Evaluating the Success Factors for Establishing a Thriving Social Enterprise in Scotland: Case Studies to Inform and Inspire

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CASE STUDY 5: THE CLAVERHOUSE GROUP

Profile of Success

Social purpose

Established in 1983 as Dundee Training for Employment and Enterprise Project ( DTEEP), the Claverhouse Group is a provider of government funded training programmes. Claverhouse is committed to providing high quality guidance and support to unemployed adults, enabling them to access sustainable employment opportunities, thus having a positive impact on the local community.

Business model and structure

The Claverhouse Group was established as a Company Ltd by Guarantee with Charitable Status. The Claverhouse Group operates two trading subsidiaries, Claverhouse Training that delivers public service contracts and the Claverhouse Services which delivers commercial training and examining services. Both these trading subsidiaries are set up as a company limited by guarantee and Claverhouse Training is also a registered charity.

Markets

The Claverhouse Group works from its premises in Dewar House with clients from across Tayside. Claverhouse delivers government funded training programmes that support unemployed people into employment. Claverhouse has also set up a number of social enterprises that provide employment opportunities to its clients.

Resources and assets

The Claverhouse Group does not own any property. It is able to leverage a range of intangible assets bound up in the skills, knowledge and experience of 10 voluntary directors and a core staff team of 55.

Achievements and recognition

Claverhouse holds a number of accreditations, including ISO9001:2000 Quality Management Standard, Investors in People, Jobcentre Plus Accreditation as well as being an approved Learn Direct Scotland Centre.

Financial performance

The Claverhouse Group is a sizeable company with a turn-over of almost £2.5 million in 2008/9. The Claverhouse Group had net assets of about £400k.





The Story of Success

Birth

1.1 The story of the Claverhouse Group started in 1983 when the Dundee Training for Employment and Enterprise Project ( DTEEP) was established that ran pilot programmes for the Manpower Services Commission, the government agency that implemented employability strategy. DTEEP was funded by grant funding.

1.2 In 1985 DTEEP developed two new programmes that created employment. The first employed local unemployed people to produce aids for disabled people and the second programme produced clothing for disabled people that would not attract attention to their disability.

1.3 In 1986 the DTEEP started to deliver training linked to the Community Programme, which led to the New Job Training Scheme ( NJTS) in 1987. At that point it was clear that the training arm should be set up as a company limited by guarantee, which was achieved in 1987 under the name Workstart Limited.

Early growth

1.4 In 1987 a third Community Programme project aimed at improving the environment was launched and in the same year two exchange programmes with Zimbabwe were set up. In1988 the Community Programme was replaced by the Employment Training programme, and Workstart was appointed as the sole training agent for Tayside and also won the same contract for Ayrshire.

1.5 In 1990 Workstart adopted an innovative American programme to get people work ready based on the needs of employers. This programme was not funded and relied on sales of the service to interested employers.

1.6 Also in 1990 the company won tenders with the Employment Service to deliver Restart and Job Club. This was also the year they managed to get European funding under the URBAN programme. The turnover increased to over £1 million in this year.

1.7 In 1991 the company had grown to employ 41 staff members. But later that year they had to reduce the number of employees by 13 due to the end of the Training Agent role in Tayside and the loss of several Employment service contracts. In November of that year they also lost the Ayrshire Training Agent contract and the total number of staff was reduced to 25.

A focus on quality

1.8 In 1992 a new Chief Executive was appointed, which led to a major change in the direction for the company from a typical voluntary sector organisation to a more professional training provider with a strong focus on improving quality. It was described by the chief executive as a change "from the woolly jumper brigade to a culture of quality".

1.9 The name Workstart had become synonymous with the benefits system and it was decided to re-market the company as WS Training. Although the term 'social enterprise' was not used, the company was more business focused.

1.10 The drive for quality resulted in the company achieving two recognised quality assurance accreditations, ISO 9001:2000 Quality Management Award and Investors In People, in the middle of 1993.

1.11 In 1993 the company purchased its first premises, the White Building, followed by the Red Building in 1997, after a long negotiation process of over two years.

1.12 In September 1994 WS Training was asked by the Board of Heat Development (Dundee), a private training company in home insulation that received ESF funding to employ trainees, to provide them with management advice to assist them with their financial difficulties. It was soon established that the quality of Heat Development's work was sub-standard and the work practices were insufficient.

1.13 WS Training assisted Heat Development for over two years and renamed it HEAT 2000, replaced the trainees with employees and improved the quality of its work significantly. In 1995 WS Training took over HEAT 2000 and early 1996 WS Training, WS Services and HEAT 2000 merged into the Claverhouse Group, incorporating Claverhouse Training and a trading subsidiary Claverhouse Services.

