The Scottish Government

1. Portfolio/Number/Name:ELL/C6 Highlands & Islands Enterprise - NEW

2. Programme/Activity:

Highlands and Islands Enterprise ( HIE) has embarked on an Organisational Review to improve its operational effectiveness and efficiency over the next 3 years. This includes a number of initiatives covering three areas : Organisational architecture, Property rationalisation and the Advice supply partnering.

The Organisational architecture initiative focuses on the following key changes :

1. Reducing the number of Local Enterprise companies from 10 to 9.

2. Removing Local Advisory Boards.

3. Reducing the number of Audit Committees from 11, meeting quarterly to 1 network -wide committee meeting quarterly.

The Property Rationalisation and co-location proposals involve reducing the overall number of operational offices within the HIE Network from 34 to 20. These include the following key changes:

1. Co-locating Job centre Plus into Lionacleit Office in Benbecula (05/06)

2. Re-locating Finance, Operations and Community Energy teams to Dingwall (06/07)

3. Sub letting the released space in Cowan House to Communities Scotland and other organisations as part of a collocation initiatives (06/07)

4. Developing a shared service agenda and delivery strategy for Strengthening Communities through the delivery of the Growing Community Assets initiative for the Big Lottery Fund (06/07) resulting in recovery of costs in shared services & support centres.

5. Integrating the Careers Scotland locality staff within the LEC offices across the region. This initiatives is still being developed, but already agreed initiatives include:

• River House Inverness moving to the Green House (06/07)
• CS Dingwall moving to Invergordon (06/07)
• Traill Street and Princess Street premises Thurso moving to Tollemache House, Thurso (07/08)
• Closing CS Lochgilphead office and relocating to AIELEC office(06/07)
• Closing CS Stornoway and co-locating in expanded WIE premises in Stornoway (07/08)
• Closing LEC and CS premises in Lerwick and re-locating to single new office development (07/08)

Advice supply partnering initiative

The HIE Network offers three key services to its clients, namely financial assistance, infrastructure development and advice. Up until 2003, advice was delivered using a combination of a few full time staff, a significant number of staff on 2 year contracts, and some external suppliers. The staff and suppliers were typically engaged by the LECs as they are the key delivery part of the Network.

Following an internal review, the Network downsized its staffing levels by a factor of around 1 in 5 posts. Many of the staff who left were those in project posts, and as many project staff delivered advice, it was recognised that there was a need to engage with external suppliers to a much more significant degree.

It was recognised that there could be significant savings to be made in engaging with this significantly increased external resource by adopting a supply partner approach awarding contracts to5 suppliers who in turn would engage with the 120-150 advisers that would be require.

The existing model of advice delivery was estimated at around £5 million p.a. The change to a supply partner model resulted in a 3 year cost of circa £12 million, equivalent to £4 million p.a., a saving of £1 million p.a. The level of advice delivery in terms of days was very similar.

In 2006 the original contracts were re-tendered. Analysing future demand, which was similar to the last 3 years, indicated estimates that the new 3 and a half year contracts would cost around £11-12 million.

A robust competitive tendering process was followed which resulted in tenders around £9.7 million, a saving of between £1.3-2.3 million over the new contract period. The tendering process also allowed for a bid for all contracts by one supplier providing economies of scale were offered. In the event the contract was indeed awarded to 1 supplier who at £8.5 million for 3 and a half years, offered yet another £1 million in savings.

3. Efficiency

3.1 Current target; £m

2005-06

2006-07

2007-08

Cash

-

0.7827

0.9284

Time

-

0.077

0.272

3.2 Efficiencies delivered; £m

2005-06

2006-07

2007-08

Cash

-

-

-

Time

-

-

-

4. Accountable Officer for delivery

Philip Rycroft, ETLLD

Sandy Cumming, Chief Executive, HIE

5. Project Manager

Forbes Duthie, Director of Corporate Services, HIE

6. EGDD Portfolio Manager

Hilary Pearce

7. Description of efficiency and actions to be taken

7.1 What is the efficiency improvement? How will the saving be made?

For the organisational architecture initiative the efficiency improvement relates to reducing the number of LECs, Local Advisory Boards and Audit Committees with the consequent saving in travel and subsistence for members travelling to these meetings, staff preparation time and the removal of 1 Chief Executive post.

For the Property rationalisation initiative, the efficiency improvement relates to reducing the number of offices utilised by the HIE Network and through integrating of LECs and Careers Scotland offices at a local level providing a one stop service for all local clients. In addition, where possible, the option to co-locate with other public sector organisations is also being looked at. In addition, this also presents an opportunity to ensure that all HIE Network premises are DDA compliant, thereby further improving the access to all clients and the health and safety of staff and clients.

