UK: BWB Impact: Restructuring In The Social

Last Updated: 14 September 2016
Article by Jim Clifford OBE

Merger and mutualisation can help to maximise mission and sustainability for organisations in the social and public sectors focusing on positive social change.

Changing lives: it's what we're all trying to achieve. Whether in the social sector (as a charity or social enterprise), or in the public sector, the challenge of delivering outcomes – those life changes – and doing it better in times when need is no less but funding is scarce, is considerable. Researching impact and improving delivery are essential, but how can structuring, or rather restructuring, help? How can merger for the social sector, and mutualisation for the public sector, enable organisations to maximise mission and sustainability?

Merger

Merger is a widely used phrase in the social sector. It covers any form of combination of two or more entities' operations, functions, or funds and assets. It therefore embraces the true merger of equals; an acquisition of assets and operations of one by another; and the reverse takeover, where one organisation takes over the other (the subsidiary) while the controlling trustees of the subsidiary become the controlling trustees of the acquirer. To explain how it can enable that maximisation of mission and sustainability, let's look at six Rs – reasons why – and six Cs – challenges to be addressed in getting it to deliver that value.

Reasons

First are the Rs: the reasons why you would merge.

A merger can enable you to gain access to, or exploit your own, intellectual property rights: such as know-how in the service arena, recipes or technical manufacturing methods for nutritional supplements for overseas aid organisations, or customer lists. Reach is next: increasing access to a wider range of beneficiaries. Resource is the third: gaining access to key capital assets such as property, to staff and their expertise, to funds, or to management expertise and leadership (for example to respond to a change in the market, or the retirement of a key individual). Removing blockers or risks, or enabling them to be better managed, may be possible with a merger that brings in expertise, the sourcing of a key supply or resource, or a business which is counter-cyclical to one already held. Reputation in a chosen service user market, or with public sector commissioners, or with key suppliers, donors or other third parties key to delivery and sustainability may also be gained through merger with a strong counterparty. Finally it may simply be the right thing to do. If a service that is key to beneficiaries is otherwise going to be lost, through insolvency or otherwise, it may be right to put resources behind enabling it to continue.

Challenges

The challenges to avoid, or even the occasions when merger itself should be avoided, start with when it compounds or escalates risk. The field of domestic adoption has seen one of the greatest crashes in volumes in living memory over the last two years: a large provider acquiring another would have risked doubling the effect of that crash on its sustainability. The second area for caution is cost: the costs to acquire, to turn around, and to invest in the project on an ongoing basis. If the acquirer can't manage the costs, it is unlikely to deliver value, and could draw key resources away from other activities. Adverse consequences may arise on either organisation's impact and operations: for example, if a key supplier, delivery partner, or group of service users is inclined to walk away, or perhaps a competitor gains as the combined organisations lose overall volume in normal market competition. If the merger compromises reputation or brand, this may adversely affect mission. This could be where two organisations seek to support the same beneficiary group, but with fundamentally different approaches and priorities: supporting those with hearing loss, for example, where one organisation focuses on helping them to speak and lip-read to communicate audibly; and another on helping them with signing and other non-audible means, while encouraging hearing people to learn signing. Finally there may be adverse effects on constituencies themselves, by alienating key supporters or partners; or changing the focus of the organisation; or reducing the services delivered in traditional areas.

Mutualisation

All of these arguments are focused on mission and sustainability, so do they apply to public sector mutualisation? This is the transfer of operations, often with their working assets, out of the public sector to charities, social enterprises, or private sector (but impact-focused) organisations in such a way that they continue to deliver public services, and have staff control embedded in the running of the organisation. In a sense it is a form of management buyout, but without necessarily needing management to invest capital, or staff and management to participate in value (as opposed to control and influence).

Adam Smith, in his seminal work, The Wealth of Nations, suggested that people work hardest (we would now say most effectively) when working on their own account, rather than as servants of another. This is essentially the same reason cited by central government, and the Cabinet Office in particular, in pursuing mutualisation as a policy. It anticipates that staff will drive their own improvement through application of their own knowledge, will stay longer (leading to lower staff turnover) and will tend to take less time off sick. The sheer fact of their having a voice – a say in how the organisation is run – will tend to make them more engaged and enthused. Freeing the organisation from the public sector tie may also enable it to seek new income streams and terms of trade, as well as to expand its operations. With good support and planning, these advantages may genuinely be deliverable.

As with the social sector merger, there are clear advantages in terms of mission and sustainability, however, there are also challenges. Taking staff and management who have always worked in the public sector, with its particular accountabilities, politics and policies – and effectively non-marketised income streams – and asking them to manage an organisation competing in the open market, with the relative freedom of mutual accountability, may be too big a leap. The funding of such organisations is far from simple, with limited customers (frequently only one for a limited period before re-commissioning), limited assets and no track record outside the public sector, and, unlike the private sector equivalent, no drive to seek investment from management teams.

Conclusion

Merger and mutualisation, which have traditionally been seen as largely corporate and structural changes can actually drive improved delivery of mission, and sustainability. They are worth considering, but also consider the challenges – and don't get caught out.

This article was first published here.

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