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Organizational Innovation
in Public Services
Forms and Governance
Edited by
Pekka Valkama
Research Director, School of Management, University of Tampere,
Finland and Adjunct Professor, Turku School of Economics,
University of Turku, Finland
Stephen J. Bailey
Distinguished Professor, School of Management, University of Tampere,
Finland and Emeritus Professor of Public Sector Economics,
Glasgow Caledonian University, UK
and
Ari-Veikko Anttiroiko
Adjunct Professor, School of Management, University of Tampere, Finland
Selection, introduction and editorial matter © Pekka Valkama,
Stephen J. Bailey and Ari-Veikko Anttiroiko 2013
Remaining chapters © Respective authors 2013
Softcover reprint of the hardcover 1st edition 2013 978-1-137-01183-1
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Index 270
List of Tables, Figures and Boxes
Tables
Figures
Boxes
vii
Preface and Acknowledgements
viii
Notes on Contributors
ix
x Notes on Contributors
3
4 Organizational Innovation in Public Services
onset of the European Union (EU) Eurozone crisis in 2010, public sec-
tors did not shrink even as Western governments pursued market-based
solutions and managerial approaches to service provision: in fact quite
the opposite occurred.
Governments have tended to spend more on public services than they
collect in revenue from taxes and other income sources, creating ‘black
holes’ or ‘structural gaps’ in the public finances by borrowing year-after-
year and decade-after-decade even when tax revenues were booming
during periods of fast economic growth from the 1960s onward (Bailey
2004). Until very recently, these structural gaps were supported by the
willingness of globalized financial markets to continue to lend money
to governments (and individuals) in the belief that growing prosperity
would enable them to repay debt. This was accompanied by lack of
financial transparency and a poor appreciation of the increasingly risky
nature of banking and finance operations. As a consequence, many
Western governments became exposed to increasingly severe difficul-
ties in refinancing their debt, brought to a head by the global 2007–09
credit crunch within the financial sector and the subsequent Eurozone
crisis. Increasingly risk-averse global financial markets have forced many
Western governments to quickly introduce policy measures intended to
improve their country’s economic competitiveness, especially reforms of
labor markets, welfare systems and industrial and economic structures.
This credit-rationed financial environment has created increased
impetus to take advantage of new opportunities for organizational
innovations as governments look desperately for solutions to economic,
financial and social problems and yet seek ways of achieving significant
budgetary savings. Governments in most developed countries now seek
to introduce public sector reforms to reduce their budget deficits and
thereby fill the black holes in their public finances. It is a cliché that
opportunities arise out of a crisis, but the time is now ripe for widening
and deepening organizational innovation in public sectors. In doing so,
however, the changing technological and teleological nature of public
services within ‘the new service economy’ has to be taken into account.
they evolved into service economies, public and private sector services
together accounting for much greater shares of GDP and employment
than manufacturing.
The ‘new service economy’ refers also to radical changes in the nature
and operational principles of service industries, their transformation
being caused by changes in the social, legal and economic environment
and by the latest technological innovations (Zysman 2006; Zysman
et al. 2011). Manufacturers now subcontract to external providers many
of their ‘unbundled’ formerly in-house vertically integrated activities,
creating service clusters and ecosystems around physical products.
The emergence of the new service economy has challenged tradi-
tional ways of working, as many services can now be codified, formal-
ized and modularized by information and communication technology
(ICT). As a result, some public services have become more mobile and
easily tradable because global communication and information delivery
costs have been reduced very substantially by digitization.
Complementing this technological transformation, globalization and
liberalization promote development of the networked service economy in
which capacity, risks and, especially, knowledge can be shared relatively
easily and new value-chain models can be created. Some networks are
platforms for building up alliances and partnerships, which may help to
gain access to new input or output markets and favorable treatment in
public policy forums (Zysman 2006; Zysman et al. 2011; de Man 2004, 4;
Bessant and Tidd 2007, 85; Furubotn and Richter 2005, 308–310).
Know-how and other intangible resources will acquire greater relevance
as input factors even though some service sectors may be as capital inten-
sive as some manufacturing industries (Akehurst 2008, 3). Completely
new service industries and professions will develop as services are recon-
figured through value-extracting, value-adding and value-capturing
activities based on intensification and deepening of knowledge systems.
