Public sector bodies often consider the future delivery of a particular service or suite of services. In these deliberations, you will likely undertake an ‘options appraisal’ to assess which service delivery model would best support you in achieving your organisation’s vision and outcomes.
So, what are the service delivery models you might choose from?
10 High-Level Service Delivery Model Options
Assessing service delivery model options can be a complex undertaking. From our 23 years’ of reviewing public sector services, strategic supplier relationships and conducting options appraisals to determine future service delivery models, we have extensive experience in assessing combinations of at least ten high-level options. And, as you will see from the list below, some of these have several options within them, making your choice just that little bit more complex:
- If already in-house, continue with no change
- If already in-house, continue but change the operational structure/delivery model (if current state is that the service is already run in-house)
- If currently delivered externally, then decide to bring the services wholly in-house with chosen operational structure and delivery model.
- If already outsourced, continue with the current supplier if there is an option to extend the contract
- If already outsourced, re-procure a new external managed service provider
- If currently delivered internally, consider moving to an external managed service provider
- Sub-options: outsource to a) multiple ‘best-of-breed’ providers or b) a single provider/primary contractor.
- Shared Services – Collaborate with other local authorities or public sector organisations to jointly deliver services, share resources, and achieve economies of scale.
- Public Private Partnerships – Engage in partnerships with private or non-profit organisations to co-finance, design, and deliver services.
- PATC/LATC – Establish a public/local authority trading company.
- Public Service Mutual/Social Enterprise – Establish an alternative delivery model such as a ‘public service mutual’ (PSM or Mutual) or a social enterprise.
- Acquisition – Acquire an existing company.
- Joint Venture (JV) – Enter into a joint venture with an existing provider (JV Mutual: Enter into a joint venture/partnership with an established public sector mutual or social enterprise).
- Decommission the service and withdraw from the market (where services may be delivered through a PATC/LATC), procuring replacement services through other means.
- Hybrid model – Combining elements of some of the different service delivery models above, to create a customised approach.
Whichever of the above is your starting point, remember to assess that delivery model against the ‘Do nothing’ option as, of course, ‘doing nothing‘ is the default model that all the other models need to be measured against as it will highlight the reasons for considering a change.
High-level summary of each option’s pros and cons
Insourcing can offer a number of benefits to companies, such as greater control over quality and costs, improved communication and coordination between different departments and increased flexibility and responsiveness to changing business needs. However, it also requires significant investments in resources, such as hiring new staff, developing new processes and acquiring new technology or equipment.
Outsourcing can offer benefits such as lower costs, access to specialised skills and expertise, increased flexibility and reduced risk. However, it also involves relinquishing some control over the outsourced operations and requires careful management and communication to ensure that the outsourced services are delivered according to the company’s expectations.
- Shared Services
This is a delivery model for public services that involves combining and centralising certain functions or operations across multiple organisations or departments. The aim of shared services is to achieve economies of scale, reduce duplication and increase efficiency and effectiveness. Shared Services can either be delivered in-house or as joint participation with services sourced from an outsourcing provider.
Under the shared services model, different organisations or departments may pool their resources, such as staff, technology or facilities, to deliver common services, such as human resources, finance or IT support.
Advantages of the shared services model include:
- Cost savings: Shared services can help to reduce costs by eliminating duplication and achieving economies of scale.
- Improved efficiency: Shared services can help to streamline processes and reduce administrative burden, which can lead to improved efficiency and productivity.
- Standardisation: Shared services can help to standardise processes and procedures across different organisations or departments, which can improve consistency and reduce errors.
- Greater focus on core activities: Shared services can help to free up resources and allow organisations or departments to focus on their core activities.
Disadvantages of the shared services model include:
- Resistance to change: Implementing shared services can be challenging due to people’s fear of or resistance to change, especially when this change originates from different organisations or departments.
- Coordination challenges: Shared services require careful coordination and communication to ensure that all stakeholders are aligned and working towards the same goals.
