Essex Cares commenced trading in July 2009. It is a business model created by Essex County Council and is one of the Country's first Local Authority Trading Companies (LATC) for social care services. It offers support and loan equipment to around 75,000 people per year across the county of Essex and its divisions include Essex Community Support which covers Reablement, Sensory Service, Mental Health needs, Day Care; the countywide Essex Equipment Service based in Colchester and Employment & Inclusion services, which supports the disadvantaged into employment alongside social enterprise outlets which create jobs. Altogether, Essex Cares is a major employer with some 850 full time posts.
Gary Wright (pictured) is director of Essex Equipment Service. I believe that the workshop was planned with only a few weeks before the conference took place and so it was tucked away in a small room and only around 20 or so people could actually take part in each of three sessions, being full each time. That's a shame as I think a good number of the delegates would have both found the presentation from Gary interesting and enjoyed his very confident and enthusiastic style.
I guess that for quite a few people, social enterprises were way down the list of things that they would have taken time out to find out more about. However, it's clear that there is a role going forward for companies and organisations using the social enterprise framework in this sector and that was more than evident from the workshop.
Inhis previous working life, Garyhas worked at senior levels in the finance, construction and leisure industriesbefore enteringsocial care and health, describing himself as a ‘social entrepreneurwith the desire to helpmodernise services'. He is currently undertakingan MBAat the Ashcroft International Business School and haspublished papers on social investment and social enterprise.
The first question I guess is what exactly a social enterprise looks like. “It's a company with social aims and social ownership, that trades for a profit.” Gary explained. “It doesn't have to trade for a profit of course, it can be anything that it wants to be. It can be a limited company or a partnership or even a one man band with a document that promises to do something for the community with any profit. We all have license to be able to interpret it in whichever way suits our own community. A lot of people think of a social enterprise as a charity or not for profit option, perhaps a soft option, but it certainly doesn't have to be that – a social enterprise can trade and market itself as aggressively as any corporate.”
Gary had introduced the presentation as being ‘a new way to think about social enterprise.' He said that there could easily be 20 different ideas in the room as to what social enterprise means and he suggested that, as it doesn't have a precise definition, it could almost be whatever you want it to be. “I've heard people here talking about the future and what it will mean for their jobs, but I think that social enterprise can deal with the concerns. I think that it can do it in a wider context, not just for community equipment - it is the answer to doing more for less.”
A social enterprise model is one way that Community Equipment Services could position themselves in response to the challenges that the retail model programme has thrown up. Although there are some good points to learn from in the retail model that was presented at the start of the development process, Gary believes that there are a number of risks too. “The main message from this workshop is not to rubbish the Department of Health's model as there is a lot in it that is good. But, it wouldn't work for us financially in its original form and that's why we had to take what we thought were the good points from the model and try to build them into something that would work for us financially and, crucially, deliver for longer. We were looking for something that laid down some foundations for the longer term and would have the flexibility to deal with whatever the future might throw at it, rather than a quick fix to today's budget problems.”
Gary ran through his thoughts on the retail model. “It undoubtedly has the right motives” he said. “It's all about increasing choice and control and making products that people use in the home look like they are part of the home and not part of a hospital or worse. I think we can all agree with the aims of the retail model which aims to create a market that draws manufacturers into it with new and better products. It puts service users and their carers at the front end of the service. The idea behind the retail model is to give them a voice so that, eventually, they get what they want. I think one of the faults of the current system is that, whilst it undoubtedly tries to do what people want it does so in quite a fixed way and it is slow to change if only for the fact that everyone has their own ideas as to what it should look like.”
More specifically, the retail model has an appeal in terms of costs according to Gary. “One of the things that the retail model delivers and that was attractive to us when we first started to look at it was the predictability of the costs. We used a model in Essex for dividing up the overheads between our partners retrospectively, when we find out how much they have spent with us in a period. So they can't budget with certainty and I don't think that anyone could argue that that's a particularly good way to do business.”
And, it also brought into focus the refurbishment practices. “Instead of just blindly refurbishing everything, we had to look critically at whether we did draw a line across the product range below which we wouldn't bother to collect and refurbish. It sounds a bit shocking, but I don't think we had previously itemised the precise cost of bringing back a bathboard, cleaning it and putting it back on the shelf. It's not rocket science and it was obvious that we should have been doing that.”
However, Gary has some doubts about the retail model too. “My suspicion about the retail model is that there is a wider agenda and that, in the long term, it will become a prescription model like the medicine model which means that it will be only part funded. I have long held that suspicion and I may be wrong but actually, with the level of budget deficit that we have going on at the moment, maybe a lot of us can see that it might just be necessary. One of the big areas where we can make the system more sustainable is by stopping people needing the products and I think delivering the bigger market and making it more accessible and, at the same time, making the products more desirable will entice people into self funding before they get to the stage where they are in dire straights. I see that as a good point of the retail model – the biggest savings are always going to come from prevention.”
