Features: October 15th, 2004

The Future of Social Enterprises in Public Sector Service Delivery

 The government has made it clear that it wants to see more social enterprises competing for public sector contracts and there are widespread opportunities for doing so. Local government currently spends some £40 billion on procurement contracts every year, making the public sector market increasingly attractive to social enterprises looking to expand.

Becoming a government contractor is by no means easy and once you have achieved this goal there are still many challenges to be faced. Celebrating its 25th year, social enterprise ECT clearly demonstrates how many challenges organisations wanting to provide public services face.

Start small, think big

If your organisation is looking to expand, the first thing you need to understand is why? In the early 1990’s, ECT began to think about expanding beyond its traditional work of providing community transport services. This decision was prompted by several factors.

Firstly, the organisation had already diversified in small ways by opening a furniture recycling project and providing vehicle maintenance services to other community transport organisations. Secondly, the organisation was largely dependent on local government grants, a funding stream that could not solely be relied upon in the long term. And thirdly, the organisation believed that its formula for building sustainable, economically viable services could be replicated. The challenge for the organisation was finding an opportunity that would allow these three factors to be addressed.

In the organisation’s ten-year business plan, which was formulated during this period, recycling was identified as this opportunity. At the time, most private waste contractors did not see the idea of doorstep recycling services as viable and few effective services existed. Instead, it fell up to social enterprises like Avon Friends of the Earth to see that a need existed, to argue the case with councils and to come up with solutions that worked.

Learn and share

But, if you see an opportunity, how do you gain the expertise you may need to maximise it? In 1994, ECT won its first bid to run a single vehicle recycling pilot in the London Borough of Ealing. To help devise a service that would work, the organisation looked to a sister social enterprise for help. Senior managers visited Avon Friends of the Earth to learn how it delivered successful recycling services in Bath. ECT then took this model and adapted it for London.

The lessons learned from running this first pilot, and the expertise it gave the organisation, enabled ECT to then rapidly expand its share of the market. In 1996, the organisation won its first council-wide contract, and by this year the number of recycling contracts with councils had grown to 16, serving more than 2.75 million people. ECT has also expanded into the public transport field, winning its first bus route in London and forming a partnership with Dartmoor Railway to progress the role of community railways in rural areas.

Building a reputation

Identifying a viable business opportunity is all very well but the ability to exploit the opportunity is dependent on having a good reputation. From its first recycling contract, ECT has always sought to build its reputation by maintaining the quality of its services.

People who work for social enterprises have a key quality that can help with this task – they are committed. In ECT this commitment has been channelled into looking for ways to maximise the efficiency of each service. It has been focused on ensuring that the organisation has robust quality, environmental and risk management systems. And it has been concentrated into looking for new service innovations, such as the use of demographic profiling to better target services.

As a result, ECT has gained a track record for delivering recycling services that work and a set of clients who are prepared to provide good references when tendering for contracts with new local authorities.

If an organisation can prove that its services work, if it has good references and can show that it has accredited systems in place, its ability to compete successfully for public sector contracts is very much strengthened.

Accountability and cost

As a social enterprise, ECT has also found that it has another advantage, namely the not-for-profit reputation for being open and accountable. A factor that is very attractive to many in local government.

ECT has always sought to reinforce this reputation by sharing all information on service performance with clients, being honest about what will or will not work and sharing lessons that have been learnt in other areas.

Although having a good reputation can work to your advantage, there are also local government preconceptions that need to be overcome. For example, some in the public sector have very fixed views about what services social enterprises organisations, can and cannot provide. And there is also a myth that not-for-profit organisations, although good at providing high quality services, tend to me more expensive than private sector competitors.

The only way to combat these views is to communicate the scope of different services that not-for-profit organisations are able to provide. As well as demonstrating, via the tendering process, that because you have no shareholders, you are able to compete on cost, whilst maintaining the quality for which the sector is famed.

Facing down the dangers

ECT has taken the view that it should always be seeking new business. The rationale behind this is that a portfolio of clients prevents an organisation becoming over reliant on one funding source, and the larger an organisation, the greater its economies of scale.

ECT has used a variety of strategies to expand; these have included building on existing contracts with councils by offering additional or enhanced services. In addition, ECT has taken on sub-contracted work, formed consortiums with other organisations to enter new markets and taken over the work of other social enterprises that have experienced financial problems.

Potential of social enterprises

Stephen Sears, chief executive of ECT, commenting on the potential of social enterprise in delivering public services, said:

“Still too often the public sector feels services can only be delivered by in-house departments or commercial organisations. More local authorities should recognise that social enterprises can deliver better services and engage with the community.

“Therefore, it is essential that organisations wishing to expand their delivery of public services are disciplined and professional.”

ECT is first and foremost a business and has won contracts against private sector contractors because it delivers forward-thinking services at the right quality and price. The organisation is also committed to continually looking for new ways of working, such as the use of demographic profiling to manage its doorstep recycling services.

As one of the UK’s leading social enterprises, ECT demonstrates how there is scope for even the smallest organisations to develop their skills and services and how a track record in one sector can result in successful diversification.

“The sector has never looked stronger and I hope the future will see an ever-growing number and variety of public services run by social enterprises. A future that can only be to the benefit of society as a whole,” concluded Stephen Sears

Allison Ogden-Newton, Chief Executive of Social Enterprise London, added:

“ECT embodies one of Social Enterprise London’s key aims – improving the quality of public service delivery whilst involving the service users and the wider community. Social enterprises are becoming more and more successful because through service delivery they empower and regenerate communities. Social enterprise is the next generation of business.