- Loss of control: Shared services may result in some loss of control or influence over certain functions or operations, which can be a concern for some organisations or departments.
- Lack of flexibility: Shared services may be less flexible or responsive to the specific needs of different organisations or departments, particularly if they require customisation or tailored solutions.
- Public-Private Partnerships
Public-private partnerships (PPPs) are a form of collaboration between the public and private sectors to deliver public services or infrastructure. PPPs typically involve a long-term contractual arrangement between a public sector entity, such as a government organisation or a local authority, and a private sector partner, such as a contractor, developer or investor.
Advantages of using PPPs to deliver services include:
- Access to private sector expertise and resources: PPPs can leverage the expertise and resources of the private sector to deliver high-quality services or infrastructure that may be beyond the capacity of those in the public sector.
- Cost savings: PPPs can help to reduce costs by transferring some of the risks and responsibilities of service delivery to a private sector partner.
- Innovation and efficiency: PPPs can encourage innovation and efficiency by incentivising private sector partners to find new and better ways of delivering services or infrastructure.
- Better value for money: PPPs can help to ensure that public sector resources are used more effectively by aligning costs with long-term outcomes and reducing waste.
Disadvantages of using PPPs to deliver services include:
- Complexity: PPPs can be complex and time-consuming to negotiate and implement, requiring significant expertise and resources from both the public and private sectors.
- Risk transfer: PPPs involve transferring some of the risks and responsibilities of service delivery to the private sector partner, which can create uncertainty and risk for the public sector entity.
- Transparency and accountability: PPPs can raise concerns around transparency and accountability, particularly if the terms of the contract or the performance of the private sector partner are not subject to sufficient scrutiny.
- Cost overruns: PPPs can be susceptible to cost overruns and delays, particularly if the private sector partner encounters unexpected challenges or disputes with the public sector entity.
Setting up a ‘public/local authority trading company’ (PATC/LATC) involves creating a separate legal entity that is wholly owned by a public sector organisation, local government or council. The purpose of a PATC/LATC is to enable the organisation to deliver services to the public in a more efficient and effective way, while generating revenue through trading activities.
In practice, a PATC/LATC is a company that provides services on behalf of the public body, but is run as a commercial entity. This means that the company is subject to the same legal and regulatory requirements as any other business, including tax obligations, but it also has access to certain advantages such as tax exemptions and lower borrowing costs due to its association with the public body.
A PATC/LATC can deliver a wide range of services, such as waste management, leisure services, housing, and care services. By delivering these services through a separate trading company, the public organisation/council can benefit from greater flexibility and responsiveness, as well as the ability to generate additional income through commercial activities.
However, setting up a PATC/LATC requires careful planning and management, including the development of a business plan, governance structures and financial management processes. It also involves ensuring that the PATC/LATC complies with all legal and regulatory requirements and that it operates in a transparent and accountable way.
- Public Service Mutual/Social Enterprise
Public service mutual (PSMs) and social enterprises are similar in that they are both types of organisations that aim to deliver public services in a socially responsible and sustainable way. However, there are some key differences between the two:
- Ownership: A social enterprise is owned by its shareholders or investors, while a PSM is owned and controlled by its employees, service users, or both.
- Profit distribution: A social enterprise can distribute profits to its shareholders or investors, while a PSM reinvests any surpluses back into the organisation or uses them to benefit the community.
- Legal structure: Social enterprises can take a variety of legal forms, such as limited companies or cooperatives, while PSMs are typically set up as community interest companies or other types of social enterprises.
- Purpose: While both social enterprises and PSMs aim to deliver public services in a socially responsible and sustainable way, social enterprises may also have a wider range of social or environmental goals.
While social enterprises and PSMs share some similarities, they are distinct types of organisations with different ownership structures, profit distribution models, legal forms and purposes.
Public Service Mutual
A PSM is a type of organisation that delivers public services and is owned and controlled by its employees, service users, or both, rather than by the government or a private company. The aim of PSMs is to provide high-quality services that are more responsive to the needs of their communities, while also generating social and economic benefits.
