Setting up a new mutual organisation could give civil servants a chance to be more innovative, but it also brings many risks. Ben Willis reports on a round table discussion exploring the challenges of mutualisation.

As part of its drive to trim public expenditure, the government wants entrepreneurial public sector workers to show initiative by setting up mutuals – co-operative bodies part-owned and -run by their staff – to act as external contractors for previously government-run services. Cabinet minister Francis Maude has been championing the mutualisation cause, so far announcing two rounds of pilot mutuals and a £10m start-up fund, and indicating that as many as one million public sector workers could transfer to mutuals by 2015.

But it is still early days for what is a complex and potentially seismic agenda, and politicians and civil servants alike are exercising caution in embracing the idea. Last month, speaking the day after launching a consultation on the mutualisation of the Post Office, Liberal Democrat consumer affairs minister Ed Davey said he was “concerned” at the way the mutuals are being set up, adding that the government needs to gain a full understanding of the various mutual models before embarking on such a “dramatic change”.

Davey is right to be cautious, for the mutuals model is far from black and white. Maude frequently uses the retailer John Lewis as an example of a successful employee-owned mutual, but this is just one of many forms a mutual can take: choosing which to adopt is a decision based on many different factors, such as the service being delivered; the benefit being sought from mutualisation; and the market within which the organisation will operate. And then there are other key decisions to take in establishing a mutual, such as choosing a partner and acquiring the right skills.

Against this backdrop, Civil Service World and IT services company HP last month convened a round table of senior civil servants to discuss the practicalities of establishing mutuals. On the agenda were the many hurdles would-be mutuals face as they establish themselves, and the choices that will have to be made to give them the greatest possible chance of success.

Opportunities and benefits
Civil Service World’s editor Matt Ross kicked off the debate by asking participants to name the potential benefits of mutualisation. Maude frequently claims that mutuals can liberate and empower staff, but Ross wondered how civil servants view the concept.
Martin Johnson, head of performance and central initiatives at the Department for Transport, said mutuals could “free up professionals to innovate, to do new things, to do things quicker and better, and they have motivational benefits as a result – so they should unlock better performance.” Steve Connell, head of test design and consultancy services at the Home Office, agreed: “The attraction for me is the flexibility and innovation you can provide with a bit more freedom.”

Sara Burgess, the regulator of Community Interest Companies (CICs) – whose parent body is the Department for Business, Innovation and Skills – said that the main benefit of adopting a CIC structure would be to give new mutuals a constitutional responsibility to focus on serving the needs of a particular community. “The benefit of employment within a CIC is being part of a company that has a particular purpose,” Burgess said. “What the CIC is doing is working with a community of interests; for a CIC, the end result is what happens within the community they’ve been set up to serve.”

Hilary Samson-Barry, director of statutory relations at the charity Turning Point – and a secondee from the Department of Health – echoed this: “The benefit for me is having a clarity of purpose that is related to meaningful outcomes for the people who are engaged in that enterprise, which is not necessarily the case in many roles in government or in the private sector.”

Burgess said that the power of mutuals also lies in their adaptability: because there are so many forms the model can take, they can be tailored to meet specific needs. “There is an advantage to having a range of options: you can take the model that actually works for the particular nature of your organisation,” she said. “And while it’s often confusing for people having all these names floating around, it does give you a choice.”

Nigel Tonks, a mutuals policy adviser at the Treasury, added a note of caution on this benefit. There are, he agreed, many ways to form a mutual, and this creates flexibility. “Anything can be mutualised if you want, but you’ve got to work out how to do it; there are different ways,” he said. However, he added: “There’s got to be legislation saying you can do it.” While many legal options already exist, the most innovative new ideas may require new or amended legislation to underpin them, he warned.

Confusion and concerns
A number of participants agreed with Burgess that the landscape for mutuals is confusing, and suggested that this confusion is preventing the concept from gaining wider currency. “There is a lot of complexity and misunderstanding, and I think that needs to be dealt with,” said Johnson.

Helen Journeaux, transformation programme manager at the Office of the Public Guardian, said part of the reason behind this confusion is that messages about the potential of mutuals are only reaching the senior levels of the civil service and not percolating down to staff who might have an interest in future mutualisation. “We’re looking at this at a very high level,” she said; where the idea has filtered down to staff, “it has percolated with a message that this is the government’s alternative to outsourcing: outsourcing with some nice fluffy language that makes it sound better but, at the end of the day, outsourcing.”

Some participants pointed out that it might be a challenge to tempt staff towards mutualisation, and to allay their concerns over making the leap out of the public sector. “If I’m an employee and I’m being asked to transfer to this new world, I’m taking a risk. But why should I take a risk with zero prospect of reward?” asked Bill Rayner, development director at the Government Actuary’s Department; staff will have to understand the benefits in hard terms such as share dividends and strengthened career prospects.

Burgess observed that uppermost in the minds of people facing the prospect of transfer to a mutual will be issues such as security of employment, salary and pension; addressing these concerns is therefore a key part of persuading staff to make the transfer to a mutual. “If you can work with those things and be reassuring, then I think you’ve got something to base the motivating stuff on and you can get people involved in the exciting innovating stuff,” she said.

