The Opportunities and Challenges of the Changing Public Services Landscape for the Third Sector in Scotland: A Longitudinal Study: Year Two Report

EXECUTIVE SUMMARY

Introduction

This report outlines findings from year two of a three-year research project examining 'The Opportunities and Challenges of the Changing Public Services Landscape for the Third Sector in Scotland: A Longitudinal Study'. This report builds on and extends the research reported in the Year One Baseline Report¹ . This work was commissioned by the Scottish Government, and using qualitative case studies and focus groups, aims to track the way in which a selection of third sector organisations (TSOs) respond 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 peoples' needs. This work will inform future partnership-working with the third sector.

The first year of the research (see Year One report) established a 'baseline' by which subsequent years of research could be compared. The Year Two research aimed to build on and extend the original Year One objectives as well as respond to emerging policy. At a meeting of the Research Advisory Group in February 2011² , the members agreed that the focus of the Year Two research should include the following:

• Relationships/ partnerships
• Especially involvement of TSOs in Services Design (co-production)
• Views of new local infrastructure (interfaces) and third sector engagement at local level
• Other partnerships
• Financing the third sector
• Outcome measurement (Social Return on Investment and other impact measurements)
• Leadership and governance
• Policy changes/ election context
• Delivering high quality services (case study examples).

Methodology

The methodology involved qualitative research within 20 voluntary sector organisations based in Scotland. The methodology involved two key components: (1) in-depth case studies with eight TSOs and; (2) three focus groups involving a total of twelve additional TSOs.

Case studies for Year Two were carried out approximately one year after the first visit with organisations (between January and June 2011). In Year Two the main contact in each case study organisation was again approached and asked for an interview and permission to follow up staff contacted in Year One. If original staff were not available for interview other staff covering a similar role were identified and interviewed, where possible. In-depth face-to-face interviews were carried out with staff at different levels of the organisation, depending on access made available.

Twelve organisations were divided into three focus groups of four participants. Each focus group pulled together organisations with strong interests in particular areas. These included: (a) equalities; (b) social care and health care, and (c) employability/economic development/regeneration³ . One representative from each organisation (usually the Chief Executive or a member of the senior management team) attended one of the focus groups. Focus groups were carried out at six monthly intervals following the baseline meeting. This report covers key findings from two waves of focus group meetings which were carried out between October and November 2010 and April and May 2011.

In addition, a workshop was carried out in June 2011 at Edinburgh University Business School. Representatives from all participating organisations were invited to attend. Notes were taken on the discussion, and where appropriate, issues discussed are referred to in the report.

Changes to the policy and funding environment

Changes to the policy environment

As well as cuts to public sector funding, other key changes in the policy environment at UK Government and Scottish Government level included the following:

The introduction of the Work Programme across the UK in 2010 replaced existing employability streams with a significantly different method for contracting services. This had the potential to have a major impact on TSOs who provided employability services in Scotland, although at the time of the research the outcome was not yet clear.

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.

Personalisation (or self-directed support) in Scotland was becoming increasingly important on the agenda of TSOs who provided services in health and social care. Most were supportive of the principle of devolving power to service users with a number of TSOs already keen to develop personalisation for their own services. However, there was concern that the personalisation agenda had been appropriated by some local authorities as a means of cost-cutting rather than as a genuine reform of services.

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 had meant regulation had become increasingly burdensome for some. Variations in policy priorities between local authorities remained an on-going issue.

Changes to the funding environment

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 what services should formally go out to tender. There were tentative indications that some local authorities might be moving towards allowing more input from TSOs into service delivery plans. There was also an on-going concern around the emphasis on cost rather than quality in funding decisions.

Most of the spending cuts were expected from April 2011, and therefore after most of the year two fieldwork had taken place (between Jan and March 2011). However, prior to this date actual cuts had been relatively limited. However, funders had attempted to save money prior to April 2011 through standstill funding, cutting and changing conditions to existing contracts and re-appropriating underspends.

Despite anticipated cuts, many TSOs felt that new opportunities might emerge through more contracting out by local authorities, new policy priorities as well as gaps created by other TSOs closing down.

Many TSOs had not considered applying for private loan finance because they had limited assets, security and private income, although a small number had been able to successfully access this source of income in order to invest in property.

Impact of policy and funding changes

Only a small number of TSOs noted any significant changes in demand for their services, with some reporting lower numbers of referrals (this was due to changes in how statutory services identified clients) and others reporting increased demand due to other agencies closing down.

