1. ESRC/TSRC/ACEVO
Policy Seminar
Third Sector Service Delivery: Marrying
Scale and Responsiveness?
Tony Bovaird, March 2012
Funded by:
Hosted by:

2. Topics
• Conventional wisdom on public services?
• A new model of local governance?
• Self-organising and self-help
• Co-production
• So, what does ‘scale’ mean?
• Importance of ‘economies of scope’ and
‘economies of learning’
• Evidence of potential for third sector
contributions: neighbourhood and community
level public services

3. Conventional wisdom for some years (e.g.
Beecham, Christie) has suggested that:
• Transactional services have big economies of scale, so should be centralised at
county, regional or even national level, but subject to competition and
regulation (applies to TSOs as well)
• Personal services have few, if any, economies of scale, should be
‘commissioned’ (often procured externally) and increasingly co-produced with
users and communities (usually through TSOs)
• Infrastructure-heavy services should seek flexible solutions, which can be
delivered with other services and partners to ‘sweat the assets’ in service hubs
(at different spatial scales) (so other assets can be ‘left to the
community’, through TSOs)
• Regulatory services should be determined by ‘economies of scope’ – at what
scale can ALL specialisms be hired necessary for a function?
• BUT THE ANALYTICAL GOALPOSTS HAVE MOVED:
– ‘transactions’ are now seen to be holistic, with ‘social component’
– ‘personal’ and ‘infrastructure’ services are seen to have multiple outcomes
and therefore ‘commissioning’ is multi-stakeholder
– regulatory services can now be partly externalised
– economies of scale can be reaped by partnerships, not by mergers

4. Organisational differentiation and
integration
• Adam Smith: greater efficiency through specialisation (‘division of
labour’)
• Greater specialisation allows more expertise to be developed in each
aspect of provision and to organisational differentiation
• These specialised providers can either set up different organisations
(each producing their specialist products) or differentiated units within
an the organisation (or a partnership)
• Differentiation can also lead to economies of scale (as can many other
factors, e.g. technical, financial strength, procurement discounts, etc.)
• Within an organisation or partnership , there is a need to integrate
these differentiated units in some ways – e.g. through reporting to the
same manager, having some joint staff, having joint meetings, having
shared targets, etc.
• The trajectory of management in organisations (and in sectors) is often
a series of waves of differentiation and integration (Lawrence and
Lorsch, 1967)

5. So what does ‘scale’ now mean?
• Economies of scale: where an increase in
inputs brings a larger increase in returns ...
(e.g. handling all customer contacts in one
system?)
• ... but an increase in WHICH inputs?
• Up to now, there has been major attention to
inputs made by or paid for by public agencies
• This is misleading in terms of the ratio of
outcomes to costs in the community ... (e.g.
the extra time taken by housing clients to get
their repairs done through a multi-purpose
joint venture call centre)
• ... but we would need to measure user and
community inputs in the future if we wanted
to take account of this
• Warning: many empirical studies suggest
constant returns to scale, others also find
diseconomies of scale

6. What’s
going on
‘out
there’?
Private and
third sector
market
outputs
Public sector
outputs
Value-adding
outputs in Informal economy outputs
market, public
Formal volunteering
and third sectors
and in civil
society – how Informal social value-adding outputs
Informal social value-adding
outputs
big are these
different circles?

7. Economic, Social, Political &
Environmental Value Added
REAL Value for Money is about the
OVERALL supply chain for outcomes
Source: Modelling Birmingham – the
conceptual brief

8. Importance of ‘economies of scope’ and
‘economies of learning’
• Only in 1980s did importance of economies of
scope become widely appreciated – savings
which occur when the RANGE of activities
undertaken by an organisation (or partnership)
increases (because they have joint costs) – e.g.
where the ‘meals on wheels’ staff check and
report back on wellbeing of meals recipients
• ... and importance of economies of learning –
where savings occur over time as staff AND users
learn how to co-produce the service better – e.g.
getting inquirers to have details with them when
they call the call centre, getting ‘meals on
wheels’ deliverers to respect agreed time of
delivery and users to wash yesterday’s reusable
tray and dishes
– means we should avoid disruption - ‘churn’, ‘initiativitis’

