Scottish Government

EXECUTIVE SUMMARY

Introduction

The Scottish Government has acknowledged that the third sector has a key role to play in delivering public services that are high quality, continually improving, efficient and responsive to local people's needs. This work will inform future partnership-working with the third sector.

This research report outlines the findings from the first year of a three year longitudinal study examining the opportunities and challenges facing third sector organisations ( TSOs) in Scotland in the delivery of public services. The first year of the research aimed to establish a 'baseline' by which subsequent years of research could be compared. As part of that, specific objectives for the first year of research are summarised below:

• identify the role and distinctive added value of TSOs delivering public services;
• identify features of effective partnership-working between the public sector and TSOs;
• assess the impact of Scottish Government and local government policy and budget priorities on TSOs' changing practice and management;
• track the impact of the economic downturn and budget limitations on TSOs' roles in public service delivery;
• describe how TSOs contribute to progress on the Scottish Government's national priorities and national outcomes;
• describe how TSOs contribute to progress on Single Outcome Agreements and the work of Community Planning Partnerships;
• enable TSOs to articulate views on the appropriateness of funders' oversight, evaluation and management procedures.

Methodology

Year One (baseline) methodology involved qualitative research within 20 voluntary sector organisations based in Scotland. The methodology involved two key components: (1) In-depth case studies with eight TSOs and; (2) three focus groups involving a total of twelve additional TSOs.

In-depth case studies were carried out within eight third sector organisations between December 2009 and May 2010. Case studies involved collecting appropriate documentary evidence including annual reports, policy statements and other organisational information.

In-depth face-to-face interviews were carried out with staff at different levels of the organisation. These included: chief executives; other senior officers/managers; research/policy officers; business/planning managers; operational and line managers; and front line staff delivering services. The selection of staff for interview was decided in consultation with the main contact from the organisation (usually the chief executive or another member of the senior management team) and actual staff interviewed varied depending on the size of the organisation and availability of appropriate functions.

Twelve organisations were divided into three focus groups of four participants. Each focus group pulled together organisations with strong interests in particular areas. These included: (a) equalities; (b) social care and health care, and (c) employability/economic development/regeneration ¹.

One representative from each organisation (usually the Chief Executive or a member of the senior management team) attended one of the focus groups carried out between April and June 2010 using a common discussion framework.

The Contribution of the Third Sector to Public Service Delivery

The third sector in Scotland is diverse covering many different types of services and clients, as well as being different in size, function, capacity and geographical spread. There were important differences between larger and smaller organisations in their capacity to compete for funding in a challenging economic climate.

TSOs made a particular contribution to service provision through their specialist knowledge and expertise working with vulnerable, disadvantaged and hard-to-reach clients and providing specific services. This meant that they had the ability to fill unique niches in service provision.

A distinctive feature of many services provided by TSOs was their person-centred 'holistic' approach tailoring services to particular client needs. This is contrasted with some approaches taken by statutory services.

TSOs had a specific 'ethos' of providing quality 'values-based' services focusing on improving the experience for clients. This was sometimes in antithesis to a cost-driven funding environment. TSOs were also often rooted in local communities.

TSOs were characterised as operating in a more flexible, responsive way compared with the public sector because they were leaner, had flatter management structures and were less bound by regulations.

Some felt that the third sector was more innovative and creative, although tendering presented challenges to maintaining these features.

Changes to the Policy Environment

Whilst the principle of the 2007 Concordat (more local control over planning and services) was sometimes supported, the impact on TSOs in practice had been more problematic. For instance, some key issues identified included:

(a) Practically, negotiating with numerous individual local authorities and CPPs could be difficult in terms of time and resources for those TSOs delivering local services across multiple geographical areas,

(b) Some felt that devolving greater decision-making to local authorities had resulted in policy that was unclear and lacked cohesion and resulted in an 'accountability' gap where it was not clear whether Scottish Government, local authorities or CPPs have responsibility for policy, and

(c) Increased 'localism' and the focus on local needs may have resulted in a decreased ability to see the 'bigger picture' of policy and provision across Scotland, including limited sharing of good practice across areas.

New third sector "interfaces" in each Community Planning area across Scotland are being developed and will become the key mechanism by which the third sector interacts with the government. However, at the time this initial research was carried out, the way in which third sector organisations interfaced with planning was in a transitional phase, with CPPs being perceived as the key way in which the third sector were involved in community decision-making. From the point of view of many of the TSOs participating in this research there was some doubt over the effectiveness of CPPs in terms of being able to represent the whole of the third sector and the limited extent of TSOs' influence on policy, leading some to de-prioritise their involvement in CPPs. However, some TSOs felt they were able to influence policy more effectively through other means such as through partnerships with the private sector and other forums. This is an important issue that will need to be tracked through as this longitudinal study progresses.

