Collaborate, merge or share?

Back to work after the summer holidays many landlords are beginning to make preparations for 2018/19 budgets. Many are facing the reality of further cuts, efficiency gains and targets which continue to squeeze existing resources and restrict the level of service we are able to provide customers.

With all 'easy wins' in budget reductions exhausted some time ago, it's time to think more radically in how we protect the delivery of services and support to an increasingly vulnerable customer base.

So, how can you make the best use of partnerships? How can you gain more by working across sectors? How can you safeguard the financial viability of businesses in years to come? ... and how can you do this and achieve stakeholder buy-in!

Engagement experts Tpas, are hosting a national learning event exploring collaboration, merger and shared service provision – the first of its kind in the sector – blending cross-sector learning and best practice with its stakeholder engagement expertise. 

If there’s one event in the calendar that’s going to add real value, this it.  Book now.

Want more info? Give me a ring.

Sharon Collins

Mobile: 07740482976

Merger or Sharer? ... you decide

Merger or Sharer? … you decide

Collaboration in social housing

There’s lots of noise in the sector about mergers right now – but are we in danger of becoming a ‘one trick pony’ in our delivery response to the increasing challenge of driving greater value for money  … Sharon Collins argues that shared services, for some, can be a viable merger alternative

The model of social housing is changing.  The continuing challenges of our operating environment driven by austerity and reform means we must find new solutions to increasingly complex problems if we’re to continue to drive cost savings, generate efficiencies from which to build more homes, and better sweat existing assets.

And yet our response as a sector has been to merge – in fact, merger upon merger, even mega-mergers between housing organisations in our drive to save money. 

But why do we seem to be consumed by merger mania?  Are we in danger of being faced with providers too big to rescue in the event of collapse?  Do shareholders, do boards, do residents - as our major stakeholder - continue to be comfortable being ‘swallowed up’ as part of successive groupings?

Is (merger) ‘marriage’ all that it’s cracked up to be?

Independent research by the CIH research[1] found that increased scale/size through merger doesn’t necessarily deliver VFM and, despite best (business case) intentions, mergers offer no guarantee of improvement. 

This is a view supported by repeated studies which find that more than 50 percent - some even suggesting 70-90 per cent - of mergers destroy rather than create value.  But despite this, the corporate merger ‘wedding’ season has been in full swing, and looks set to continue.

But, let’s be clear.  I’m not saying that mergers aren’t right for some – indeed if done well, they can produce the financial capacity, leverage and scale to protect front line services whilst generating capacity to build more homes than would be possible alone – but, what I am saying is there are other delivery options available.

Choosing the best mix between independence, scale and capacity is one of the key strategic challenges facing the sector.  But if mergers aren’t for you … what opportunities do shared services bring?

Sharing ... the technical bits

Unlike mergers, operational control and ownership of shared services are retained, owned and controlled by partners in the group.  Partners retain their independent identities and therefore their sovereignty and retain their capital assets.  They typically have equal stakes (although some may have a majority) in the shared business and in decision making, whilst benefiting from pooled resources, surpluses, investment and keeping all the efficiencies gained.

Shared Services - key facts: •       Shared services are a collaboration of two or more public organisations forming an independent Cost-Sharing Group (CSG) which supplies members with ‘directly necessary’ services exempt from VAT •       Governance varies, but typically comprise equitable stakes or lead partner arrangements •       The CSG is owned and activities directly controlled by members of the group – similar to that which it exercises over its own services •       Partners retain independence •       Services are supplied at cost

Local authorities have been leading the way in shared services for some considerable time, generating savings nearing £0.5bn[2].  The lion’s share of savings has been made in back office shared arrangements, with shared management and shared Chief Executives, procurement and customer facing services following close behind. 

A notable sharer within the LA housing sector is East Kent Housing.  In April 2011 four district councils of Shepway, Thanet, Canterbury and Dover formed a ‘super ALMO’ to deliver housing management and associated services across their retained council homes.  With shared set up costs of £450K plus staff time and some legals, the shared arrangement delivered £702K savings in Year 1, with £200-300K recurrently plus an annual 15% efficiency target – with further savings still to be realised through fully integrating IT systems.

But despite East Kent’s success, the appetite for sharing services within housing is taking time to gather momentum.  Why is this?  Is there a lack of knowledge about the benefits of sharing as a viable merger alternative?  Are operating margins still too buoyant?  Is there simply a lack of appetite?