New opportunities for service operations will arise from not only unbun-
dling but also rebundling of the range of services (Sweet 2001, 72–73).
Property rights are crucial for physical manufactured products, but in
the new service economy such issues as access rights, time-limited use
rights, renting and leasing arrangements and joint consumption will
feature strongly as services become seen as a means to share, accumulate
and refine resources (Akehurst 2008, 5).
Because many publicly funded service sectors have been and will
remain heavily regulated, the challenge for policy makers will not be
how to deregulate services, but instead how to change the way they are
regulated in order to develop quasi-markets and generate new service
8 Organizational Innovation in Public Services
managers, staff and other stakeholders to find novel solutions for classic
government failures arising from imperfect information and the pursuit
of self-interest by bureaucrats and politicians. Otherwise, barriers such
as legally fixed boundaries, customary functions or monopoly power
may prevent or slow down technological and teleological innovations.
Typical barriers to innovation in public services have included lack of
incentives to innovate, poor skills in change management, short-term
public budgets, silo mentality, reluctance to change or close down fail-
ing organizations and a culture of aversion to risk (Albury 2005, 51). The
‘innovation paradox’ is that, on the one hand, there is an imperative for
the virtues of classic bureaucratic public administration with neutral,
distant and standardized organizational forms and service procedures
but, on the other hand, being innovative and improving public services
seems to require flexibility, responsiveness and customer orientation
(Veenswijk 2005, 3).
At the risk of over-generalization, innovation in the public sector
seems to occur despite, rather than because of, the way services are
organized. Public service reorganization has been evolutionary rather
than revolutionary, the emphasis being on incremental (rather than
radical) changes, minimizing the risks associated with change rather
than rewarding those who are the most innovative. This is quite dif-
ferent from the private sector where innovation is seen as inherently
risky but as the key strategy for survival in the long term, bringing com-
mercial rewards to successful innovators. In the public sector, there are
typically no such rewards, only opprobrium and even penalties for fail-
ure, this downside bias explaining adoption of management strategies
to minimize risk via incremental evolutionary change. Revolutionary
change requires effective management and governance of risk.
Book structure
This book consists of four parts. This first part contains three introduc-
tory chapters concerned with not only the contextual considerations
but also the theoretical and conceptual perspectives. The second part
focuses on the processes of organizational innovations, including
agencification, corporatization and outsourcing as mega-trends of
radical changes in organizational forms. The third part concentrates on
governance policies and practices of new organizational forms in public
service delivery, including corporate governance of state-owned compa-
nies and multi-stakeholder governance of social enterprises. The fourth
part draws lessons about how to govern organizational innovations and
Contexts and Challenges 11
References
Akehurst, G. (2008) What Do We Really Know About Services? Service Business
2(1): 1–15.
Albury, D. (2005) Fostering Innovation in Public Services, Public Money &
Management 25(1): 51–56.
Bailey, S. J. (2004) Strategic Public Finance. Basingstoke: Palgrave Macmillan.
Bessant, J. and Tidd, J. (2007) Innovation and Entrepreneurship. Chichester: John
Wiley.
Bovaird, T. and Löffler, E. (2009) Understanding Public Management and
Governance. In Bovaird, T. and Löffler, E. (eds) Public Management and Governance.
Second edition. Abingdon: Routledge.
Ferlie, E., Hartley, J. and Martin, S. (2003) Changing Public Service Organisations:
Current Perspectives and Future Prospects, British Journal of Management 14(1):
1–14.
Furubotn, E. G. and Richter, R. (2005) Institutions and Economic Theory: The
Contribution of the New Institutional Economics. Second edition. Economics,
Cognition, and Society. Ann Arbor, MI: University of Michigan Press.
Gallaher, M. P., Link, A. N. and Petrusa, J. E. (2006) Innovation in the U.S. Service
Sector. Routledge Studies in Innovation, Organisations and Technology.
Abingdon: Routledge.