In terms of specific policy priorities respondents felt that: there were variations between local authorities; there had been a shift towards a more employability-focused agenda and finally; priorities were perceived to be focused on certain specified groups of clients at the expense of others.

Single Outcome Agreements ( SOAs) likewise were perceived to be subject to variations between local authorities and CPPs. Some found SOAs to not be specific enough in order for them to inform organisational policy.

Changes to the Funding Environment

Many TSOs reported that over recent years (in the last decade but particularly in the last 3 or 4 years) some funding had not kept pace with inflation although the same level of service continued to be provided - with the effect of real term cuts. The impact of these cuts included employing lower skilled staff on lower wages and withdrawal of delivery of some services.

Many TSOs feared future spending cuts of up to 20%. While some perceived this to be an opportunity to reduce dependency on public sector funding, many were concerned about the potential implications of such substantial cuts across the sector. These included vulnerable client groups becoming more marginalised and the loss of some third sector organisations and with them skills, knowledge and service capacity.

Competitive tendering and high levels of public spending had facilitated an expansion of the third sector over the last decade. However, while tendering created new business opportunities, it also raised a number of challenges for TSOs including:

(a) Short-term contacts of one-year were reported to have become increasingly common. However, these created difficulties for TSOs in terms of increased bureaucracy and long-term planning as well as lack of continuity for clients;

(b) Some felt there was a 'lack of timeliness' in some local and central government funding decisions, with awards being notified some time after contract start dates. Some also felt that there was a move away from dialogue with funders around service funding and delivery outcomes which was compounded by disparities in power between funders and TSOs;

c) Although cost and quality are emphasised in the Best Value framework, many respondents felt that the focus of many funders had become too targeted on cost at the expense of quality, and;

(d) The tendering process also had implications for organisations in terms of organisational planning and staffing, security of employment for employees, staff morale and staff skills requirements.

Third Sector Responses and Challenges to Changing Environments

Many TSOs had adapted their services in order to comply with changing policy priorities, in particular, the 'employability' agenda.

Funding for 'core' organisational activities were vital to TSOs in order to be able to sustain and grow their business. However, there were concerns that there would be less funding for 'core' organisational running costs in the future and there were already reports that some local authority funders were unwilling to cover these costs.

A number of organisations were considering how to diversify their funding base in order to become less reliant on public funding. Strategies included identifying alternative funding streams (aided by the expansion of open competitive tendering), fundraising (utilising their charities status with a view to ensuring longer term sustainability although the recession potentially presented challenges) and continuing to develop social enterprise activity (again often as a means to support the longer term sustainability of the organisation, by becoming more business-like or entrepreneurial and seeking to diversify income streams).

A number of organisations had taken major action to reduce their cost base and maintain their competitiveness by restructuring their organisations, including making staff redundant, reviewing staff terms and conditions, increasing professionalisation of management and information structures; and diversifying staff roles and activity.

Despite a policy to open up more markets to the third sector (as outlined in the Enterprising Third Sector Action Plan), some third sector respondents perceived that the sector was not able to compete on an equal basis for contacts because of a lack of 'parity of esteem' with other providers.

Performance and Outcome Measures

There was considerable variation in approaches, and therefore perceptions of proportionality, to monitoring and evaluation of services by TSOs across local authorities.

There was a perception among TSOs that some local authority funders in particular were focused on measuring 'hard' outcomes which did not capture the full range of added value of TSOs.

Much of the work carried out by TSOs was often with clients who were hard-to-reach and/or who had complex issues, focused on prevention and had wider social impacts that were less easily measured.

The focus on 'hard' outcomes could lead to: contradictory incentives; the most vulnerable clients losing out because they were less likely to achieve quick and measureable hard outcomes, and: it did not easily recognise the work done by multiple agencies. It was felt by some that some funders did not understand the complexity of the work done by TSOs.

At the same time, the focus on 'hard' outcomes had resulted in radical changes within TSOs, including improvements in monitoring systems, staff training and greater efficiencies in the service delivery approach.

Most organisations were keen to evidence the full extent of the work they undertook in order to show the value they added. While use of SROI was still fairly limited, many organisations were using other means of measuring 'soft' outcomes, including existing measurement tools as well as devising their own tools and carrying out additional research.

Partnerships

Most participants had experience of successful partnership working. However, the extent of partnership within the sector and with other sectors may have the potential to increase in the future.

