by Natalie Abraham, Operations Director

Having led and supported the establishment and review of a number of public sector spin-outs, in his last blog post Richard Harrison, CIPFA C.Co Managing Director, reflected on the key factors which resonate with him to the success or otherwise of a spin-out organisation. Richard suggested:

There’s no silver bullet to creating a successful spin out but there are areas, which if focused on, will contribute to success.”

Keeping on with this theme of establishing successful spin outs, I wanted to reflect on why establishing a spin-out needs to be a carefully thought through process, which incidentally touches on three of the areas Richard identified as being pre-requisite considerations to setting up a spin-out:

  1. A robust business case, which articulates the outcomes the council is trying to achieve, along with costed and risk assessed options to achieve them.
  2. A robust competitive strategy, business and commercial plans. Developed with an in depth understanding of the market the new entity will be operating in.
  3. The capabilities, resources and culture to be able to deliver the plan.

I get nervous when I hear that a public sector organisation has taken the decision to set up a spin-out company and is ploughing ahead at speed to get it established, usually within tight timescales, in order to deliver revenue savings for the following financial year. My response to this is ‘Stop and take a step back’. And I say this for a number of reasons.

Firstly, I absolutely endorse the fact that income generation is a key enabler to the ongoing financial sustainability of the public sector. Austerity has hit hard, for a pro-longed period, and all that is left are relatively unpalatable decisions to meet the budget targets through cuts alone. However, and I stress this point, setting up a company is not a quick fix to the budget pressures facing many public sector organisations.

I have no knowledge of, and have not seen research to suggest, that any one spin-out organisation has delivered fast, cashable savings to the public sector purse. I have, however, known of a number of spin-out organisations that did not received the required investment, in terms of finance or time, either pre or post go-live which meant that they have been set up against a wave of change requirements from day one.

Investment in every sense is critical for a number of reasons:

  1. Running a commercial organisation is not the same as running a public sector service and requires different skills, the capacity to learn and the ability to be different.
  2. Being commercial takes time, effort and skill.
  3. If it were easy, everyone would be doing it!

So, how do you avoid overlooking the investment requirements that a parent organisation should make?

Undertaking a structured process, which develops a robust, evidence driven business case, means that your organisation develops an appreciation and understanding of:

  • The intended outcomes from the service and how they link to your organisation’s intended outcomes;
  • The viable options for future service delivery; are there alternatives internally which you can do for less investment, is a phased approach better which gets the service match-fit prior to trading;
  • The level of dependency on the workforce and service users and, linked to this, their level of buy-in;
  • The financial model, associated investments and level of return;
  • The risks associated with trading in the open market;
  • The necessary skills and capabilities required to deliver.

Investing in the process of developing a business case should be collaborative and thoroughly engaging, which in itself is an enabler to success. If key stakeholders are involved in the development of a business case, they are more likely to relate to, and own, the subsequent decisions made as a result of it. But a great business case alone does not make a successful company. The Business Case will be, quite rightly, written from the parent organisation perspective. If the intention from the business case is to establish a spin-out, then that spin-out needs its own Business Plan. Not a novel idea, but often an over-looked, under-resourced task.

The Business Planning for a spin-out should not be a tag-on to the business case, nor should it be done in isolation of the decision making, or worse still, done post decision making when there is no way for the business plan to influence the asks of the public sector organisation.

Similar to the Business Case, the investment in the production of the Business Plan should be a collaborative affair which enables key stakeholders to have a thorough understanding of the local competitive market, identifies the place in the market the spin-out will occupy, identifies what products will be sold and how they will be targeted to customers and importantly, models through the financial plan off the back of the activity undertaken.

A detailed, informed Business Plan is the control against setting up an organisation to deliver inflated expectations. The plan should be achievable but ambitious; evidence driven but creative; consistent but different; and finally, all key asks of the parent organisation should be clear.

To tie up the theme of ‘investment’, the final, but in my opinion, most important type of investment that can be made is that of engaging, up-skilling and collaborating with your workforce. The greatest idea for a spin-out in the world is literally nothing without a bought-in workforce.

Investing the time and effort in engaging in two-way meaningful dialogue will go a long way to developing the evidence base required for a quality business case and plan. Similarly, investing in up-skilling people to operate in a commercial world will pay dividends in the future when the spin-out is reliant upon a capable workforce with the skills and capacity to deliver the business plan.

The thinking for this has to start at an organisational level and not be limited to the area in which you have decided there is a commercial opportunity; this links back to a previous article which, states the need to have a clear organisational Commercial Strategy in place.

In conclusion, this is all common sense, but ensure you take the time to reflect and invest your time and resources in the right activities to enable your spin-out to be viable and commercially successful in the long term.

Do you have any knowledge of any spin-out that has successfully delivered fast, cashable savings? What other critical investment requirements do you think parent organisations should make? Do you agree with my reflections? Please feel free to comment.

Get in touch with me if you would like any further information on how C.Co can support your spin out in any of the areas mentioned.

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