With many local authorities facing ever increasing financial pressures and demands, service delivery specialist Dave Fergus argues that it’s time to be brave and think and act differently about commercialisation.
One increasingly popular option for a council is to fully utilize a LATCo – a local authority trading company – limited by shares or guarantee. Typically, these can either be wholly owned by the authority or used as a vehicle to support venturing with other stakeholders from the private and/or public sector.
“LATCos offer many advantages as delivery vehicles, not just to support trading activity in pursuit of profit, but also to help transform public services,” says Dave. “For example, they can be advantageously used as a way to in-source and then commercially develop previously outsourced services”
The Norse Group is perhaps the biggest and best known LATCo, with a turnover of £250m and over 10,000 employees. Owned by Norfolk County Council and various other authority partners, it provides a range of services including catering, waste collection and facilities management.
Another example is Cornwall Council’s CORMAC, whose services include highways maintenance, and which has generated £20m for the council over three years.
Not all plain sailing
But for every successful LATCo, many have struggled or even failed.
“Configuring, launching, managing and exploiting the full potential of a LATCo in a genuinely commercial way, while retaining an appropriate degree of public service ethos and mitigating risk, is a real challenge,” says Dave.
One of the main reasons is that, for many authorities, full blooded commercialisation is simply unfamiliar territory. Dave says that, in his experience, with diminished corporate resources and limited historic need, authorities often have restricted internal capacity and skills in this area.
The key to success
The potential for success is there, so how do authorities get it right?
Dave explains: “The first thing is to be very clear about the venture’s business model and the desired outcomes – too often there’s a lack of clarity. If you’re going into this, especially with a private sector partner, you need to engage with the right companies and ensure there’s an equitable share of the risk.
“For some this may still be seen as dancing with the devil, but working with a private sector partner can provide an injection of scarce skills, resources and knowledge to help effectively transform and develop a service. With their agility and experience, they can also help deal with potentially contentious issues like embedding flexible and incentivized market comparable labour terms. But you can’t just rely on your partner, you need to develop your in-house expertise at every stage, from identifying opportunities through to planning, stakeholder engagement and benefits realisation.”
While some authorities may feel they have that expertise, others benefit from bringing in those with both commercial and public sector experience. “Local authorities should expect a legacy value,” Dave says. “So if you do go down that route, make sure you have experts who can not only help you through the whole process, but who will also transfer their knowledge and provide mentoring to the in-house team.”
Commercialisation isn’t a magic bullet, but implemented with careful consideration, the correct approach including full commitment and the right support, it can help local authorities reap considerable benefits, so ultimately helping to preserve the core services delivered to residents.
- Traditional cost-cutting has reached its limit – time to think and act differently.
- Commercialisation is as much about embracing business-like behaviours as chasing profit
- LATCos offer a way to generate income and transform services.
- There are many pitfalls to be aware of.
- A clear business plan, carefully managed risks and expert support are needed.