One of Gary's specific concerns about the retail model was focussed on the retailers that may get involved. He believes that, if retailers struggle to buy at the right price, they could rely on cross and up-selling to make a profit. When we started to talking to retailers about the model” Gary said, “they weren't prepared to supply at anything like the prices that we were currently paying for equipment. We had a concern that, if we squeezed them too low on their mark-up, retailers may compensate for that by selling items that perhaps people didn't need or that had larger margins built in. We really just felt risk in the whole set up.”
He is pretty sure that the TCES saving calculation is flawed, with many of the low value items being delivered and collected, alongside high value items. With not all service users collecting their items, he sees a further increased cost here and he suggests that the landfill and environmental impact is unacceptable, something that is high on the list of worries for a number of people. He also believes that the speed of ‘delivery' could be both slower and unmeasured. “We couldn't agree with the saving calculations as a number of our low level items were delivered at the same time as the complex need items. Paying a retailer to go there, if the customer couldn't collect, as well as visiting the same property ourselves is a waste and so we felt that we had to work our own numbers.”
On the landfill issue, Gary said; “We didn't like the waste inherent in a single use model and we don't believe that is sustainable. If we are not careful, we'll find ourselves surrounded by used bathboards and commodes like the Wall-e film!”
Putting more flesh on the bones of the recycling issue, Gary talked about the Department of Health position. “Their model seems to assume that all items will be recycled into something else after their first use. If you can turn one product into another, then that appears to be acceptable to them. It's putting it into landfill that they are more concerned about, whereas we get more hung up on re-use and refurbishment as to turn a pile of walking frames into a car takes a lot of energy. If they are walking frames already, why not re-use them as walking frames?”
Gary stated that, if you worked out the figures across the board, then it was costing something like £2.50 an item to get it back onto the shelf and to be ready to be issued once again. “If you split the low level and high level items, then the low level items are costing less than £1.00 to recycle. The spreadsheet that we created shows a real headline position on what you lose in the way of refunds if you don't recycle the low level items. That's where the big difference is. It's the hit that you take when you buy things over and over again rather than getting 70-80% back on them as a refund when you return them that made it an expensive option for us.”
Gary went on to give more details about the set up in his area. “In Essex we are a community trading company and we are a wholly owned subsidiary of the County Council. We have a shareholder liaison group and a quite complex framework for keeping arms' length commercial relationships with the County as our shareholder on one hand, while we have a commissioning relationship with them as the contract giver on the other. That suits us as they can support us and give us business and, when we do well, we return money to them, so that suits them too. I think that is probably the most social type of social enterprises as, if you are owned by the local authority, then you are ultimately owned by the taxpayers. For me, we are probably the most logical example that you could get of a social enterprise.”
As a social enterprise, Gary told delegates that it meant a good deal of freedom, but that he and his team are taking things one step at a time. “In theory, we can buy whatever we want, whenever we want. But, to begin with, we have contracted for three years, with an option for a further two, so that the County Council will give us some business and we will continue to buy some services. At the minute that includes IT systems and payroll support. The aim is to stand on our own feet and gradually create greater independence by reducing our dependency on one contract, perhaps building our own systems.”
The initial contract involves a guaranteed spend from the local authority but, according to Gary, there is also a ‘deflator' which reduces the contract annually “to encourage us to become more efficient over time” he added.
There is a degree of monitoring happening as Gary detailed and it is seen as a positive. “We are robustly monitored on several KPI (Key performance indicators), including recycling, the speed of collections. We are learning all the time, for example, not to source products such as composite alloy items that always have to go to landfill. It's been a good learning curve in lots of ways. We have actually gone for more expensive products in some cases. For one product we were using two motors on most refurbishments and now we aren't as we have changed the product to a more expensive, and durable, model. We now have that flexibility.”
Gary suggested that the hope is the ownership profile may change in time. “During the time of the contract, provided that we can retain enough profit to have our own contingency reserves, the local authority has indicated that it may be happy to consider handing over some of the shares to the employees. I would like to think that we would end up more like a ‘John Lewis', with a wider participation, even if in ownership rather than profit share.”
However, he did sound a word of caution looking into the future and the fear that, if successful, the enterprise might become attractive to others. “Political and other influences can change over time” he said, “One politician's social enterprise is another's windfall opportunity and I would recommend that anyone starting a social enterprise considers ways to protect the investment it will be making in its future.”
Although Gary and his team have developed something quite unique to themselves, he believes that the process that everyone went through at the start of the TCES debate was more than useful. “The DoH kicked the process off and there are a lot of good points in the retail model that can be used. However, if we had implemented it exactly as they had wanted us to, it wouldn't have worked for us and it would have dramatically increased cost. That is not to say that it won't work for some, but we have a high density population and highly efficient operation, which makes re-use down to very low levels viable.”
Gary talked about how other social enterprise ventures might get off the ground. “If you think that you would like to become a social enterprise, then how do you persuade the guy who holds the cheque book that it is the best thing to do? This is where itcan betricky. Usually, the only answer is cash, but to do that you have to calculate things - unknown things. I have produced a spreadsheet to help budding equipment enterprises to go to their Director of Social Services and request some money to become a company. It's as close as you will get to a meaningful one page summary that shows what you might achieve, either going with the full retail model, going half and half, or staying exactly as you are but driving a business to take over your operation, make it commercial and enable it to return money to the commissioner when it succeeds. This is a big difference from just tendering out. When you tender, you might gain some efficiencies, but the profit can be anything and you certainly don't get a share of it.”