Landy, M. K. and Levin, M. A. (2007) Creating Competitive Markets: The
Politics of Market Design. In Landy, M. K., Levin, M. A. and Shapiro, M. (eds)
Creating Competitive Markets: The Politics of Regulatory Reform. Washington, DC:
Brookings Institution Press.
de Man, A.-P. (2004) The Network Economy: Strategy, Structure and Management.
Cheltenham: Edward Elgar.
Maroto-Sánchez, A. (2010) Productivity in the Service Sector: Conventional and
Current Explanations, The Service Industries Journal 32(5): 719–746.
Meier, K. J. and Hill, G. C. (2005) Bureaucracy in the Twenty-First Century. In
Ferlie, E., Lynn, L. E. Jr and Pollitt, C. (eds) The Oxford Handbook of Public
Management. Oxford: Oxford University Press.
Osborne, S. P. (2010) Introduction. The (New) Public Governance: A Suitable
Case for Treatment? In Osborne, S. P. (ed.) The New Public Governance? Emerging
Perspectives on the Theory and Practice of Public Governance. London: Routledge.
Paton, R. A. and McLaughlin, S. A. (2008) Service Innovation: Knowledge
Transfer and the Supply Chain, European Management Journal 26(2): 77–83.
Potts, J. (2009) The Innovation Deficit in Public Services: The Curious Problem
of Too Much Efficiency and Not Enough Waste and Failure, Innovation:
Management, Policy & Practice 11(1): 34–43.
Sweet, P. (2001) Strategic Value Configuration Logics and the “New” Economy:
A Service Economy Revolution? International Journal of Service Industry
Management 12(1): 70–84.
12 Organizational Innovation in Public Services
13
14 Organizational Innovation in Public Services
moving them from the margins to the mainstream, unable to foster and
sustain innovation in any kind of systematic way. Innovation either
emerges by chance or as a result of work by committed and visionary pro-
fessionals. Hence, innovation tends to be ad hoc rather than embedded
practice, reflecting poor understanding and insufficient evidence about
how to stimulate, sustain and scale up innovation in local government.
Development of the Department for Innovation, Universities and
Skills (DIUS) – which later merged into the Department of Business,
Innovation and Skills (BIS) – reflected the increased interest in innova-
tion in public services and recognition of the afore-noted barriers. In
its 2008 white paper, ‘Innovation Nation’ (DIUS 2008), the UK govern-
ment committed itself to the creation of a Public Services Innovation
Laboratory with funding to support programs and learning relating to
innovation in the field of public services. The Laboratory was to be
hosted by the National Endowment for Science, Technology and the
Arts (Nesta). It created a timely catalyst for a focus on local government
innovation in view of the developing intensity of the financial pressures
mounting in the local government sector.
The years from 2007 to 2011 saw a renewed focus on local govern-
ment innovation in response to the ‘pincer effect’ of, first, a dramati-
cally worsened financial settlement for local government in the context
of the UK recession and national political changes in support of budget
deficit reduction and, second, a significantly more demanding set of
expectations on local government services in a context of seemingly
intractable challenges such as those of an ageing society, the spiralling
cost of social care, ‘green’ expectations and increased unemployment
especially among young people.
Incremental approaches to these challenges were increasingly seen as
forlorn and inadequate. In particular, the short-term focus on ‘salami-
slicing’ budget reductions were increasingly recognized as storing up
subsequent and deeper problems in the long term. This was evident at
both managerial and political level in local government.
This provided a context and catalyst for joint work between organiza-
tions such as Nesta, the Innovation Unit, the Young Foundation and
the Local Government Group (LGG). The developments and programs
established a new appetite and capacity for innovation (rather than
incremental improvement) in the local government sector.
Radical efficiency
lower cost. First, services that are shown to have little or no impact
should be stopped. Second, new resources should be identified and
made available to contribute to a different and more effective solution,
especially the energy and voluntary involvement of service users in
developing new approaches that they believe will work. Third, adopt a
strategy of prevention to identify the core of the challenge in order to
tackle cause instead of symptoms.