So who’s doing what …

Since 2012 when changes to the Finance Act enabled 20% VAT savings through the formation of Cost Sharing Group (CSG) exemptions[3], there have been a small but growing number of shared arrangements within the housing association market.  Here’s a quick peek at four of them:

In April 2013 ‘Jobs at home – Three Rivers and Watford’ formed a social enterprise providing jobs for out of work tenants created through collaboration between Watford Community Housing Trust and Thrive Homes.  Initially focused on providing a redecorations service in some of the 9,000 homes owned by the two landlords the scope has now expanded with the additional of B3Living to the group in 2014 to include aids and adaptations, a handyperson service, grounds maintenance, clearance and support for Watford’s own in-house repairs team.  Not only has the CSG enabled job creation for previously unskilled, long term unemployed tenants, but it has also delivered 30% cost savings, despite increased management time in mentoring, training and coaching.

In the North East and Cumbria 17,000-home Isos has been supplying heating services to neighbour Two Castles (3,500 home) via a CSG, Isos Complete Support (ICS), since April 2015. The initial ‘courtship’ came from Two Castles, who had previously used a commercial contractor procured via a consortium framework.   Isos’s Direct Labour Organisation provided a great cultural fit for Two Castles which, as well as reducing the need for intensive contract management, sharing enabled significant savings on VAT and reduced risk whilst delivering a better service to tenants.  For Isos the shared arrangement meant it was able to drive down unit costs by spreading management and overhead costs.

In Yorkshire, 31,000-home Wakefield and District Housing (WDH) formed Northern Shared Services (NSS) in partnership with 35,000-home Together Housing Group (THG) in March 2013 to deliver a multi-trade repair and maintenance service, including gas, mechanical and electrical-related works, as well as the upgrade of THG’s void properties. The first year achieved reduced Cost Per Property (maintenance) of 8.5% from £69.82 to £63.87. Wider benefits include economies of scale, increased resilience, greater market share and therefore greater regional presence, minimising risks associated with commercial diversification and growth.

Following merger of Festival Housing and Worcester Community Housing, 15,000 home Fortis Living has also established a CSG (Fortis Property Care) with its 6,500-home neighbour Rooftop Housing Group, in order to share its in-house maintenance contractor, Fortis Property Care. Fortis predicts the scheme will save £7.56m for its partners, via financial efficiencies, over 10 years.

So why are they sharing? 

The motivation to share services isn’t just about saving money or efficiency, but wider commercial and social benefits are also achievable.  

Sharing – the benefits case •       Reduce cost and retain efficiencies •       Increase service resilience •       Increase productivity, capability and capacity •       Share investments •       Improve business data intelligence •       Share risk •       Increase resource flexibility

But, as with mergers, sharing can have its pitfalls.  Similar to the reasons merger strategies can crumble, they include:

• •       lack of trust and difficulty in finding a suitable partner
• •       lack of strategic appetite
• •       leadership and cultural issues
• •       system and process interface difficulties
• •       inertia and poor project management
• •       poor communications
  
  But despite risks, there are real driving forces for sector transformation – One per cent rent reduction, welfare cuts, universal credit, local housing allowance, withering grant, pay to stay, extension of the right to buy and more.  Set in the context of the HCA’s recent regression analysis[4], there are such wide variances in costs that inefficiency must be a factor, suggesting significant scope for savings both in back office and front line provision – all areas where local government has already had reasonable success through sharing services. 

With the Regulator champing on the bit for ‘step change’ in operating efficiency and maximising the potential of any latent resources within in-depth assessments of VFM, how are boards rising to the challenge of “… understand(ing) the return on assets …for improving VFM including the potential benefit in alternative delivery models”[5]?

In preparing for this year’s Board Away Day or strategic planning events how are you focusing hard on risk … and opportunity? What’s your balance between ‘commercial’ vs ‘social’?  How are you mitigating exposures across property portfolios? Are you planning for greater bad debt - reworking budgets, cutting staff or planning invest-to-save strategies?  What are your least:worst decisions? – and ultimately, how do your current service delivery models stack up against this new state of ‘normal’?  If merging isn’t for you, what opportunities can sharing bring?

So, if sharing is on your short list of strategic options, what are my top tips to get started?

1.       Explore regional collaboration opportunities and build trust

2.       Agree a compelling vision of the shared service and keep this alive

3.       Build a strong business case - understand any deal breakers early on

4.       Nurture and sustain relationships

5.       Communicate, communicate, communicate

6.       Jenga test the individual service to be shared to understand the ripple effect on the rest of your business

7.       Road test your shared service before implementation

I believe shared services provide a real and viable strategic alternative to merger.  But whatever route is right for you, collaboration, in whatever form it takes, is critical to future success.

