Corporate Recovery and Strategic Turnaround in Local Government: A Comparison with the Private Sector

1. Corporate Recovery and Strategic Turnaround in Local Government A Comparison with Strategic Turnaround in the Private Sector Martin Jones and Peter Murphy Nottingham Business School

2. Why Study English Local Government • A unique environment with its own rules, regulations, structures and funding arrangements (Wilson and Game 2006) • Directly elected representatives separate it from the private sector and other parts of the public sector (Rhodes 1988, Leach 2006, Pratchett 2004) • “Semi-independent, politically decentralised, multifunctional body created by and exercising responsibilities conferred by Parliament”. (Wilson and Game 2006 p 93) • Complex organisations providing multifunctional and unrelated services (Worrel et al 1998)

3. Objectives of the Research • Drawing on research currently being undertaken by the authors into strategic turnaround in English Local Government. This (and subsequent) papers seek to: • Identify the themes and approaches to corporate turnaround emerging from literature in the private sector • Through case studies of English local authorities, identify whether there are any similarities or differences in approaches taken to strategic turnaround • The paper is based on research into corporate recovery and strategic turnaround in English local government as a result of the CPA regime implemented by the Audit Commission between 2002 and 2009, and the “Intervention” powers conferred in the 1999 Local Government (Best Value) Act. • One of the authors is undertaking a doctoral study into the subject area and the other was previously a Lead Official and Chair of several Government Monitoring Boards during the CPA regime

4. Best Value The new power to Intervene • The 1999 Act gave extensive and unprecedented new powers to the Secretary of State to intervene in any local authority that was considered to be failing in their duty of achieving “best value” in continuous improvement in the performance of their duties. • Best value for these purposes being described as securing continuous improvement in the exercise of all functions undertaken by the local authority, whether statutory or not, having regard to a combination of economy, efficiency and effectiveness. • This duty effectively changed the raison d’etre of local authorities and obliged them to continuously improve whatever services they were providing for their communities and not merely to carry out the statutory functions placed upon them by parliament or to provide services at the behest of their local politicians.

5. House of Commons Communities and Local Government Select Committee 4th Report “Audit and Inspection of Local Authorities”(July 2011) “There has not been a proper examination of issues relating to performance management, inspection and how to drive improvement in local government. A dispassionate review of public sector performance management regimes, including targets, indicators, inspection methods and their alternatives is long overdue” Sector-led performance management “We welcome the LGA's proposals for sector-led performance management. However, they suffer from the limitation that they are optional and there is no formal mechanism to identify poorly performing local authorities, who may choose not to participate. It remains to be seen how vigorously and effectively they are implemented.” Conclusions “In implementing these changes, the Government must be mindful of the fact that that devolving power to local government and communities does not absolve it of the responsibility to construct a system which continues to provide accountability for public money and which results in better value for money”.

6. CPA Did it make a difference? • “It has become increasingly popular for academics and politicians to question whether Comprehensive Performance Assessments, and similar performance management regimes had the impacts the Audit Commission and the previous government claimed for them”. … for many officers and managers who experienced these regimes it seemed quite different”. (Murphy et al 2011) • See also Chapter 10 of “Managing in a Political World – the Life Cycle of Local Authority Chief Executives” (Leech S 2010)

7. Corporate Recovery and Strategic Turnaround • An increasing field of study in the private sector • Globalisation, advances in technology, the cost of capital, increasingly competitive and complex business environments and the increasing number of bankruptcies • Definitions: • the actions taken to bring about a recovery in a failing organisation (Pandit 2000). • decline followed by performance improvement (Schendel et al 1976, Robbins and Pearce 1992) • ‘a process that takes a company from a situation of poor performance to a situation of good sustained performance’ (Brandes and Brege 1993, p92). • New and growing body of literature in local government and on the sustainability of recovery and turnaround.

8. The Evidential Base Official Documents • Corporate Inspection Reports • Ofsted Annual Inspections • CSCI Annual Inspections • Service Inspections • Annual Audit Letters • AC Performance scorecards • Government Monitoring Boards • Ad Hoc Reports

9. Intervention – Key Historical Examples • Clay Cross Rebels 1972 - Rents and refusing to implement 1972 Housing Finance Act • Liverpool and Lambeth - Derek Hatton and Ted Knight Rates Act 1984 • Westminster and Shirley Porter gerrymandering 1986-1996 • Hackney – late 1990s and 2000-2001 Best Value Plan

10. Antecedents of Intervention “Issues” • Political Campaigns • Finance • Education • Social Services • Housing • Planning

11. Antecedents of Intervention “Triggers” • External Auditors Annual Audit and “Public Interest” Reports • External Inspections – Education and Social Services • Financial Crises • Scandals and moral panics • Ombudsman and Whistleblowing • Intervention powers in Education, Social Services and Benefits

12. What was different about Intervention and Engagement under CPA • It looked at the performance of authorities as corporate organisations • It was predicated on independent external assessment of all authorities • It used a national framework with universal standards and comparator benchmarks

13. Literature Review and Conceptual Framework

14. Aspects of Strategic Turnaround in the Private Sector Literature • Operating versus Strategic Turnaround (Hofer 1980) • Strategic = new business models • Operational = focus on reduced costs/increased revenues • Turnarounds fail if operational used when strategic required • Need to understand the cause of decline • Strategic Adjustment or Strategic Change? (Snow and Hambrick 1980) • Using familiar responses (Cyert and March 1963) • Overlaying past successes – over learning (Starbuck et al 1978) • Roast Pig (Moss Kanter 1983) • Turnaround is a distinct phase of strategy • An episode in an organisations lifecycle (Mintzberg and Walters 1992) • If organisations were good at strategy they would not be failing