The second point (involving service users) and the third point (pre-
vention) have already been discussed earlier. In respect of the first point,
during the expansionary period of real public spending prior to 2010,
innovation generally sought to improve services within their existing
configurations. However, the fiscal contraction now requires emphasis
on reconfiguring services to release resources from low value-added
activities so that they can be used to create greater additionality of social
value. This ‘creative decommissioning’ (Bunt and Leadbeater 2012) is
radically different from the continued interest in service outsourcing,
a third of all services possibly being outsourced by 2014/15 in a bid to
make savings (Interserve 2012).
This continuing emphasis on cost cutting reflects councils’ low capac-
ity to innovate, and so contracting out is likely to increase, at least until
the Creative Councils program is able to identify and articulate the
learning required to be an innovative council – what it takes to gener-
ate the organizational antecedents for innovative practice? And what
approaches will lead to more effective adoption and adaption of inno-
vative approaches in other councils? In effect, this involves developing
tools for innovation that will enable the local government to be in the
driving seat of the changes required by the continuing pressures. For
this to be the case, a series of questions have to be addressed:
• What are the techniques for managing the inevitable risks involved in
innovation – be they financial, political or reputational – particularly
in the context of responsible stewardship of the public purse?
• What levels and types of funding are required to stimulate innova-
tion?
• What forms of evidence are needed to support a judgement to pro-
ceed with innovative proposals?
• What are the specialist skills and tools required to progress an
innovation – financial, scientific, digital, social networking, ethnog-
raphy, or crowdsourcing?
• What are the skills and techniques required for decommissioning
existing services that will be an essential part and consequence of
innovative change?
Supporting Organizational Innovation in England 23
• What are the techniques that will encourage other councils to adopt
and adapt innovations from other organizations leading innovation
when the track record of adoption and adaption is not strong in
public services?
References
Bunt, L. and Leadbeater, C. (2012). The Art of Exit: In Search of Creative
Decommissioning. London: National Endowment for Science, Technology and
the Arts (Nesta).
Cornwall Council (2012) Shaped By Us: Making Good Ideas Happen. Truro:
Cornwall Council.
DIUS (2008) Innovation Nation (Cm. 7345). London: Department for Innovation,
Universities & Skills.
Gillinson, S., Horne, M. and Baeck, P. (2010) Radical Efficiency: Different,
Better, Lower Cost Public Services. Nesta/Innovation Unit. London: National
Endowment for Science, Technology and the Arts.
The Innovation Unit an Nesta (2012) Getting Ready for Radical Efficiency Guide.
Nesta/Innovation Unit. London: National Endowment for Science, Technology
and the Arts.
Interserve (2012) Local Services: In Need of Transformational Change. www.
interserve.com.
Leadbeater, C. (2006) The Innovation Forum: Beyond Excellence. London: ODPM/
LGA/IDeA.
Leadbeater, C. (2011) Creative Councils: Re-Imagining the Role of Local Government.
London: National Endowment for Science, Technology and the Arts.
LGA (2012) Funding Outlook for Councils from 2010/11 to 2019/20. London: Local
Government Association. www.localgov.co.uk.
Nesta (2008) Social Innovation: New Approaches to Transforming Public Services.
Policy Briefing SI/18 Policy and Research Unit. London: National Endowment
for Science, Technology and the Arts.
26 Organizational Innovation in Public Services
Parker, S. (ed.) (2009) More than Good Ideas: The Power of Innovation in Local
Government. IDeA/Nesta London: National Endowment for Science, Technology
and the Arts.
Parker, S. (2010) Supporting Innovation in Local Government: Lessons Learnt from the
Innovation Catalyst. London: IDeA/Young Foundation/Innovation Unit.
Wilson, R. and Townsend, T. (2011) Catching the Wave: The State of Local Authority
Innovation in the UK and the Creative Councils Programme. London: National
Endowment for Science, Technology and the Arts.