For the advice supply partnering initiative, the efficiency improvement relates to a model which is both cost effective for the supplier, with savings passed onto the Network and a lower cost to the Network resulting in dealing with only one supplier.

7.2 What are the main actions that are needed to secure the delivery of this efficiency improvement?

Organisational architecture and property rationalisation : These savings have been implemented from 1 April 2006 with the re-structure of the organisation as per the plans outlined above.

Advice supply partnering : these measures have already been completed.

8. Associated costs

8.1 Are there any development or redundancy costs associated with the delivery of this efficiency?

For the organisational architecture and advice supply partnering initiatives, there are no development or redundancy costs associated. (The LEC Chief Executive had insufficient length of service to require a redundancy payment.) For the property rationalisation project, in certain properties development costs either through expansion, enhancement or DDA compliance will be incurred together with excess mileage costs for 3 years for staff experiencing a significant increase in commuting distance as a result of this. In relation to DDA costs, this is a cost which the network would have had to incur regardless of this initiative and therefore will be discounted from the overall costs.

9. Measurement

9.1 What are the inputs that will be measured?

Organisational architecture: no inputs measured as the initiative reflects a reduction in inputs.

Property rationalisation : key costs measured are rents, rates, utilities, excess mileage, refurbishment, 3 ^rd party rental income and shared services, DDA costs.

Advice supply partnering initiative : monthly spend on suppliers invoices for advice delivery.

9.2 What are the outputs that will be measured?

For organisational architecture the outputs are the reduction in the number of meetings and the number of Chief Executives across the network as a result of these changes. For property rationalisation the outputs are the number of operating locations and the cost of operation. For advice supply partnering the output is the number of day's advice delivered to network clients.

9.3 What is the baseline for inputs and outputs?

Organisational architecture : 2004-05 historic number of meetings/Chief Executives

Property rationalisation: Historic number of premises and operating costs augmented by the required cost to ensure DDA compliance. Advice supply partnering: projected volumes of usage as stated in tender documents.

10. Quality cross-check

10.1 What quality indicators are being used to ensure that quality of service is maintained or improved?

Revised Audit Committee membership and arrangements are now in place across the network to ensure that the new governance arrangements are effective. This will be monitored both by internal audit and Audit Scotland to ensure that these arrangements maintain an effective level of corporate governance across the HIE Network.

For property rationalisation the quality indicators are staff surveys on location, client surveys on access and premises, attainment of DDA compliance Health and safety reviews etc. For the advice supply initiative there are regular independent customer satisfaction surveys and independent analysis of supply partnering model (mid term).

11. Monitoring

11.1 What are the arrangements for monitoring the delivery of efficiencies?

Organisational architecture: the removal of meetings and reduction in the number of post holders have ensured that the savings are delivered.

Property rationalisation: The HIE Board will receive half-yearly reports on progress, costs and efficiency savings as a result of this exercise.

Advice supply : there are monthly review meetings to review delivery against key performance indicators.

12. Reporting

12.1 What are the arrangements for reporting the delivery of efficiencies?

All changes from these initiatives are reported to the HIE Board as part of the Chief Executive's and Chairman's updates. In addition, for the advice supply initiative there are quarterly reports to an advice Focus Group

13. Dependencies

13.1 Explain if your efficiencies are dependant on legislation or other structural changes being achieved.

None (except, for property rationalisation, the need for DDA compliance as described above)

14. Use of savings

14.1 How are the efficiencies released from improvement activity being used to improve front-line services?

Organisational architecture : The administration and senior staff time spent in planning, preparing, supporting and attending these meetings will now be released and enable the staff to have more time for front line support for clients and their projects.

Property rationalisation: The reduction in operating costs will be utilised in releasing funding support for the HIE Pay Remit which requires fewer, but better skilled and rewarded staff, as we implement the Smart Successful Highlands & Islands Strategy which has recognised an increasing move towards fewer but larger key strategic projects across the Network Area.

As a consequence of this administration and management costs will remain static over the next 2 years and not require a virement from Block A, Investment funds, to meet pay inflation and other increases in utility costs.

The reduction of the number of operating offices and the integration with Careers Scotland will result in clients having improved access to services via a one stop approach which also utilises better premises providing improved access for disabled clients. In addition, where possible, the co-location with other public sector organisations will enhance the range of services available to clients and public from these locations.

Advice Supply partnering:

The reductions in the cost of providing advice to Network clients will free up funding to offer clients other services such as financial assistance and infrastructure. Or higher levels of advice could be delivered at a lower cost than before