Wol Kolade: Leaner machines

ISIS Equity Partners managing partner Wol Kolade joins GrowthBusiness as a blogger. In his first post, he explains why entrepreneurial businesses have the opportunity of a decade to help improve public services.

ISIS Equity Partners managing partner Wol Kolade joins GrowthBusiness as a blogger. In his first post, he explains why entrepreneurial businesses have the opportunity of a decade to help improve public services.

Entrepreneurial businesses have the opportunity of a decade to help improve the delivery of public services – but they have to persuade councils to let them.

With the announcement of the Comprehensive Spending Review in October last year, the public sector party came to an abrupt end. Now budgets are being slashed, and central government, while dictating the size of the reductions, has been clear that the key decisions about where the axe will fall are to be left to councils themselves.

But as the old adage goes, turkeys don’t vote for Christmas and so, as a consequence, councils are taking the
knife to everything – from libraries to social care.

No quick fix
But slash and burn simply does not work when you are talking about people. I’m worried that many of the decision-makers in local authorities are simply not equipped to do what really needs to be done, and that is a wholesale shake-up of local services and their provision.

And why should they be, given that they have never had to do this before? In the old days, many could rely on expensive consultants to tell them what to do, but now they have gone as well.

Take one example – that of foster care. Roughly three-quarters of foster carers are registered with local authorities, while the rest work with independent providers such as one of our portfolio companies called Pathway. That means local councils ought to have scope for far greater efficiency and economies of scale than any independent company could. And indeed, on the surface, it would seem that they do. Carers are paid, on average, £350 to £400 per child and independent providers get a fee on top of that for managing delivery of that care, such as by providing social workers. So on paper, the private sector charges more – something like £800 per child, which is twice the rate that the council pays.

But, as always, the devil is in the detail. That £400 does not include any overheads. I know a council that paid £500,000 to advertise for new foster carers in the borough only to generate two new names by the end of it. Companies have to pay for advertising out of their own expenses.

Wasted effort
In addition, local councils take something like 18 months to get a new carer working – taking them through training and background checks. That is against a private provider which can do the same work within six months.
This is just one example, and there are many more, of where a huge amount of wasted money and wasted effort are simply never documented.

The flip side of course is that, more than ever, private sector companies that can offer the public sector tangible cost savings are likely to find their services increasingly in demand. Although companies such as Capita and Serco are often presumed to be the big winners of any increase in government outsourcing, smaller businesses that can help local government do more for less should also find themselves in a strong position.

In short, whether your business can help to reduce expenditure on healthcare IT or assist councils in streamlining their finance departments, the next 12 months could offer a wealth of opportunity.

Quality of care
But it is not just about cutting costs; it is also about being able to improve quality.
A case in point is the provision of domiciliary care where carers turn up for a few hours to look after people in their own homes. It has to be right, both morally and economically, to keep people in their own homes for as long as you can. Yet so often they are directed towards care homes simply because it is easier for councils to arrange for the provision of care if people are in one place.

And what about entrepreneurialism? The private sector can develop and implement new techniques faster than the public sector as our businesses are entrepreneurial. And unlike councils, with their opaque reporting of overheads, companies can demonstrate exactly how much their services cost.

Look at any area of public sector spending – from road maintenance to teacher training, facilities management to nursing home care – and the pressure on budgets illustrates the need for greater collaboration between the public and private sectors.

And yet, as we stand today, a local council chief executive would have to be unusually enlightened to be willing to talk to the likes of us about how we could work together for a better future. The whole structure of councils is designed to keep tender processes secret and make sure the provision of services stays within the fold. Private sector companies are viewed with suspicion.

Internal benchmark
Councils are both commissioners and providers of local services, which creates an inherent tension. Their benchmark tends to be their own services in terms of cost, quality and new developments, rather than looking to the wider market for the best solution.

I have already said to at least one senior government minister that local authorities should no longer provide anything. They should simply be there to commission local services and ensure that standards
are met, and be responsible to the electorate for that. Only time will tell whether they heed the call for change.

Wol Kolade is managing partner of ISIS Equity Partners, having joined in 1993. His role encompasses overall responsibility for the strategic development of ISIS, and active involvement in investments. He was chairman of the BVCA in 2007/08,  is a governor of the London School of Economics and Political Science, and is a trustee of the Guy’s and St Thomas’ Charity.


Andres Schmitt

Wol Kolade is Managing Partner at Livingbridge, a global mid-market private equity firm with offices across the UK, Australia and the US.

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