Shared Service Mutuals Good news? Or just a guilt-free way of sacking your staff?

I was a bit startled by this throw away line from a colleague who is sceptical about the idea of employees leaving their public sector employer and setting up a co-operative to deliver the same service, for less money.

He views it as politicians ‘sugaring the pill’. “After all,” he said, “It’s a good way to get all that redundancy money re-invested in the public sector as start-up funding.”

What surprised me even more is that mutuals and cooperatives are already big business. There are almost 5,000 of them in the UK with a combined turnover of around £29bn a year, employing over 200,000 people. And, 75% of the public regard co-operatives as businesses that act ‘fairly’, compared to only 18% that see companies at large as ‘fair’. 

So where did the mutual initiative come from?

In mid 2010, Cabinet Office minister Frances Maude announced that 12 ‘public service spin-offs’ would pioneer the mutual initiative.

The ambition is that entrepreneurial public sector workers will join together, often across organisational boundaries and through shared services, to establish co-operatives or social enterprises.

Mr. Maude is quoted as saying, ‘I know across the country there are literally thousands of frontline employees who can see how things can be done better, but at the moment, with the existing constraints, they just can’t get it done...This is a Big Society approach, decentralising power so people can deal with the issues that concern them. We must not be afraid to do things differently if we are to provide better services for less money.’

Among the 12 ‘pathfinders’ are a social enterprise to be formed by NHS employees in Leicester, which will provide joined-up services for homeless people, and a shared service cooperative in Swindon that will bring together community health and adult social services.

All the pilots are supported by expert mentors, including staff from the John Lewis Partnership and consultancies KPMG and PricewaterhouseCoopers.

Give the work to mutuals, but don’t tell the EU procurement police!

In November 2010, Local Partnerships, Co-operatives UK and the Employee Ownership Association came together in partnership to provide a signposting service for staff in the public sector interested in setting up a social or mutual enterprise. Their website is at www.mutuals.org.uk and you can call them on 020 7296 6705.

In addition Cabinet Office announced a fund of £10m ‘to help the best fledgling mutuals reach investment readiness’ and new provisions were announced giving 'Rights to Provide' (called ‘Right to Request’ in the NHS) across public services so that employers will be expected to accept suitable proposals from front line staff who want to take over and run their services as mutual organisations.

If you have been on our Highway Code of Shared Services seminar then you are probably asking the same question I did. Can you just hand a service to a mutual, wholly owned by the ex-employees, or do they have to tender like anyone else?

If you are asking that question, then TPP Law, who specialise in the development of public sector mutuals, agree with you. They believe that, “A mutual seeking to contract with a local authority as an outsourced supplier, service provider or works contractor will be treated in the same way as any other tenderer, and a mutual should expect award of a contract only if its bid is the most competitive bid. The [EU] Directives may also apply when a mutual body is being established with a view to providing services to a public authority.”

So we will be keeping a close eye on that and update you with more details in our Highway Code of Shared Services update available through our website at www.sharedservicearchitects.co.uk .

If you bank with the Nationwide, then you are part of a mutual. Then there are the Co-Op stores across the country. In public sector terms there are plenty of examples too.

The Young Foundation cites one in their Innovation and Value report. “In South London, Lambeth [Council] has embraced the John Lewis retail model, an employee owned partnership where employees have a stake in the company’s success. Lambeth proposes to adopt the model to “try to involve the users in providing [services] at lower costs”. In practice this includes asset transfer and may see residents receiving council tax rebates in exchange for taking part.”.

Whilst that may not be an inter-organisational shared service, there is possibly plenty in that vision to enthuse staff and residents to develop the service and share in its benefits.

Do mutuals perform better than the private sector?

Ed Mayo, Secretary General of Co-operatives UK, believes so. “The core idea of forming public sector mutuals is that you can get better results by giving freedom and ownership to staff.  Our analysis backs this up, but also suggests the need for a more co-operative culture right across public services”. Prof. Denis Mongon also sites a study that suggests mutual/co-operatives have outperformed FTSE All-Share Companies by an average of 10% per year. 

Technically it feels like there is no reason why they shouldn’t work. They will be businesses, like any other business, in which the ownership rests with the members. Michael Gove has recently held up John Lewis is held up as the success story of that style of structure.

In addition it is a key strategy of successful leaders to give empowerment, shared responsibility and a sense of ownership of outcomes to their staff.

So I don’t agree with my cynical colleague, that this is a guilt-free way of sacking public sector staff. A mutual option is one that should be considered in the shared service vehicle mix.

If their creation is explored properly, using the experienced, expert advice on offer, and it is agreed by the potential staff owners that it is the right vehicle, then a mutual could be an exciting way forward for all those involved.

However let’s not forget that the success of the shared service does not lie in choice of vehicle. That is only a legal and practical detail.

The success will only ever lie in excellent leadership and effective management. In business, that is all that counts.

So the staff really need to choose their leaders wisely, if they are not to lose their invested redundancy payments in their co-owned venture.

Manny Gatt is Managing Director of Shared Service Architecture Ltd and lectures in Shared Services on the national Postgraduate Certificate in Shared Services at Canterbury Christ Church University. Click here for more details.