where does the power lie, it would have been useful to have more clarity about that before we went in because I have had to deal with it as a learning process rather than having clarity at the beginning about how things would work and what issues would need approval from higher up and what layers of decision making there are in the parent company".
(Senior Manager (3), Employability Focus Group, year three)

5.34 Some other organisations were open to possible mergers in the future. For instance, one organisation thought this might be the case in the next two or three years because that would be a way of accessing capital. The focus for this organisation was on supporting its client group rather than on organisational survival, so if that was perceived to be best achieved through merger, then that would be considered. In the meantime, the senior manager had been charged by the Board to build long-term partnerships with prospective partners in case they needed to merge in the future.

Campaigning and organisational profile raising

5.35 In years two and three 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 funders and policy makers.

Campaigning

5.36 The year two report outlined how most TSOs were involved in a range of particular interest partnership forums (such as social care and mental health; youth; employability and supported employment; and learning forums) in order to, among other things, influence policy development and lobbying. For some, these were perceived to be the most effective way for them to have an input into policy. With new emerging policy trends, such as welfare benefit reforms, which impacted on TSOs' clients, organisations were increasingly seeking to have an influence. For smaller TSOs, being a member of a partnership forum was the most effective way.

5.37 However, other TSOs 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 were regularly invited to take part in specialist committees run by the Scottish Government. Other means included participating in consultations run by the Government.

5.38 There was a potential tension for TSOs representing the views of services users to local authorities. The effectiveness of the campaigning voice may be compromised by the tension between the need to take a critical position on local authority decisions in relation to care whilst also being contractors to local authorities. For instance:

"There has been criticism of the sector generally that their campaigning voice has been compromised because they are providers of services contracted with local authorities. And to criticise people who feed you is perhaps not wise and therefore we don't do it as strongly as we should".
(Senior Manager, National Health and Social Care Provider, year three)

5.39 This was less of an issue in relation to Government:

"There has always been less concern about government because they have broad shoulders but [as] an ex-director of social work once said 'local authorities have very long memories'".
(Senior Manager, National Health and Social Care Provider, year three)

5.40 In year two, an officer in a large TSO working across Scotland described how they sought to influence policy on the issues concerning them. This differed depending on whether the issue was UK or Scotland driven:

"[It] depends what the issue is. If it's a health issue we tend to work directly with government, (and) we tend to do that alone. Where it's a Westminster issue we are much more inclined to do a Consortium-type approach. We are involved in the Disability Benefits Consortium which is something like 25 different organisations working together, particularly on the Welfare Rights Bill. And that makes sense because…there are hundreds of different organisations trying to get their voice heard on benefits reform and...in the context of the UK we're a small Scottish organisation, we wouldn't really get a hearing, whereas in the context of Scotland we're a big charity and we're quite well respected, we have a decent relationship with government, so it makes sense for us to be able to do that directly".
(Senior Manager, National Health and Social Care Provider, year two)

Raising organisational profile

5.41 A number of organisations had aimed to increase their visibility in order to maintain or raise the organisational profile. This was in the hope of being in a better position to secure funding. In year three, one large national organisation had been making efforts to raise its profile at the local level by ensuring local managers attended local provider forums and other local networks. This was in response to increased localism so that the organisation was perceived to be a local provider and not just a national provider.

Conclusion

5.42 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 which 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 provide 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.

5.43 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.

5.44 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.

5.45 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.

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

5.47 A recent survey of charities in the UK found that the sector was in the middle of a major re-shaping^[37], and this is mirrored in our own research in Scotland. Many TSOs 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 even 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).