Join the conversation, go to www.sharedventures.co.uk, comment on our blog, or tweet #CollaborateDebate

Sharon Collins
Director, Collins Corporate Solutions Ltd

September 2016

Copyright ©Shared Ventures [2016] all rights reserved. The content of this document is copyright and may not be reproduced without the permission of Shared Ventures Ltd.   

About the author:  Sharon is the Director of Shared Ventures Ltd – a business-to-business collaboration service which enables public sector organisations to share or co-produce front line or back office services, lever shared investment and deliver savings whilst improving customer service.  

Visit www.sharedventures.co.uk  

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[1] CIH – Does Size Matter – or does culture drive VFM 2011

[2] Local Government Association (LGA) website reports 387 Council delivering 416 Shared Services generating savings of £462m. 

[3] The introduction of a new Group 16 to Schedule 9 of the VAT Act 1994.  More info: www.hmrc.gov.uk

[4] Delivering better value for money: understanding differences in unit costs – summary https://www.gov.uk/government/publications/delivering-better-value-for-money-understanding-differences-in-unit-costs

[5] Extract from VFM Standard

Supporting tenants voices in merger, partnership and shared service debate

Supporting tenants voices ...

We are hearing a lot about mergers right now!

The Shared Ventures team are working together with Tpas to ensure that tenants of social landlords and other community stakeholders, are aware of all the opportunities that are available to housing organisations striving for better efficiencies.

Mergers are not the only option

There are a number of other shared service arrangements that could be entered into including:

• ·      Cost sharing groups where housing providers collaborate together to provide themselves with shared services
• ·        Joint ventures and strategic alliances
• ·        Co-located services between housing and other public sector services eg the health service, DWP and others

Take part confidently

We want to ensure that tenants are able to take part confidently in discussions about how social housing will be delivered in the future – whether it’s merging, sharing or co-locating services - to ensure that the way landlords deliver services are efficient and offer real value for money.

Shared Ventures are working in partnership with Tpas

to help tenants demystify the range of different ways of delivering services and how by working in partnership with residents, landlords can bring greater value to businesses, communities and the individuals involved.

For more information about workshops and other support available please contact:

Val Alker at Tpas on: 0161 868 3533 or email: val.alker@tpas.org.uk

Sharon Collins at Shared Ventures Ltd on: 07740 482976 or email: sharon.collins@sharedventures.co.uk 

Join the conversation  #CollaborateDebate

Does size matter?

At the Social Housing Finance conference this week, there's lots of chatter about our increasingly tough operating environment driving a trend in merger activities, with Homes and Communities Agency's Chair, Julian Ashby, projecting that 50% of all HA stock could be owned by just 12 landlords in a few years time.

Whilst the Governance, Viablity and VFM standard requires Boards to undertake a "rigorous appraisal of all potential options for improving VFM, including the potential benefits in alternative delivery models" let's not forget that M&A is  only one of a number of delivery options.  

Although mergers may well be the right route for some, we're in danger of becoming a one trick pony!   Despite the incredibly flux and uncertainty in our operating environment, we [the housing sector] are still applying the same old thinking, at a time when we need very different results. 

We need to reimagine service delivery models across traditional organisational boundaries - considering all the strategic options in our armour - strategic alliances, partnerships, joint ventures, cost sharing groups, co-located or co-produced services with others working in the same neighbourhoods - the place where our major stakeholder - our tenants and leaseholders - call home.  Let's not lose sight of their voices - and their wellbeing - in all this.

Tenants want local services, delivered by local people which supports the local economy.  They want control of service quality and cost, and have a real voice in how services are delivered.  

I question whether continued M&A activities will leave Boards and residents feeling uncomfortable being 'swallowed up' as part of successive groupings, losing their 'local' feel and focus?  I fear M&A will create groups too large to rescue in the event of collapse - and that social housing will simply be sold off privately if HAs fold.

All this chat about M&A brought to mind this Chartered Institute of Housing paper published in 2012 - Does size matter? Analysing sector performance it found absolutely no correlation between cost, performance or size of landord, and more importantly in our current M&A frenzy, evidenced that scale alone did not automatically deliver efficiency, nor guarantee improvement.

ICYMI it's really worth a read: 
http://www.cih.org/resources/PDF/Policy%20free%20download%20pdfs/Does%20size%20matter.pdf


Sharon Collins
Director, Shared Ventures Ltd
07740 482976
sharon.collins@sharedventures.co.uk 

Drives me nuts! Where's the residents' voice in influencing big decisions?