A number of factors were identified that contributed to successful partnership working for service delivery. These included:

• Shared Goals/Ethos and Clearly Defined Aims - having a shared vision and ethos and having clearly defined and identified shared aims
• Complementarity - The extent that organisations complement each other in terms of expertise, specialisms and organisational cultures
• Equality - Where organisations are roughly equal in terms of power, resources and terms and conditions of staff
• Trust and Reciprocity - Trust and sharing of resources between organisations
• Commitment - The commitment of individuals at different levels within organisations to the partnership.

Partnership working presented a number of challenges for some organisations. These included:

• The ability of organisations to invest time and resources into partnerships
• Some respondents felt that informal partnerships were at least as important, if not more so, than formal ones and questioned the effectiveness of some formalised partnerships
• There was a perception that the tendering process, whilst purporting to encourage partnership, actually increased competition between organisations to the detriment of partnership working. There was some concern that this tendency would intensify in a tight funding environment.

Developing partnership working to a greater extent was perceived to be important in order to meet the financial challenges ahead. In particular there was a perception that more extensive participation in 'joined up' working could also be beneficial for clients.

Place and Rural Issues

There were additional costs associated with providing services in rural areas. This was because of the dispersed geography and additional travel required as well as limited access to public transport. In addition, it was difficult to achieve economies of scale for (usually) relative small local services. Funding cuts had already resulted in one organisation providing a reduced service in a rural area.

Due to the withdrawal of major public funding some families near poverty had become solely reliant on some TSOs. This created additional pressures, particularly for the smaller TSOs.

The benefits of developing direct personal relationships between staff in TSOs and the local communities they serve was highlighted.

Conclusions

The third sector in Scotland plays a key role in delivering public services that are high quality, continually improving, efficient and responsive to local people's needs. The sector has a number opportunities afforded by the policy context, such as the Enterprising Third Sector Action Plan and competitive tendering. However, it also faces a series of challenges relating to devolved funding, being involved in the policy process, managing in a competitive environment, and increasingly, budget constraints imposed on public services.

This research, which forms the first phase of a three year longitudinal study, has explored a wide range of opportunities and challenges based on case studies and focus groups with 20 TSOs in Scotland.

The research found that the third sector has a unique and distinctive contribution to make to service delivery. TSOs tend to work with vulnerable, disadvantaged and hard-to-reach groups, engaging in preventative work and filling gaps in statutory services. Their focus is on the client and the provision of 'quality' services and they are characterised as operating in a more flexible, responsive way than the public sector because they are leaner and possibly less bound by regulations. The sector is also very diverse covering many different types of services and clients as well as being different in size, function and geographical spread.

The policy environment had created a number of challenges and opportunities for TSOs in Scotland. The key issues affecting them included:

• The Concordat and localism agenda and involvement in local decision making through the CPP
• Funding challenges and concerns about the impact of budgetary restrictions
• Shift towards competitive tendering and resulting challenges.

The new third sector interfaces are in development and should help to address some of these challenges.

Many TSOs had responded positively to the challenges faced by the changing policy and funding environments by:

• Adapting their services in order to comply with changing policy priorities
• Diversifying (or planning to diversify) their funding base by seeking alternative funding streams
• Fundraising
• Developing social enterprise
• Restructuring organisations and reducing cost base to maintain competitiveness.

In terms of their experiences of performance and outcome measures, there was considerable variation in approaches to monitoring and evaluation of services by TSOs across local authorities and TSOs felt that funders were often too focused on measuring 'hard' outcomes which did not capture the full range of added value of TSOs.

Most participants had experience of successful partnership working and the research identified the factors that helped to support better partnership working such as shared ethos and clearly defined goals, complementarity and equality between organisations, trust and reciprocity and commitment at different levels.

Partnership working to a greater extent was perceived to be important in order to meet the financial challenges ahead. In particular more extensive participation in 'joined up' working could also be beneficial for clients.

There were additional costs associated with providing services in rural areas because of the dispersed geography and additional travel required as well as limited access to public transport. In addition, it was difficult to achieve economies of scale for (usually) relatively small local services.

Policy makers and government have already identified some of the above challenges for TSOs in Scotland through policy documents such as the Enterprising Third Sector Action Plan and through the Third Sector Task Group and the Joint Statement on the relationship at local level between Government and the third sector. Whilst these are likely to have a considerable influence on the third sector, not all of the recommendations have had an impact on the TSOs who participated in the research in this first year of the project. As with other issues, these will need to be tracked carefully in subsequent years.

This research will be followed up in the forthcoming year (2011). There are a number of important issues which will be tracked over this time, for instance, identifying if policies have had more of an impact over time, and what the impacts of anticipated budget cuts will actually be. The next phase of research will explore if and how organisations are adapting and developing in innovative ways to manage these challenges enabling them to continue to deliver essential services to the same high quality.