9. Implications of economies
of scope
• Activities which gain from being done
together SHOULD BE done together – either in
a single multi-purpose organisation or in a
‘seamless service’ in a partnership
• Transactions costs of SEPARATING activities
which naturally have ‘joint outputs’ may
override economies of scale – e.g. joint needs
assessment rather than single needs
asssessment

10. Some potential market types
Economies of Economies of scope Both
scale
Differentiated Large-scale Niche providers with Large-scale multi-service
demand – niche providers of client-specific packages packages for specific
markets single services (going as far as client groups
to specific ‘personalisation’) (‘Mass customisation’ -
client groups Toyota – financial
services)
Multi-service consortia
for specific client groups
Undifferentiated Mass Multi-purpose ‘Tescoisation’ (Capita,
demand - mass production conglomerates (ACEVO?) SERCO?)
markets (‘Macdonald- or partnerships (HWBBs)
isation’ – ‘easy- for wide range of client
Barnet’) groups

11. Partnership Forms
Contracts
Consortia
Umbrella
Groups

12. Diversity of Forms in Case Studies
• Welfare to work supply chains- private primes
• Joint bidding consortia
• Shared services organisations –trading
• Umbrella groups – UK-wide federations
• Mergers and Group structures – continuum
• With charities – support for small and local
• With public sector agencies & users – place
based commissioning and service redesign
• With private sector – more transactional?

13. Partnerships Continuum
AUTONOMY Independence decreases
‘LOOSE’ PARTNERSHIPS Integration increases
CONTRACTS
ALLIANCES
JOINT VENTURES
GROUP STRUCTURES
» MERGERS/AMALGAMATIONS
» INTEGRATED UNITARY ORGANISATIONS
» DEPENDENCE
Transaction Costs increase,
Scale Economies decrease

14. TSRC Findings on Impacts and Outcomes
of Partnership Working
• Rare to consult users on outcomes, except through Place Survey
• Impacts of partnerships on services and users: often too early to
say, or not monitored
• Concern about how to measure impact on services, especially in
downturn
• Hard to find evidence for cost savings, especially where it wasn’t
the object of partnership
• Better evidencing of savings from mergers in Housing
• It’s hard to compile evidence about benefits or otherwise of
partnership – because of ‘warm glow’ and attribution issues
• Nevertheless, partnerships strongest where there is external
funding to be pursued AND partners have ownership, AND clear
(shared) purpose AND potential synergy – conversely externally
mandated & steered partnerships the LEAST SUCCESSFUL

15. Building blocks: Identifying which public services can be
devolved to TSOs at neighbourhood level?
• Identifying outcomes desired – e.g. Children’s Act
(healthy, safe, enjoy & achieve, positive contribution, economic
wellbeing)
• Unbundling the activities contributing to outcomes – i.e. ‘service
value chain’
(governance, commissioning, prioritisation, planning, design, financin
g, management, delivery, assessment)
• Identifying cost-effective configurations of organisations in providing
these activities to achieve these outcomes – and roles of
citizens, councillors and other stakeholders in these organisations
• Identifying resilient service systems, given the risks of failure
• POTENTIAL LESSON: Almost ALL services are able to be devolved to
neighbourhood level, AT LEAST IN PART, in future – it’s not

16. Example: Potential neighbourhood level
input to adult social care services
• Outcomes: Quality of Life through Control (‘independence’), Personal care
(‘satisfaction’), Food and Nutrition, Accommodation, Safety, Social
participation, Occupation (Employment), Dignity (NB: not all have
indicators, ignores research on ‘friends, confidantes, company)
• Activities: governance, micro-
commissioning, prioritisation, planning, design, financing, management, delivery,
assessment
• Cost-effective configurations of organisations: Mix of public, private and third
sector suppliers
• Roles of users, citizens and other stakeholders: Contact with citizens critically
important to priority outcomes of users – needs to be built into
commissioning, design, delivery and assessment
• Resilient systems: Failure is common, likely to increase – need for public sector
‘emergency intervention’ role, probably 3rd sector delivered
• Lesson for TS working at neighbourhood level: Important to include
neighbourhood representatives (e.g. users) in governance and assessment of
both local commissioning process and providing organisations – also important to
build their capabilities into delivery – LIMITS ECONOMIES OF SCALE, PROMOTES
ECONOMIES OF SCOPE

