17 November 2010

Let's not let a romantic view of mutuals mask the tough choices this agenda demands.

How do the words 'mutual' and 'co-operative' make you feel? For many, they conjure up positive feelings of togetherness and community. Everyone loves John Lewis and we can all understand how giving people a direct stake in an organisation they work for, or are served by, is a good idea.

What about words like 'management' and 'bureaucracy'? I’ll bet the association is significantly less positive. It goes without saying that words like 'cuts', especially when closely associated with 'front-line', play very badly indeed.

So broadly, everyone feels jolly positive about mutuals and if they can help reduce management and bureaucracy while reducing the need for front-line cuts then it is pretty easy to see why they are very popular with the government.

The mutual moment

The government's big idea is to give public sector employees (or the communities they serve) the right to take over the ownership and management of public services. This frees up services from the bureaucracy of the wider system and allows public sector workers to focus on the people they are serving.

Morale, efficiency and quality are driven up while absenteeism, waste and errors are driven down – at least the theory goes.

Francis Maude has been personally championing the cause. He launched the first 12 'Pathfinder' mutuals in the summer and apparently we can expect to see more announced soon.

The pathfinders are each receiving intense support from organisations such as PWC, KPMG and John Lewis and this provides a clue as to the catch in this otherwise positive vision. Getting a mutual off the ground, and managing it successfully, requires a lot of hard work and there isn’t a 'dummy's guide' available (yet).

So long, bureaucracy

From the staff's point of view, all that management and bureaucracy that used to be done somewhere else (within the local authority for example) is suddenly their responsibility.

HR, legal, IT and finance all now need to be taken care of directly (or procured elsewhere) which can put a strain on a small, new organisation with an inexperienced management team.

And don’t forget sales and marketing. As independent organisations, mutuals will need to start pitching for business rather than simply relying on being the in-house provider.

Mutuals will also need something that few public sector organisations ever have. A long-term strategy supported by a sustainable business model. By long-term, I mean longer than the duration of any current contracts with their 'parent' organisations.

A sustainable business model is one which identifies a core competency and uses it to create value for customers, commissioners and staff.  Without this, any mutuals formed today are likely to be the casualties of open competition tomorrow.

A good test is whether anyone is prepared to lend you money against your plans. The question of how public sector assets will be transferred to these new organisations is yet to be fully answered and this may help bolster the balance sheet but it would be surprising if external finance were not required to provide working capital and fund growth.

This is not to argue against mutuals. They do have the potential to drive the innovation that our public services desperately need in these straightened times. However, we shouldn’t let the warm, fuzzy feelings that mutuals tend to generate mask the tough choices and frankly hard work from all concerned, that the mutuals agenda demands.

Update: The BBC's Mark Easton has also blogged on the considerable challenges for those considering taking up their 'right to provide' public services.


Interesting article Mr Brown. I will be following how this develops with a keen eye.

Adrian - excellent posting. Realism is certainly required, and I am glad to see that you do not discount the benefits either. As for your comment about there being no 'Mutuals For Dummies' guide, I have to confess I haven't finished writing it yet !

A welcome shot of sensible questioning. I would add that any new mutuals will be entering a marketplace in which the main source of supply of money is set to shrink every year for the next four years.

This will be an extreme Darwinian environment - offering significant opportunities for the successful enterprises (be they charities, mutuals, social or private enterprises) but widespread extinctions for those that cannot compete. New enterprise has a typical failure rate of one in three after three years. So going mutual is not for the fainthearted.

The offer from a mutual is potentially distinct and if it is a community benefit mutual it carries with it features that are different to the open market. The process of starting up and supporting mutuals is therefore long-term and needs long term commitment and support. It is not a quick fix for shortage of public money.

Thanks Kevin - as councils agree their budgets over the next few days the reality of the funding challenge will become painfully apparent which I'm sure will make mutualisation seem less attractive to employees (but perhaps more so to managers).

Public Finance <a href="http://bit.ly/f8Nfn9" rel="nofollow">are reporting today</a> that mutualisation is being met with scepticism over both staff appetite for and the viability of the model.