Local government finances remain challenging, and exploring new ways to maximise income is essential.
In order to protect valuable frontline services and ensure positive outcomes for local communities, councils are increasingly thinking through a more commercial approach to their activities.
These innovative councils are using their assets wisely, trading services with others across the public and private sectors, and selling commodities to generate income.
During the lifetime of a commercial strategy, councils will typically experience changes to political or organisational leadership. By creating the right foundations, they can ensure that income generation activity is future-focused, sustainable and resilient within changing contexts. Here are our top tips for commercialisation, gleaned from the experiences of the LGA’s member councils.
Purpose should sit at the heart of all commercial activity, and should be shared by both political and organisational leadership teams. It is critical that leaders can articulate and explain the purpose to everyone in the organisation. Ensure that the purpose is relevant in the short, medium and longer term, and that no individual scheme is greater than the overall purpose.
The importance of governance in commercialisation cannot be overstated. While it ensures the interests of the council and the public are represented in commercial investments, equally important is that governance protects the decision makers – as long as they act within the remit assigned to them.
By providing clear direction around delegated powers of decision making, officers are empowered to take appropriate decisions, which are required for councils to take part in commercial activity.
Within the governance, there should be a recognition that not all commercial opportunities will be successful. Political leaders and senior management should agree on the level of risk they can tolerate, so appropriate guidance can be created that clarifies risk parameters for individual asset classes as well as for the overall portfolio.
For trading companies, councils should clearly understand the implications of directorships, including de facto directors, and the expectations of the company board compared to shareholder expectations. Even for a wholly owned company, these may not be the same.
Embrace challenge – scrutiny is a valuable part of the governance process. Engage early with scrutiny colleagues and use it to constructively build robustness into the process, helping to identify and address any challenges early on.
A commercial strategy should organise all the organisation’s commercial activity into a single document, which should sit alongside the council’s overarching strategy and medium-term financial plan.
For example, by identifying and organising emerging commercial projects into a single, concise strategy, Warrington Borough Council was able to develop its portfolio of investments including property acquisition, green energy and schools trading. A key benefit was being able to identify and determine its risk tolerance and appetite across a portfolio of investments and to develop appropriate approaches and monitoring for each element.
Commercialisation initiatives are often new opportunities and so begin with projected returns without a financial history. It is important to monitor the financial health of any trading entities on a regular basis and to keep projections updated.
Beyond the financial return, it is also important to measure ‘social value’ – such as creating local jobs and training opportunities or area regeneration – to understand the overall benefit. There are a number of measures to do this, which include ‘social return on investment’ and ‘social cost benefit analysis’. These measures should directly reflect the purpose that underpins the commercial activity.