Saturday, March 31, 2012

Why you can be for-profit - and for good

One of the things that people in social enterprise go on about most is about reinvesting the profit in the mission- and this being the differentiator between social and ordinary business.

What they seldom tell you is that there aren't that many social enterprises out there that actually make any profit. Some, of course, blunt their profitability by 'doing business differently' - which, of course, is fine, if it the social benefits can be demonstrated. But many more simply are not profitable full-stop, and don't have a particularly strong story on outcomes either.

When I set up my first organisation, I didn't really think about the reinvestment argument. Nor did I think particularly about how we were set up. Having a social mission was sufficient, I thought, to ensure we would go some way to achieving something more than keeping ourselves in jobs.

About a decade in, I wasn't so sure. In practice, all sorts of things ended up coming between the aims of the organisation and its mission. The biggest was the needs, and interests, of the organisation itself. Feeding, tending and nurturing the machine somehow put the mission into the background. Sure, a healthy organisation meant a bigger likelihood of being on-mission, but, somehow, the organisation felt, to many of us leading it, and end in itself.

Is this unique? I don't think so. When I founded my latest venture, Stepping Out, I decided to approach the question of mission differently - through a profit-making company. We do have a mission - rather grandiosely - to change the way public services are delivered in the UK. We are here, primarily for that reason, more than to provide ourselves with a fine living.

But we also seek, quite unashamedly, to make a profit and we focus hard on this too. Partly because this allowa us to be successful, live reasonably well and grow our founding mission. And partly because this does create a meaningful surplus which we can share with others through the Stepping Out Foundation.

I suppose what I am getting to here is that our being a for-profit organisation doesn't in any way detract from our primary mission - to change public services. Nor does it pull us away from or our secondary mission - to use a decent slice of our profit to support early-stage social entrepreneurs.

In fact, I would go as far as saying we are probably a bit more effective on both counts than had we not set out with profit at least partly on our minds.

Which brings me to my main point here: contrary to the sensibilities of most UK people who operate in the 'for good' sectors, I do not believe there is a simple and linear relationship between profit-seeking and doing good, with the one only rising when the other falls.

It just isn't that simple. You can be non-profit seeking and do very little good. Equally, you can be profit maximising and still, even accidentally, do a lot more good than your typical 'for good' venture. Does being consciously socially-minded matter? Yes I think it normally does - but it doesn't guarantee any social good ever will come of the business. .

The bottom-line here is that a social mission doesn't necessarily produce social outcomes any more than a pure-profit mission always produces profit. You can miss. You can get sucked into your own myth that your very existence constitutes a social benefit (seldom true). A social mission can actually give you an excuse not to do the really demanding things necessary to make a profit.

None of the above is to say that there are not many for-profit organisations that maximise their profits at the expense of social good. One doesn't need to look far for examples.

But there are many organisations in the public, voluntary and SE sector that also subtract from their potential social impact in order to serve other goals, often for the sake of an easier life.

These, in my view, deserve just as much shit from the media as the for-profit ones that don't deliver socially. They are ripping people off just as badly as any poor-performing Work Programme prime. In essence, you can be not-for-profit and, in reality, be not particularly 'for good' either.

Saturday, March 24, 2012

We spend all our money on people - so let's engage them

When I meet with chief executives or finance directors to discuss spin-outs in the NHS or local authorities, their first question tends to be: "Why do this?". Indeed, why not just privatise – or leave things as they are? If the "fat" has already been squeezed (a claim we hear constantly), where's the gain in spinning something out?

My answer in one word, is this: engagement. The people factor. According to a recent study by Prof Raj Sisodia (and corroborated by a Global Workforce survey of 90,000 workers in 18 countries by Towers Perrin), companies that score highly on employee engagement also perform better financially. Higher margins and more rapid growth are both proven dividends of an engaged workforce.

But aren't public sector workforces already highly motivated? Well, often they are not. Many love their jobs and are deeply committed to their clients. Yet, in the management culture prevalent in many large public sector organisations – top-down, remote and controlling – they give far less of themselves than, ideally, they should.

Even the language captures this. In the NHS, the terms "staff side" and "management side" are used to describe different elements in the organisation – like two armies lined up for battle. This isn't so bad in councils, but the "done unto" mentality tends to pervade. Relatively few people appear to feel permitted to make things happen; at least not without cover from above. The net effect of this is that you have organisations which, on quite a deep level, underperform. People simply zone-out, keep their heads down and survive.

According to the management writer Gary Hamel, disengagement is allowed to happen for one of three reasons. The first is ignorance. Management just doesn't get the fact that people often withhold the best of themselves at work – and do only what is required. Their innate enthusiasm, initiative, creativity and passion is seriously stifled, with a deleterious effect on the good the organisation is able to deliver.