The impact on service provision had been minimal despite funding being (at best) at a standstill and (at worst) a 15% cut. While some TSOs had had to make reductions in some services because of cuts, most had avoided this by absorbing the effects through making costs savings elsewhere or using accumulated underspends from previous years. However, the latter in particular was not a strategy that was sustainable into the next financial year.

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

The impact of the policy and funding changes had been 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.

Third sector responses and challenges

Responding to funding opportunities and the potential for 'strategic drift'

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 recently take stock through strategy reviews which refocused and defined their purpose and strategic direction.

Organisational reviews

Strategic plans had been developed within a number of organisations. These aimed to identify what organisations 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.

Making cost savings and remaining competitive

Many TSOs were looking at how they could 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.

Diversifying the funding base and social enterprise

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. Some were pursuing strategies to increase fundraising in order to diversify their income.

Competition

There was on-going concern about the challenges TSOs faced from potential public and private sector competitors, particularly from local authorities who were also potential deliverers as well as funders of services.

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 as well as challenges in maintaining staff morale and supporting staff through the changes that were happening. This 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 and operations management.

Board 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 over the last year in order to support organisations in meeting the 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 within the last year, and in particular 'soft' outcomes. As TSOs felt this was an area they could particularly add value, this was generally welcomed.

In order to demonstrate the value they added to the client experience, some organisations provided additional evidence to funders on the impact their service had on clients over and above what was formally required.

A number of organisations continued to explore innovative ways in which to demonstrate client progress to clients and funders. This was a particular challenge for clients with complex issues or where literacy and numeracy was low. Also there was no standardised way of measuring outcomes. Some had looked at using existing tools while others were involved in the development of new tools.

Partnership working

Trends in partnership

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. Opportunities for partnership working appeared to be on the increase, but the impact of funding cuts on their existing partners presented a potential future threat.

Third sector infrastructure

Intermediary bodies are those TSOs that exist to support the work of other TSOs. The research examined knowledge and involvement of TSOs in third sector interfaces. Since April 2011, each local area in Scotland has had its own third sector interface which aimed to provide a single point of access to support and advice for the third sector within the local area. However, many TSOs were not aware of the new interfaces, and of those that were, there was a mixed response. While some were supportive of the principle, others were concerned about the potential effectiveness of the interfaces, especially for TSOs who worked across a number of different local areas.

Many felt that the SCVO (and indeed the local infrastructure bodies) provided a useful forum for representing the interests of the third sector and for supporting its work. However, others were concerned about a potential conflict of interest for SCVO as a service provider and about the ability of SCVO to represent the sector as a whole.

Membership forums, often representing particular interests, were valued most in terms of offering a platform to influence policy. Direct links with the Scottish Government, where accessible, were also highly valued.

Partnerships with local authorities

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.

Involvement in service design

The system of competitive tendering usually involved a funder specifying the service required with limited scope for contractors to input into service design. Although just out of the pilot stage, Public Social Partnerships offer the potential for greater involvement of the third sector in the design of public services. Increased dialogue between local authorities and TSOs around services and the possibility of more open tendering may offer opportunities for TSOs to become more involved in the future.

Conclusions

In Year Two the all-pervading message was that of change and uncertainty stemming from new policies and funding programmes coming out of the new UK Coalition government as well uncertainty about the outcome of the Scottish elections in May 2011. As one service manager noted, 'there is nothing surer than change'. This could create challenges for organisations, not least the rapid pace of change itself. Nevertheless, many were positive that the changes could create opportunities for improvements in the third sector.

Many TSOs were making significant efforts to respond positively and proactively 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. 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). This presented challenges to leadership and governance, but senior management and Boards of TSOs were, on the whole, rising to meet these challenges. This suggests that many TSOs are taking a dynamic approach to change.

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 are an appropriate response, for others they may not be. 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, appear to offer creative ways to respond to these straitened times. However they can also consume resources at a time of resource scarcity. What the findings of this report suggest is required is a contingent response by TSOs that matches the response to the needs of their organisation, members and/or users.

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 which would both demonstrate client progress to the client themselves 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. Many were keen to be involved in more 'joined up' working and were taking advantage of increased partnership opportunities, but the impact of funding cuts on their existing partners presented a potential future threat. The intermediary bodies that appeared to be most successful in offering TSOs a platform to influence policy were specialist partnership forums (e.g. membership forums) and those with direct links with government. 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, although it was too early to be certain if these would effectively materialise.