1.14 The take-over of HEAT 2000 shows some of the main characteristics of Claverhouse that makes it successful as a social enterprise. Claverhouse has never been risk-averse, as many third sector organisations are, but have also measures in place to control and manage the risks. Throughout its history this controlled risk-taking attitude has resulted in substantial growth over the years.

A period of growth and profitability

1.15 In the period 1996-1997 the company grew and increased its reputation as a quality training provider by delivering more and more contracts for employment training. At that time the company was operating from various sites across Dundee, but these became too small. In order to improve the efficiency of the operations the Board decided to run all operations from one site and started looking for new premises. In January 1998 the Claverhouse Group moved into its current premises and relocated all their services under one roof. The building had been seriously neglected for a number of years and it took till May 2000 to complete the refurbishment.

1.16 The growth in this period was driven by a number of factors. After the initial financial pressure of the take over and reorganisation of HEAT 2000 the home insulation business generated surpluses. Also Claverhouse was able to lever in training money on the back of the home insulation business.

1.17 New government policy was another key contributor to the growth and stability of the Claverhouse Group. In 1998 the government launched its New Deal programme, and Dundee was selected as one of the Pathfinder areas for New Deal. The Claverhouse Group quickly became the main provider of New Deal services in the area, which spurred the growth of the company.

1.18 Because there was a cross over between training and commercial activities, Claverhouse operated the home insulation service throughout this period as a trading arm under the name Claverhouse Services. All the surpluses generated in this period were reinvested in the premises.

1.19 The number of staff grew from 40 to around 70 in this period, but the growth was for the main part based upon New Deal.

1.20 At around 2000 the Board started to change. Originally the Board was predominantly made up by public sector representatives and elected members, but there was a realisation that different skills were required and from 2000 on more people with a business background were attracted to the Board to increase the income generation capacity of the company.

Crisis

1.21 In 2005 the financial position of Claverhouse took a turn for the worse. In the financial year 2005/6 the company recorded a heavy loss that put the survival of the company at risk. The management of finances was not tight enough and the company continued loss-making operations for too long, in particular the home insulation activities of Claverhouse Services. It became clear that the financial reporting systems were not adequate and the Board did not receive enough information to deal with the arising challenges. Strong leadership, by the Chief Executive, has been instrumental to the success of the organisation, but has also contributed to the problems in this period. The Board trusted the Chief Executive too much and did not exercise its controlling role well enough. It did not ask the right questions and did not insist on getting answers.

1.22 Once the Board realised the scale of the problems, they wound down Claverhouse Services and took measures to turn the company around. It realised that the governance system was not working well enough and that they had to change their role. This led to changes in the Board and a new Chair took over. The new Board undertook a complete overhaul of the policies and procedures of the company. The Board agreed a rescue plan for the organisation and insisted on new financial management systems and very tight financial reporting. The role of the Board changed from 'rubberstamping' to strategic leadership.

1.23 In 2006 the serving Chief Executive, and also his intended successor, retired. Because of the precarious financial situation, Claverhouse was forced to recruit from within the organisation and came up with a joint Chief Executive model, which was in place until 2007, when one of the Chief Executives left the company and the current Chief Executive took over the leadership.

1.24 Because the losses were mainly caused by the trading arm Claverhouse Services operating at a loss, the board took the decision to wind it down in 2006, which resulted in the redundancy of 14 staff members. The Board has learned since that appropriate information is essential to make the right decisions and the decisions made should make first and foremost business sense.

1.25 Another contributing factor to the problems was the insufficient communication between the Board and the company's auditors. This has greatly improved with an active partnership between the management team and the current auditors.

1.26 Also in 2006 some major contracts came to an end and major changes were needed in the way Claverhouse delivered its services.

1.27 Although the situation was serious, the company did not go under, which can be contributed to:

  • the strong relationships the company has built over the years, which ensured that creditors were co-operative;
  • the strong reputation as a professional deliverer of quality services that achieves outcomes for unemployed people meant that partners did what they could to support the company; and
  • the strong responsibility the staff and Board felt to the clients of Claverhouse, which caused them to persevere.

Recovery

1.28 In 2007 Claverhouse was still trading at a loss, but this was solely caused by the redundancy cost involved in closing down HEAT 2000. However, redundancy and restructuring turned things around and the company was back on track and profitable from 2008 onwards.

1.29 Because of the problems in the past years, Claverhouse has become even more aware of the value of relationships and partnerships and Claverhouse is investing more time and effort in building and maintaining these.

1.30 Since the recovery of the company has been secured, Claverhouse has been looking at the wider possibilities of social enterprise. Due to the recession there are fewer jobs available, so Claverhouse is increasingly looking at creating these jobs themselves by setting up social enterprises.