Influencing Big Decisions

The National Housing Federation's recently published Voluntary Merger Code provides a framework for Registered Provider boards and executives to work to, having decided that a merger, group structure or other partnership "is the best way forward for their organisations and tenants".

However, despite some solid guidance from Savilles, the complete omission of the engagement of tenants in influencing and having a voice in collaboration is deafening.

In fact the word 'tenant' only appears once in the entire guidance - despite merger, group structure and partnership opportunities being key to strategic discussions around how to achieve business objectives and maximise value for current and future tenants.

Take a further search of words like 'consult', 'rights', 'vote',  'customer' or 'involvement' and you draw a blank - despite boards remaining accountable to stakeholders for informed decision making, and Consumer Standards setting out in black and white the need for opportunities for tenants to influence strategic priorities and how services themselves are delivered.

I'm absolutely determined to turn the tide for resident rights and equip them with the skills and knowledge to influence these big decisions - and very happy to actively support Tpas develop an 'alternative merger code' that truly places power and influence in service redesign in the hands of landlords' largest stakeholder - the tenants themselves.  

More soon ...

'Alternative' merger code - Inside Housing 03 05 16 

Health and housing collaboration - Speaking the same language

Speaking the same language

In April 2016, Radian Housing Group hosted a conference where residents and health, housing and other sectors got together to talk about how they can work more closely together.

The Right Honourable Lord Hunt OBE, the Labour Party's health spokesman, Shadow Deputy Leader of the House of Lords and President of the Royal Society for Public Health was the key speaker.  

Health and Housing 2016: Speaking the same language conference helped delegates come together to share insight, expertise and knowledge and began to break down traditional organisation barriers providing space to begin to reimagine what services, delivered collaboratively, could look like.

For me, it's a no-brainer.  What residents want is simple. They want local services, delivered by local people in jobs which support the local economy. They want to retain control of service quality and cost, and have a real say in how services are delivered. 

There is a live decision for the housing sector to debate whether we continue to make or buy … or share co-produced services for the public good. 

The debate on whether or not we can collectively begin to better work together at a regional/sub regional basis to meet the challenges we face is indeed now centre stage. 

Lord Hunt's thought provoking presentation is available by following the link below.  Let's continue the debate using the Twitter hashtag #CollaborateDebate

http://bc-radian.s3.amazonaws.com/_Residents-Documents/HH16_HealthHousing_LordHunt.pdf

Social housing - are we ready to put aside our guilty pleasure?

Are we ready to put aside our guilty pleasure?
To make, buy … or share

Product diversification, growing commercialisation, mergers, acquisitions, insourcing, outsourcing … the sector is awash with tried and tested strategies aimed at mitigating risk and building business resilience.  But how can we continue to use yesterday’s solutions in an operating environment where radically new solutions are needed to solve increasingly complex problems.

We seem so focused on our ‘guilty pleasure’ of remaining autonomous businesses that we have lost sight of the need to fundamentally rethink operating models and traditional service and sector boundaries if we are to free up capacity for new homes, drive efficiencies and protect vulnerable frontline services.

How can we argue as a sector that it continues to make sense for 2,000+ housing organisations - all with similar core values and strategic intent, operating shoulder to shoulder within regions - to maintain traditional service boundaries and operating models which duplicate spend within the same communities.  How is that demonstrating value for money?

Future advantage will go to organisations which can stimulate and support business-to-business collaboration as a lever to both secure and maximise return across all assets of the business.  This means we need to rethink how we can work in collaboration, at a regional level, to deliver more with less resource – and we can do this by sharing.  Sharing front line services such as ASB, community cohesion, financial inclusion, repairs, housing management - as well as sharing back office services too, such as shared IT, financial, legal services, HR etc. 

Shared services ventures are delivered by you to your customers – so control and ownership remains across the partnership.  Sharing ‘directly necessary’ services, means we can share risk, share investment, share efficiencies, share surpluses and ultimately boost capacity for affordable housing.  Who knows, we could even find ourselves generating enough capacity to build homes without any grant funding for years.

How can Boards justify, in the short to medium term, strategic options which don’t at least explore whether collaborative advantage would provide a step change in capacity and capability?    

We’re ready to work with you to find collaborative solutions.  Are you ready to join the conversation?  Join the debate at #CollaborateDebate

www.sharedventures.co.uk

Sharon Collins
Director, Collins Corporate Solutions Ltd

Director, Shared Ventures Ltd
Mobile: 07740 482976