There are several reasons why you might consider using the PSM route to deliver services:
- Increased employee engagement and motivation: By giving employees a greater say in how services are delivered, PSMs can help to increase employee engagement, motivation, and job satisfaction.
- Improved service quality: PSMs are often more responsive to the needs of their communities and can provide services that are tailored to local needs, resulting in improved service quality.
- Greater efficiency: PSMs can be more efficient than traditional public sector organisations because they have more freedom to innovate, cut costs, and generate income.
- Social and economic benefits: PSMs can generate a range of social and economic benefits, such as job creation, community engagement, and local economic growth.
However, setting up a PSM can be complex and requires careful planning and management. It involves creating a new legal entity, developing a business plan, securing funding, and ensuring that the PSM complies with all legal and regulatory requirements. As such, it is important to seek professional advice and support when considering the PSM route to deliver services.
While there are several benefits to using a public service mutual (PSM) to deliver services, there are also some potential drawbacks to consider:
- Limited access to funding: PSMs may not be able to generate revenue through trading activities making it challenging for them to invest in new equipment or technologies, or to expand into new areas.
- Governance challenges: PSMs are owned and controlled by a diverse group of stakeholders and, therefore, may face governance challenges such as conflicts of interest, lack of accountability, or poor decision-making.
- Limited expertise: PSMs may not have all the appropriate expertise in certain areas, such as finance, marketing, or project management, which can make it challenging for them to deliver services to a high standard.
- Limited scalability: PSMs may have limited capacity to scale up their operations or expand into new areas, particularly if they are dependent on a small number of contracts or customers.
- Legal and regulatory challenges: PSMs may face challenges in areas such as compliance with procurement rules, tax obligations, or employment regulations.
There are several reasons why you might consider using a social enterprise to deliver services:
- Social impact: Social enterprises have a clear social or environmental mission, which means that the services they deliver are designed to have a positive impact on the world around them. By using a social enterprise to deliver services, you can ensure that your organisation is aligned with a broader range of social goals, such as reducing poverty, improving health outcomes, or protecting the environment.
- Innovative solutions: Social enterprises are often more innovative and creative than traditional organisations, as they are driven by a social or environmental purpose. By using a social enterprise to deliver services, you can tap into their expertise and experience in developing new and innovative solutions to complex problems.
- Community engagement: Social enterprises are often deeply embedded in their local communities and have strong relationships with local stakeholders. By using a social enterprise to deliver services, you can build closer connections with the communities you serve, which can lead to greater engagement, trust and support.
- Financial sustainability: Social enterprises are designed to be financially sustainable, which means that they can generate revenue through trading activities and reinvest any surpluses back into the organisation. By using a social enterprise to deliver services, you can ensure that your services are delivered in a cost-effective and sustainable way.
- Reputation: Social enterprises are often well-regarded by customers, stakeholders and the wider public, as they are seen as ethical, responsible and purpose-driven organisations. By using a social enterprise to deliver services, you can enhance your reputation and build trust with your stakeholders.
While there are several benefits to using a social enterprise to deliver services, there are also some potential drawbacks to consider:
- Limited scalability: Social enterprises may have limited capacity to scale up their operations or expand into new areas, as they are often dependent on grants, donations or contracts to fund their activities.
- Financial risk: Social enterprises may face financial risks, such as cash flow problems, lack of investment or unexpected costs. This can be particularly challenging for social enterprises that operate in highly competitive or unpredictable markets.
- Limited expertise: Social enterprises may have limited expertise in certain areas, such as finance, marketing, or project management, which can make it challenging to deliver services to a high standard.
- Governance challenges: Social enterprises are often run by a small team of people who may lack the skills or experience needed to manage a complex organisation. This can lead to governance challenges, such as conflicts of interest, lack of accountability or poor decision-making.
- Limited scope of services: Social enterprises may have limited scope to deliver certain types of services, particularly those that require significant capital investment or specialised skills. This can make it challenging to compete with larger, more established organisations.