I find this to be extremely common in the public sector. Only last week, I was was debating with an NHS organisation that wanted, very late in the day, to cancel a good-to-go staff-led spin-out because it was, in the funny-money world of the NHS, now "unaffordable". This was despite the catastrophic effect it would have on the engagement of the staff who, for 18 months, had been taking this forward as a practitioner-based venture. I saw not a flicker of awareness of this in the calculus of management's proposal to not go ahead.

The second reason we see mass-disengagement is indifference on the part of the leadership. Managers know, in their hearts, that people are flatlining but just don't care enough to do anything, perhaps because a callous corporate culture has robbed them of empathy. Again, I see this a lot, not least in the example just referred to.

The third factor at play is impotence. Managers often care a lot – but don't feel they can do much about what they see around them. Understandably, they see a system they can't change. They do what they can, but, perhaps sensibly, they don't burn themselves trying to buck the system and its norms. One otherwise extremely helpful and supportive manager in the example above fitted clearly into this category, in my view.

What organisations fail to grasp, says Hamel, is that we need forms of human organisation which maximise this potential for engagement. Only this, he argues, will bring productivity, innovation and quality to the levels we all want.

So are spin-outs the answer in the public sector? My belief is that they point in the right direction. They are normally smaller than the vast public sector empires from whence they came. They have freedom of movement and a clearer rationale and identity. Constitutionally, they are often staff-owned, even if this ownership stake translates only into a say in how the company is run, rather than cashable shares. Most importantly, they capture people's imagination. They re-animate the people setting them up. I have seen it time and again. People tend to buy in – and stay bought in.

Of course, they are not a magic bullet. I have seen several spin-outs that look, feel and operate like the organisations from whence they came. Nothing – not even the logos or company colours – change. People often don't even appreciate that they have moved from the public sector into a social business. Things don't move on. But, more frequently, I have seen big changes that manifest themselves in large steps forward in the way a company operates, its efficiency, effectiveness and competitiveness – and, interestingly, its level of measured staff happiness and absence.

You would think that armed with some good data, this would impress anyone I meet in the public sector. That this alone would be grounds for, just maybe, giving serious thought to spin-outs as a way forward. On occasion, it does. Really good people get it.

But, quite often, I see people glazing over. They either just don't believe it or can't quite see what greater engagement, delivered through a spin-out, could mean in terms of the vaunted goal of delivering more for less. Too many people think that better productivity is primarily about simply sacking people – and ordering the remaining people to work harder. The gains of a more engaged, productive workforce are not viewed as sufficiently cashable to be of any meaning.

Yet this is, perhaps, the biggest possible win of any of the spin-outs that I have seen.

Why Employment Law is an Ass

A few months ago a little-known venture capitalist called Adrian Beecroft wrote a report for the Prime Minister, setting out a new proposal that would allow any employer to fire anyone, with compensation, if in their view things weren't working out. No hearing, no capability assessment - just a P45.

This didn't go down too well. Many, rightly, saw it as tipping the scales too far in favour of management, creating a nervy workforce terrified of getting the wrong side of their boss.

But ask any charity chief executive over a glass of wine what they think about employment law as it stands and you'll get the same answer: the system is a joke. Employment law costs charities millions, causes massive stress and, saddest of all, rights few wrongs.

After a few glasses more, you'll also get plenty of sarcasm about the system. It has become a lawyer-fest - 218,000 claims in 2010/11 in total, which is 44 per cent up on two years before.

As an employer, I have been on the wrong side of several employment tribunals. Being cross-examined at one makes you feel as if you are some kind of criminal. It seems surreal and not a little twisted. You have a trio of judges (yes, three for each tribunal) who are paid God-knows-what by the taxpayer for dissecting what is often low-grade, he-said, she-said 'evidence'. It feels like a farce. That's because it is.

So what needs to be done? Three things. First, there needs to be a place for 'safe conversations', which would allow employers to say "this isn't working out" without it leading straight to a solicitor's letter claiming bullying or constructive dismissal.

Second, every tribunal application should be put through the conciliation service Acas before it is allowed near a tribunal. This allows a mediated settlement rather than the well-paid confrontations so beloved of the legal profession and the judges.

Finally, everyone who wants to initiate a tribunal should put up a returnable deposit that is lost if they lose, say, £500. This will get rid of the most vexatious claims in one go.

Sounds familiar? By and large, this seems to be what's coming out of the coalition after the shock and awe caused by Beecroft earlier in the year.

It's easy to forget, but small employers, including charities, are terrified of existing employment law. One nasty incident can ruin a charity, and the third sector tops the league table for employment tribunals. Some cases merit the time and money that goes on them: rank injustice deserves its day in court. But most of what gets into the system shouldn't really be there at all.

This should soon change. Up and down the land, people will cheer discreetly - chief executives, colleagues of underperforming staff and HR managers. Everyone, in fact, but the opportunists and obsessives who, in my view, bring a large proportion of claims. And, of course, their lawyers.