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Future Proofing Councils: organisational change in Australian local government

Graph showing a declining predicted budget, eclipsed by increasing adult social care and children services expenditure

By Susan Law

There is always that dichotomous cliché: change is the only constant in the world.  As local authorities, Councils are not only part of the world, but, in the key role in providing civic leadership to our communities, Councils find themselves having to flex and adapt themselves to meet the expectations of their communities and to help them make sense of the changing world.

The drivers to change are many. Some are extrinsic to the Council; others are initiated by the organisation itself.

External Drivers

Demographics

The Graph of Doom – a graph prepared by the Council the London Borough of Barnet. The chilling lesson from this graph is that by 2021/22, the Council will need to spend all of its funding and revenue on just providing services for its vulnerable adults and children. Without changes to the manner in which services would be delivered and policy settings, there would be no funding for other services such as waste, community development etc.

While Councils in Australia are not charged with the provision of social services for adults and children, the demographic trends for Australia are similar if not sharper.  This impacts upon state governments and reinforces the drive in NSW, South Australia, and Tasmania for local government sector reform. The ability of state governments to significantly contribute to the funding of local government for services is becoming increasingly constrained. In fact, local government is experiencing the reverse: services being devolved from state to local government without the corresponding level of funding to deliver them.

Similarly, Councils’ rate bases and their ability to raise revenue from ratepayers is coming under increasing pressure. In NSW, rate capping by the State Government is in place and is being debated in South Australia and Tasmania.

Customer and community expectations

At the other end of the demographic spectrum are the expectations of our communities and customers. Most services and the way they are delivered were designed for the post WWII and baby boomer generation – now we have Generation X, Y, and Z, whose expectations are quite different from those of their parents and grandparents. Traditional sectors such as the taxi and hotel industries are having to cope with surviving with disruptive technologies and organisations such as Uber and Airbnb. Nevertheless, these disrupters are setting the expectations for access, service, and response. The disruption in many service sectors is causing major re-thinking of service delivery models, even traditionally conservative ones such as banks. Local government cannot step aside from the change. 

State Government and internal programs of reform

In addition to the UK, in NSW and South Australia, pressure has been placed upon local authorities to not just consider change on an individual basis, but also to participate in a broader program of sector reform.

In NSW, under the Fit for the Future program, the threshold test of a Council’s sustainability was not exclusively financial so much as whether it had adequate “scale and capacity” to meet the needs of the local people. That is, not just the needs of the services that are delivered by the Council were considered in the conversation, but also the needs met by services provided by State Government such as health, education, and transport.

After a process of facilitation, business case development, and consultation with the sector, the State Government has mandated a number of amalgamations with Administrators and Interim General Managers appointed. Some Councils are not amalgamating and some proposed amalgamations have not been mandated, with others being disputed through the judicial system.

The Administrators and Interim General Managers are managing the transition of the amalgamated Councils until Council elections take place in September 2017.

The South Australian Government commissioned an examination by an independent panel, chaired by former Minister Greg Crafter. The resultant report was “The Council of the Future,” which advocated reform to bring about more robust Councils able to commission, advocate, and deliver services, not just to their local area, but on a broader regional basis. Its underlying premise was that, in the future, State Government will not be in a position to deliver non-health and education services to communities.

The South Australian government has not mandated amalgamations, but is encouraging the sector to reform itself. It has, however, introduced legislation that foreshadows changes to planning and development, with individual Councils playing a reduced role while participating on a regional basis.

The United Kingdom has been undergoing reform of the sector since 2010. There has been no formal process of amalgamation, although some Councils have voluntarily amalgamated. There was an overwhelming financial driver to reform the sector as during the GFC there were significant reductions in revenue sources.  Reductions in government funding of 30% per annum were not unusual and locally raised Council taxes were capped for 5 years.

While initially much expenditure suppression and curtailing was necessary, the duration of financial crisis brought about innovation in governance and service delivery models:

  • Shared Chief Executives and leadership teams
  • Shared services: from a small number of services such as IT or legal services to a fully integrated set of services being provided to a number of Councils by a single Council provider
  • Establishing commercial and back-office hubs
  • Centralised procurement
  • Major outsourcing contracts to external providers over a lengthy period

Half a decade on from the initial financial crisis, local and central government in the UK is moving on to consider the future of the sector. The underlying demographics have required the strategic consideration of the relationship between the two levels of government. Central government is not considered to be the best value provider of services: it is too remote from local communities, has a one-size-fits-all approach, and there have been embarrassing failures, especially in the health services. Enter “devo-max” and the creation of City Regions.

Local authorities in a region combine as a city region around a major city. This gives the region the scale and capacity (and financial management strength) to commission and deliver services to be devolved to it by central government, such as health and transport. Such “deals” are being negotiated between the central government and the city regions, such as Cornwall, Kent, Manchester, and Sheffield.

With the exception of the NSW amalgamation process, reforms have been initiated and driven by the local government sector itself. In NSW, even without the requirement for amalgamation, Councils have taken the opportunity to review their operating and service delivery models. In one Council, the business case for their transformation program provided for a 98% return on investment in 3 years or a recurrent saving of $3.5M.

The moral of the story…

Whatever the driver of changes, Councils are on the change journey, whether forced by government mandate or in positioning themselves to meet the needs of their customers and communities now and in the future.

Financial sustainability does play a part. It would be naïve to think otherwise.  However, two or more Councils amalgamating will not in itself bring about any cost savings. Savings (or service uplift) for Councils will only come with the hard work of instigating change, re-thinking the way Councils operate, re-designing the way services are delivered, and having the fortitude to implement those redesigns. In fact, this is demonstrable whether or not a Council amalgamates with others. The amalgamation, however, addresses the issue of scale and presents a one-off opportunity to not simply “bolt together” existing organisations, but to embark on sustainable redesign and transform.

All the drivers of change present opportunities for Councils. Whether they be customer or government inspired, Councils can critically examine their methods of service delivery and their way of doing business. Key questions should be posed in that examination:

  • Is the Council financially sustainable and forecast to continue to be so into the life of the strategic plan?
  • Is our service delivery meeting the needs of this and flexible enough to adapt to future generations of customers?
  • Is the Council a “player” to be taken seriously on all matters that are important to its community?

If the answer to any of those questions is equivocal, consideration should be given to how they Council wishes to address them organisationally and with the community.

While amalgamating Councils is an option for answering the questions in the positive, it is highly disruptive and ideally requires a coalition of willing partners.  Other options such as sharing services on a single or multiple service basis, internal corporate transformation programs and partnering have also been shown to be successful in improving Councils’ financial viability, better meeting the needs of the communities, and positioning themselves as leaders in a region.

At LKS Quaero, we harness international expertise to help organisations with effective transformation. If you’d like to know more, visit us at lksquaero.com or follow us on LinkedIn, Facebook, and Twitter.

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