17. Bottom-up analysis
• Average London Borough has 245,000 population and spends 50% of its
budget on fewer than 10,000 people (Barry Quirk) – 4% of population
• 120,000 problem families said to cost nearly £8bn to national public purse
(Eric Pickles, 17.10.2011) – by spending £14,000 per family on a more co-
ordinated service, the state could save £70,000 per household (actually
£52,000!). Should we let contracts one at a time to support these families?
• OR what about forming a FamilyRing network for every 10 families, taking
the families out of most public services - £520,000 p.a. per FamilyRing? How
much would a TSO be prepared to bid for such a contract?
• OR what about 30 different services in 8 different public sector
organisations?
• OR one public sector organisation with all functions for families with multiple
functions?
• OR one public sector organisation with ALL functions for ALL citizens?
• THEN – what kind of organisation should deliver to the REMAINING 96% of
population?

18. Scaling up provision (including third sector) from
neighbourhood to council-wide, regional or national levels
• In absence of clear a priori arguments for relative strengths of
economies of scale and scope, we should remain market-structure-
neutral and launch experimentation ...
• ... ‘fail early, fail fast, fail cheap’ – LEARN SMART
• This needs to be based more on analysis of potential risks to citizens
and service users and less on risks to the decision makers and their
organisations
• There needs to be proper planning for dealing with (increasingly
inevitable) failures in provision (and commissioning)
• Part of this ‘failure planning’ is designing resilience into
communities, public services and partnership arrangements

19. Conclusions
 All change … with huge risks
 … but risks from both change and ‘non-change’
 Huge latent willingness of citizens to become more involved …
 … but only if they feel they can play a worthwhile role
 If this happens, all previous public service models which have
privileged ‘economies of scale are suspect
 Needs experimentation – none of the emerging new service
configurations are well understood, none can be regarded as
‘reliable’ – this experimentation needs to be across sectors
 Experimentation needs resilient systems, ‘last resort’ intervention
plans, slack resources – primarily public sector role
 Must be ready for scary world of ‘trusting’ –users, citizens, trusting
partners, voters – surfacing likely outcomes, risks and impacts
 All radical change will cost resources – ‘neighbourhood’ and
‘community’ interventions, even when based on ‘co-production’
and ‘community assets’, are not ‘free’ – TSOs cannot facilitate and
enable this ‘brave new world’ on goodwill and fresh air alone

20. Contacts
David Mullins d.w.mullins@bham.ac.uk
James Rees j.e.rees@bham.ac.uk
Tony Bovaird t.bovaird@bham.ac.uk

21. OPTIONAL SLIDE: Why ‘user and
community co-production’?
• After 10 years of Best Value and ‘Transformation’, we’re MUCH LESS CERTAIN
that we are doing things the best way – but still uncertain about what ‘better’
looks like (the outbreak of ‘humility’)
• We now realise that service users and their communities know things that many
professionals don’t know … (‘users as thinking people, communities as
knowledge bases’)
– E.g. co-design of services, co-authors of user manuals
• ... and can make a service more effective by the extent to which they go along
with its requirements (‘users and communities as critical success factors’)
– E.g. self-medication, self-management of long-term conditions
• ... and have time and energy that they are willing to put into helping themselves
and others (‘users and communities as resource-banks and asset-holders’)
– E.g. peer support (Knapp et al, 2010); expert patients programme
• TS organisations are a key mediator of these relationships

22. OPTIONAL SLIDE: Different types of co-
production
• Co-governance of area, service system or service agencies – e.g.
neighbourhood forums, LEPs, HWBs, school governors
• Co-commissioning services – e.g. personal budgets, participatory
budges, devolved grant systems
• Co-planning of policy – e.g. deliberative participation, Planning for
Real, Open Space
• Co-design of services – e.g. user consultation, user-designed
websites, Innovation Labs
• Co-financing services – fundraising, charges, agreement to tax
increases, BIDs
• Co-managing services – leisure centre trusts, community management
of public assets
• Co-delivery of services – peer support groups, expert
patients, Neighbourhood Watch
• Co-monitoring and co-evaluation of services –user on-line
ratings, tenant inspectors