- Acquisition – Acquire an existing company
Acquiring an existing company is one model for delivering services, and it comes with both advantages and disadvantages.
- Established operations and customer base: Acquiring an existing company means that you are taking over a business that already has established operations, customers and market share. This can be an advantage, as you can build on their successes and take advantage of their existing customer relationships.
- Reduced start-up time and costs: Starting a new business can be time-consuming and expensive. Acquiring an existing company can be a faster and more cost-effective way to enter a new market or expand your business.
- Experienced staff: Acquiring an existing company means that you are also acquiring their experienced staff, which can bring valuable expertise and knowledge to your organisation.
- Access to technology and resources: An existing company may have developed proprietary technology or resources that can benefit your business.
- Reduced risk: Acquiring an existing company can be less risky than starting a new business from scratch, as you are taking over an established business with a proven track record.
- Integration challenges: Integrating an existing company into your business can be challenging, particularly if the cultures, systems, and processes of the two organisations are different.
- Legacy issues: An existing company may come with some ‘baggage’ – legacy issues, such as outdated technology, infrastructure or processes, which can be difficult to address.
- Hidden liabilities: The risk of concerns such as outstanding debts or legal issues, that reveal themselves only after the acquisition is complete can present a challenge.
- Cultural issues: Differences in organisational culture can be a significant challenge when integrating an existing company into your business.
- Loss of key personnel: People sometimes do not react well to change and, therefore, the act of acquisition itself may result in some key personnel leaving, which can disrupt operations and cause a loss of expertise.
- JV – Enter into a joint venture with an existing provider
A joint venture (JV) is a business partnership between two or more parties that come together to undertake a specific project or business activity. Each party contributes resources, such as capital, technology, or expertise, to the joint venture and shares the risks and rewards of the project.
A JV Mutual would be entering into a joint venture/partnership with an established Public Services Mutual or Social enterprise.
- Access to resources: Joint ventures can provide access to resources, such as capital, technology or expertise, that may not be available to a single organisation.
- Shared risk and reward: Joint ventures share risks and rewards among the partners, which can provide greater financial stability and incentivise all partners to work towards success.
- Greater efficiency: Joint ventures can bring together complementary skills and expertise, leading to greater efficiency and better outcomes.
- Improved market access: Joint ventures can provide access to new markets or customer bases, which can help organisations to grow and expand.
- Increased innovation: Joint ventures can foster innovation and creativity by bringing together different perspectives and approaches.
- Complex management: Joint ventures can be complex to manage, particularly if there are multiple partners with different goals and objectives.
- Shared control: Joint ventures require shared control and decision-making among the partners, which can lead to conflicts and disagreements.
- Shared profits: Joint ventures require the sharing of profits among its partners, which can reduce the overall financial gain for each individual partner.
- Limited autonomy: Joint ventures require collaboration and cooperation among the partners, which can limit the autonomy of individual organisations.
- Legal and regulatory issues: Joint ventures can be subject to legal and regulatory issues, such as antitrust laws or intellectual property disputes.
- Decommission the service and withdraw from the market.
This could be the option where current services are delivered by a public/local authority trading company (PATC/LATC) and once disbanded the same services can either be delivered in-house, outsourced or through one of the other models outlined above.
- Hybrid model
Combining elements of some of the different service delivery models above, a Hybrid model aims to create a customised approach that best meets the needs of the local population and optimises resource use.
While it is important to be aware of all the service delivery model options available to you, it is possible to streamline the options appraisal process with an initial shortlisting exercise by discounting those that you may know instinctively will not be suitable, viable or appropriate for your specific service. Listing all the options and noting down the reasons why you have chosen not to shortlist some of them will provide a useful audit trail for your reasoning before you undertake a detailed investigation into the options that do warrant further consideration.
Once you have agreed your shortlist you must ensure that each option is assessed against the same criteria to be sure you have a comprehensive and consistent evaluation of all the relative pros and cons.
For more detail on how to conduct, and what to include in, your options appraisal see our supporting service page Service Delivery Options Appraisal.