1.31 Again Claverhouse has used the opportunities arising from government policy change, with Future Jobs Fund that came into being in 2009 as the government's reaction to the recession being pivotal. The subsidy provided by the Future Jobs Fund makes the social enterprises break-even in the start-up period.

1.32 The first social enterprise that was established focussed on property maintenance. The second social enterprise was created when Tayside Police and local authorities agreed to donate bicycles held in lost property or at civic amenity sites and Claverhouse set up a bicycle refurbishment company. On the back of that business Claverhouse also started a white goods recycling business. Claverhouse also opened three sales outlets to market the bicycles and white goods. These enterprises were started by Claverhouse and self-financed, but have been able to grow and diversify with the assistance of Future Jobs Fund.

1.33 A timber recycling business has been established to salvage and re-work timber from a number of major construction projects in Dundee, and a Market Garden venture has been launched, again with the prime objective of creating employment. A number of other ventures are planned over the next 12 months.

1.34 These social enterprises all have as common characteristics that they:

  • were set up in reaction to opportunities that arose from Claverhouse's relationships and reputation;
  • have the potential to employ long-term unemployed people;
  • have the potential to reach a scale that will make them sustainable in the longer term; and
  • use the Future Jobs Fund to achieve break-even in the first year.

1.35 The way that Claverhouse is using the Future Jobs Fund is a testimony to the company's ability to innovate and adapt to new situations. It also shows that the company has an open culture that listens to its wide range of stakeholders and is geared up for learning.

1.36 Scale is seen as essential for the ultimate success of the social enterprises. Claverhouse has set these social enterprises up to create employment opportunities for their clients, so the larger the enterprise, the more employment opportunities. Also the social enterprises need to break-even at least. To achieve this they should grow to a significant size and scale to recover the relatively high overheads.

Managing in a time of recession

1.37 Claverhouse's core business is the provision of employability support services, which is, due to the recession, a growth industry.

1.38 There are more and more people becoming unemployed, and it is becoming increasingly difficult to find employment for Claverhouse's clients, especially because the majority of clients are people with extra barriers to the labour market. This group is experiencing growing competition for jobs from people who have just been made redundant due to the economic downturn and who have fewer additional barriers. The trend is that Claverhouse is getting more referrals and their success rate is slightly decreasing.

1.39 There is also a continuing trend for contracts to attach the greatest financial reward to sustainable job outcomes. In the past, contracts rewarded activity, not related to whether the beneficiaries actually get a job. Nowadays the main elements of funding are only paid if the beneficiary is in employment for a certain amount of time. In the light of the current economic climate and the resulting situation on the labour market, it will be harder to find employment for the people Claverhouse works with, and thus have an impact on financial performance. One of the strategies Claverhouse is deploying to address this is the establishment of social enterprises to create jobs.

1.40 With the introduction of the Work Programme by the coalition government it is possible that 100% of the funding will only be payable when the beneficiary actually finds a job. Claverhouse is preparing for this, showing they plan ahead and are pro-active to changes in public policy.

1.41 The improved financial and management information systems play a vital role in accurately predicting job outcomes and plan and track activity, which will become more important as payment will be more related to job outcomes.

1.42 Claverhouse is also scrutinising all its operations and making them operate as tightly as possible and optimise resources. The recession has so far not led to redundancies and the financial performance of the company is still satisfactory.

Looking to the Future

1.43 At the moment Claverhouse is dependent on two DWP contracts for more than 80% of its turnover. This makes the company vulnerable to changes in legislation or policy that will change the size, scope or nature of these contacts.

1.44 From summer 2010, the new Work Programme will be let for tender and the continuing success of the organisation depends on success in this round.

1.45 This also presents another change for Claverhouse. Until now they have always been the main contractor with the DWP in Tayside. The drive for efficiency with DWP has led to larger and larger contracts, in value and geographical area. This means that Claverhouse, and other similar social enterprises, are unable to bid for these contracts independently, because they lack the capacity to deliver nation-wide contracts. They need to team up with one of the large, mainly commercial, providers as a local sub-contractor.

1.46 Due to its excellent reputation and relationships, Claverhouse was accepted as a sub-contractor, to a greater or lesser extent, in all bids that covered Tayside under the Flexible New Deal 2 procurement exercise which has only recently been abandoned. The fact that Claverhouse managed to negotiate a part in all bids is another testament to the importance of reputation and relationships.

1.47 The change from prime contractor to sub-contractor has the potential not only to change the roles and responsibility of Claverhouse and decrease the extent to which they achieve their social objectives (represent the interest of unemployed people), but also means that Claverhouse misses out on the substantial management fees attached to the role of main contractor.

1.48 One of the main challenges for Claverhouse will be to diversify their services in the future.

Summary of Key Success Factors and Influences

Summary of Key Success Factors and Influences

Timeline

Timeline