By Joanne Peters
“Commercial” is a dirty word in parts of local government. The term is synonymous with privatisation, outsourcing, alternative delivery models, and more generally the extraction of profit, embedded in traditional economic thinking. Often, in engaging with council staff many dismiss commercial thinking as irrelevant or only the concern of those in trading arms or commercial teams.
Commercial acumen is defined as an understanding of how industries and businesses work. It’s about knowing what’s going on in the world and analysing the way that it might impact on your chosen sector and company.
Setting aside the profit connotations clearly associated with the word commercial, there is much to be gained by local government from learning from successful commercial thinking to better deliver against local priorities. In fact, such a negative attitude to ‘commercial’ has implications.
Primarily, being commercial means understanding the organisation’s strategy and priorities, where you and your team fit in, and being able to monitor and measure delivery. It is also about having the skills to understand the local system. Commercial insight is a vital part of understanding the role that a council is playing in local markets, e.g. housing, social care or services to schools, and in building successful partnerships across the public sector and VCS. It is also critical to understanding the implications of often volatile external forces.
Local government is resource constrained. Building a more commercial mindset and understanding how the organisation works supports a shift from rationing a scarce resource to maximising the returns from a scarce resource. It means asking the question, ‘how can we use the budget to get the best outcomes for our residents?’ and having the right information and analytical skills to evaluate options.
Much of what local government does is ‘commercial’, from transactions to contract management, and this is no different from wider commercial enterprise. Being commercial here means being efficient and customer-focused.
Rejecting ‘commercial’, or siloing it to specific teams or entities, means rejecting a mindset and set of skills that are critical for local success. Perhaps we need to develop and nurture a ‘local government acumen’, a nuanced version of commercial acumen?
Commercial skills for successful trading
In 2018, research identified that 59.2% of authorities had at least one trading company, and many more operate venues or sell other services on a commercial basis. Where councils have made a strategic decision to operate services on a commercial basis, having the right skills in place to do this is critical. High profile failures of local council commercial entities have highlighted the risks of not having the right skills at the table.
- Get the governance right. Senior leaders and members need to understand roles and responsibilities and have the skills and experience to discharge these effectively. They need to avoid conflicts of interest and bring in the right commercial expertise (e.g. independent non-executive directors)
- Sales and marketing. In short, to create profit in an open market you need to create something that someone values enough to buy and to pay you more than it costs to create, produce, sell, and service it. There needs to be an understanding of the market, competitors, and the unique selling point of the services.
- Commercial finance and legal advice. Making sure robust tax and legal guidance is available as well as the right financial support built on understanding of sales data, costs, and drivers of profit. Council finance systems are typically not designed to understand this, being focused on resource allocation and budget monitoring.
Underlying this as a foundation stone is an entrepreneurial culture, where staff are supported to take measured risks, to learn, to start and stop activities, and respond flexibly to change.