After crunching the numbers, Gary was pretty convinced that it was the right way to go. “Why did we want to become a company? We told our commissioners that we thought that we could make £300,000 a year profit from new business, while continuing to do everything we do at the moment for them on a not for profit basis.”
Although Gary did admit to being biased, he stated; “The costs are dramatically coming out in favour of the social enterprise. We completed nine months to the end of March and we underspent on the inherited budgets, and won new business. The sums involved are substantial - seven figures. We are having discussions now as to whether we can re-invest some of that into the areas that we want to improve and further transform the service.”
One of the delegates asked what is considered a reasonable profit. “That's a very good question” Gary answered. “If I was the boss of M&S, then I would be telling you that I had failed if I hadn't produced a profit that was a chunky percentage of my turnover. We try to work to reasonably commercial mark ups on the part of the business that isn't for profit. There is social responsibility too and that is to the wider marketplace such as the local retail outlets. We are not here to put them out of business. We are not going to have ridiculously low mark ups. If the manufacturer has a recommended retail price, then that's the price that we will charge. That's important as a principle as we are not trying to take over the world, just give people a choice that is more sustainable and community minded whilst driving the market to be more of a mainstream choice with higher visibility and earlier up-take through self-funding.”
But, do the retailers have the same view? “We have really good relationships with them and we are actually supplying a couple of them as we can supply at better prices than the manufacturers and wholesalerscan.”
A retailer in the audience told Gary that he sees taxpayers money being given as grants to social enterpriseto open up a shop and then compete against the retailers in that area.”
“It's a fair point” Gary admitted, “ and may happen in some areas, but, we say to the retailers in Essex, you can work with us. We'll supply you. You can even start your own social enterprise if you wish, tender for business with us or other authorities. We wouldn't have an issue with that as it's a fact of life and we are not here to stop people doing things, we are here to drive the market to help people in need. I do, however, believe that social enterprise is way overdue in terms of the use of our money and where it goes. I would hope that, trading in the right way, social enterprises won't behave like some of the big corporations do now. We don't have a shop and what we will probably do is to look at some type of partnership with retailers so that they will stock our products and be a front line response service for our assessments. We do have a perfect right to open a shop or shops of course, but we would prefer to work with existing retailers if that proves possible.”
On the subject of profits, Gary explained more about how he expected them to be realised. “There are two retail elements to our plan. The first is that people can choose to self-fund. There will be a profit element in that as we will do that on commercial terms. We are not about to squeeze the commercial element out of the market and there are also the top up sales too. We earn a profit in those two ways, but we won't set out to earn a profit in our model for the state provision as that always goes out at cost. They are our wholesale customer if you like.”
Gary mentioned savings in his presentation and another question was whether the substantial savings that he and his team are making show just how much waste there was before?
“I wouldn't use the word waste necessarily” he answered, “but inefficiency maybe and a lot of that was in practice and in the way that we did things. As soon as we were able to do our own thing and follow our own thinking and systems and procedures, we started to make the savings. A lot of the savings came from agency staff bills reducing as we didn't need those staff once our staff began taking less time off with illness. The culture changed and the staff understand that their actions have a direct effect on the organisation and that if the company doesn't make any money, then they don't get paid. We consulted with all the staff multiple times and explained what we are doing and why we think that it is important. What we have seen as part of our transformation isdays lost to sickness drop from double figures to just 4.1% in the first year.”
As mentioned earlier, Gary and his team have devised a very simple but what looks like an effective spreadsheet toevaluate asocial enterprise model against the retail model, and offered this to help other equipment storesplanning to become trading organisations. He has some interesting ideas for the future too. For example, at the end of the presentation, he mentioned the possibility of a group of social enterprises working together to source and manufacture their own products. He believes that, with the volume of products involved, that could be an option in years to come.
In conclusion, Gary suggested; “Social Enterprise, in the form of Health and Local Authority trading, can drive savings and investment in better services. It can trade for profit and channel that profit into service improvement or back to stakeholders. Used horizontally and vertically in a market it will transform the market and by engaging and empowering the community it improves lives on many levels. In CES it can provide an alternative to the retail model with all of the benefits and more, and with none of the drawbacks. By reducing the waste of a pure retail model and having ‘green' credentials as its ethos it will help to save the planet whilst bringing retail items to the public.”
In a business meeting a couple of years ago that was discussing the early implications of the TCES retail model, I suggested that the Third Sector and social enterprises might have a bigger role to play in the future than some of the people sat around the table thought. The model that Gary ran through looks like a robust one and certainly one that could interest others in the future. It will be interesting this time next year to see just how the Essex model has progressed and whether Gary is as enthusiastic about the option as he is right now.
The Essex Cares website is HERE Essex Equipment Service can be contacted on 01206 518888