15. Process of Strategic Turnaround in the Private Sector Literature • Realignment (Filatotchev and Toms 2006) • Bringing together internal and external stakeholders at an early stage • Does the organisation have the facility to enter retrenchment? • If not give up • Retrenchment followed by Recovery (Hofer 1980, Robins & Pearce 1992) • Efficiencies through downsizing etc – operational turnaround • Longer term market focus – strategic turnaround • The role of the change agent (Khandwalla 1983) • Credible • Mobilising the organisation • Participative rather than ‘terror tactics’ • Building and rebuilding links to external stakeholders • Sharing and open cultures

16. Situational Factorsin the Private Sector Literature • Luck and Timing (Francis and Desai 2005, Landrum et al 2000) • Organisational size (Wren 2001) • can absorb shocks if larger • can put off the need to turnaround if larger • But rigid structures can constrain (Pfeffer and Salanick 1978) • And can miss the triggers of decline • Environmental factors (causes and constraints) (Dess and Beard 1984) • Factors of decline can impact on recovery - severe and rapid erosion of resources (Boyne 2004, Joyce 2001)

17. Local Government Causes of Poor Performance Self Regulating v permanently failing organisations (Jas and Skeltcher 2005) • Performance fluctuates over time • Where in control then self regulating • Where lack the necessary skills then permanently failing • Cognition, Capability, Capacity (Turner and Whiteman 2005) • Identifying that poor performance exists • Having the right leadership skills • In sufficient quantity • Stress Rigidity or Threat Rigidity (Wilson and Game 2006) • Becoming retrenched against the changing environment • The fallacy of past successes • Situational Factors (Turner and Whiteman 2005) • Culture • History • Politics

18. Local Government Strategic Turnaround • Replacement, Retrenchment, Renewal (Boyne 2004) • Key members of the leadership are replaced • Short term actions taken to address crisis triggers • Longer term actions necessary to improve performance • Twin Track approach (Paton and Mordaunt 2004) • Old blood mixed with new blood • Negatives (eg cut backs) run concurrently with positives (eg investments) • Centralising financial control while decentralising in other areas to foster involvement • Leadership creates capacity to change rather than directing change • Avoid reductionism (Paton and Mordaunt 2004) • Recognise the complexity of the environment • Runs counter to simplification arguments proposed for the private sector (Baden-Fuller and Stoppard 1994)

19. The four CPA data frames of analysis

20. Choosing the Case Studies Single Tier and County Councils District Councils

21. Case Study Organisation 2 • A small English District Council • Initial CPA Score Weak • Moved to Excellent in 4 years • Key Informant Interview • Current Chief Executive • Long Standing Employee

22. Case Study 2 – Problems and Issues • Cognition • No recognition that the council was weak or the reasons why • “Self assessment” prior to CPA scored as “fair” • Actual CPA assessment was “weak” • Met with shock and denial, then a desire to improve • Situational Factors • Historical factors had led to entrenched position with lack of cognition • Internal issues led to the poor performance rather than external factors • Organisational culture developed out of the above • External trigger of CPA to promote change • Permanently Failing • Lack of cognition meant unable to recognise change was needed • Inward looking, lacked wider awareness • Dysfunctional leadership and management teams • “Officer led” with members disengaged from the strategic process • Despite allegedly “powerful” political leader

23. Case Study 2 – Improvement Path • Realignment • Elected Leader and CEO exited the organisation at an early stage • Member instigated request to review and resolve situation • Interim CEO (Intervention) • New Leader and Member training programme • Streamlining of management team/executive • Retrenchment? Not as for private sector – no sell offs/cut backs as already had significant balances • Some characteristics of poor performance: • Poor service provision and customer care resulting from lack of investment • Poor levels of staff satisfaction • Poor member engagement and governance • Balances used to invest in: • Customer contact centre • Member development training • Staff engagement programme • Customer care initiative

24. Case Study 2 – Discussion Operational v Strategic Turnaround • Operational Turnaround Initially • Main focus as operational weaknesses had taken on strategic significance • Focus on customer contact centre and business process re-engineering of customer care aspects • Changes to management structures and processes • Attempt to change culture • Some reorganisation of management teams • Strategic Turnaround followed • Came later on • Strategic plans developed but lengthy and process based • Now evolved to position where strategic planning is more embedded, outcome focused and evidence based (“state of the district review”) • Members now engaged with strategic process and advised by officers • 5 year plan on one side of A3

25. Case Study 2 – Discussion Leadership • Initially fractious and dysfunctional; transactional and defending • New “Leader” facilitated change in officer/ member relationships • Interim CEOs and short time permanent CEO acted as change agents (tough decisions, laid foundations) • Current CEO from within the ranks, more stability, but still transformational rather than transactional Strategic Adjustment? - No • Did not overlay past solutions/successes as there were none – previous threat rigidity • Fundamental change of approach • Operational changes precursor to cultural shift allowing more robust strategic planning processes to be embedded • “Quick wins” used to promote the change programme (Contact centre, Staff satisfaction, MJ awards, CPA etc)

26. Case Study 2 – Discussion Other Aspects • Turnaround as a distinct phase? – Yes • Self regulating? – Not at first but now following evolution • Capability and Capacity – Cause of failure but now improved through training and evolution • Twin Track Approach – Yes, facilitated by intervention programme and use of external “friends” eg PCT, University partners • Reductionism – focused at first but now based on complex outcome based approach

27. Case Study Comparisons