Darrell Muffitt, head of government industry consultancy at HP, said the terms and conditions of staff transferring over to a mutual will be safeguarded by TUPE rules. But Burgess said people will still need to be reassured on this point. Angus Hearmon, director of external affairs at the Food and Environment Research Agency – an environment department body – agreed: “Reassuring people and educating them about what TUPE means is a critical first step.”

What to mutualise?
The debate turned to the question of what businesses or processes are most suited to mutualisation. James Johns, HP’s director of strategy for civil government, said that a key deciding factor is whether the thing being considered for mutualisation has a prospect of being sustainable in the long term. “There has to be an element of sustainability about it,” Johns said. “It has to be something that’s capable of existing on its own and being viable outside government. If it’s birthed with a contract to provide a service from its parent department and it doesn’t grow beyond that, the likelihood is it won’t survive beyond the life of that contract.”

Johns added his view that it would be wrong to persuade staff to sign up to any mutualisation venture which didn’t put financial sustainability at the heart of its business plan. “It would be unfair to let a bunch of public servants mutualise something that didn’t have that sustainability, because you’d be selling them a pup,” he said. “It’s not going to incentivise people to work harder and innovate if three months after the organisation starts it becomes apparent that they’re going to have to make a load of people redundant.”

Muffitt agreed the decision to mutualise has to be first and foremost a business-led one: “From a business point of view, you always start by saying: ‘Is there a market? Can it be defined?’ And that takes you quickly to the product or service you’re delivering. That’s pretty much fundamental to any business”.
Hearmon said the need for emerging mutuals to expand into new markets means that highly specialised functions may struggle if mutualised. “You wouldn’t consider anything that is very small in focus – only if they’ve got a proposition of uniqueness that allows them to get work outside their government contract, at a margin that will make them sustainable,” he said.

Johns said he understood that the Cabinet Office has already begun to consider which parts of the civil service might be particularly suitable for mutualisation. The team there has a view on which business areas might be mutualised and expects the process to begin in the new year, he said: “So there will be a bit of push as well as a pull.”

Recipe for success
Having agreed that commercial sustainability is a prerequisite for a successful mutual, participants discussed some of the ingredients for making this aspiration a reality. Johnson said mutuals will need support to help them expand: “Are we imagining that mutuals will be seeking to grow over time? In that case, maybe we’re looking for help on how to grow the business – that might be capital; it might be expertise of one sort or other.”

Hearmon said that from the outset any new mutual will need to find an appropriate partner to contribute the skills, expertise, support and money necessary for it to survive in competitive markets. “When launching, the mutual needs to make sure it gets the right partner, otherwise it’ll lose the contract in three years or five years or whatever protected period is allowed.”

Sara Burgess said some of the health providers she has worked with recognised the need to bring in business-minded people as they go down the mutual route. She cited one health contractor in Rotherham which has two leaders: one from a health background, the other from the private sector. “They share the delivery, because they don’t have those skills separately,” she said. Mutualisation certainly has the potential to empower staff, foster innovation and improve efficiency – but unless those considering leaving the public sector ensure they’ve got the right model and strong prospective markets, it could also generate stiff staff resistance and a lot of failed businesses.

Final comments
SaraBurgess, Community Interest Companies regulator, Department for Business, Innovation and Skills: “People need clear information on what it’s all about. There are lots of ways of getting the message across and getting people to ask questions; once they ask questions, you’ve got them engaged.”
Steve Connell, head of test design and consultancy services, Home Office: “It would be helpful if we could have more access to case studies and pilots, so we could share that understanding with people.”
Angus Hearmon, director of external affairs, Food and Environment Research Agency:“The things I would pick out are education material at a shop floor level – because most of the good stuff is aimed at director level; developing a sustainable product or service; and access to business help and advice at an affordable price.”
James Johns, director of strategy for civil government, HP: “The key thing is making sure that the business process you’re mutualising is viable and sustainable; that’s key to avoiding ‘mutual droop’ downstream.”
Martin Johnson, head of performance and central initiatives, Department for Transport:“It’s important for mutuals to have a growth strategy, and to [understand] the link between that and the kind of partners you might want to bring on board.”
Helen Journeaux, transformation programme manager, Office of the Public Guardian:“My worry is we will be mutualising things for the sake of mutualising them. So it’s the balance between wanting to do this, and making sure that we’re doing it in the right way and not just because the Cabinet Office has told me I need to have a mutual.”
Darrell Muffitt, head of government industry consultancy, HP:“There’s probably a big target audience of people out there who don’t know about this, so we need more publicity to demonstrate the art of the possible.”
Bill Rayner, development director, Government Actuary’s Department:“We have to encourage transparent dialogue with the candidates so we can say with a clear conscience that their exercise has got a good chance of working.”
Hilary Samson-Barry, director of statutory relations at the charity Turning Point:“It’s important to recognise this is not just one model. It’s what is fit for purpose and sustainable.”
Nigel Tonks, mutuals policy adviser, HM Treasury:“You need to engage more with people who are going to be working [in mutuals]. Big Society was announced last year, the Cabinet Office said it would do something, but I’ve been to lots of different meetings with lots of different people and it’s not coming together.”

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Written by Ben Willis, CSW