3
Analyzing Organizational
Innovation in Public Services –
Conceptual and Theoretical Issues
Pekka Valkama, Stephen J. Bailey and Ari-Veikko Anttiroiko
Introduction
27
28 Organizational Innovation in Public Services
Service agent
Public Private
Hierarchical I II
Nature of
relationship
Contractual III IV
Pure public sector Para-public sector Para-private sector Pure private sector
Public Public Government- Registered Social Trust (e.g., Mutual (e.g., Cooperative Private law
bureau enterprise owned limited charity enterprise (e.g., community insurance (e.g., water limited
(e.g., direct (e.g., company (e.g., (e.g., UK community and hospital and leisure) supply) company (e.g.,
in-house energy or trading universities) development trusts) construction
provision) properties) company) company) company)
Hierarchy
detailed are nearly shareholders, bodies by for equal create them certain legal water supply), (for example,
public like classic share capital which treatment) but as arm’s- requirements but such a recycling
budgets. departments supply and universities also economic length or in the service is obligations)
of a public loan terms. have to benefits (for independent production usually closely for private
Competition based
departments tendering. proposals / competition.
through applications).
internal
markets.
A bureau A public If a Sometimes A social A community The public Cooperatives A private
which is enterprise government- individual enterprise may interest trust sector may may establish company
Contractual
managed by enjoys owned members or adopt a fee-for- may be able externalize community may get a
objectives monopoly company teams of service model to to enjoy the production partnerships service
and results status, but it is fully academia are produce services public grants, of certain with local contract
based on is managed owned invited to to customers if they public services governments without
negotiated by quasi and controlled work with using vouchers perform to a service or create a competitive
Collaboration based
can be given based on urgent service
to it without reciprocal deliveries).
competitive agreements.
tendering.
34 Organizational Innovation in Public Services
property rights and legal autonomy. The founding principles of the pure
private sector are freedom of contract and contractual commitments.
Limited companies and cooperatives originate from private interests
and generally seek to make profits from which dividends are paid to
their equity-holding owners or return of financial surpluses are given to
the members of cooperatives.
Para-public and para-private sectors have mixed characteristics and
organizations within them have functional features that are atypical
in terms of conventional public law and private law organizations. The
para-public sector is closer to the public than to the private sector, service
organizations being created not only by public authorities (e.g., govern-
ment-owned companies) but also by charities and social enterprises
whose modus operandi is to secure welfare objectives and promote com-
munity interests. Service organizations in the para-public sector have a
distinctive set of property rights separate from public sector property
rights, albeit that the government may be able to modify those rights
by new governance arrangement, including the creation of new legisla-
tion (e.g., giving universities corporate legal status independent of the
public sector).
Many public service organizations have changed their legal status
through agencification to operate as arms-length bodies or ‘quangos’
(that is quasi-autonomous non-governmental organizations) as they
are called in the UK (Veenswijk 2005, 3). Quangos are closer to public
administration than social enterprises because the governing bodies of
the quangos are nominated by public authorities and their activities are
usually supported by public finance.
The para-private sector includes organizations such as trusts and mutu-
als, which have different forms of collectivized (as distinct from private)
property rights. Mutuals are owned by members, and so a majority of
members can choose to privatize their collective property rights, as hap-
pened when some UK building societies (which provided mortgages)
demutualized and became full-fledged banks within the private sector
during the 1990s. Trusts, however, have ‘locked-in’ property rights that
prevent their privatization; examples include heritage and environmen-
tal organizations.
The para-public, para-private and pure private sectors have together
been referred to as ‘third-party government’ in the sense that organiza-
tions operating in these two sectors may carry out some public duties
that are governmentally decided or funded (Greve 2003, 275). This
third-party government has been a growing sector in providing pub-
lic services especially because public bureaus, offices or agencies have
Analyzing Organizational Innovation 35
Private funding
Ownership rights Handling of annual profits
Rights to buy, sell and pawn properties Triangulated co-payments Given to the organization or its members or owners
Tax funding
No property rights Colletivisation
Ordinary Mix of jobs Official positions Political civil servants Professional Business Managers
jobs and positions managers managers
Employment
Legalism No juristic person
Line-item
gross public
Management- budgeting Juristic person under a public law
by-objectives
Management-
by-results Net budgeting Legal person both under public and private law
Legal capacity
Management system
Outside of public budget
Budgeting
liable for debts or other obligations of the company, it has been a widely
adopted and successfully applied organizational form in pro-profit busi-
nesses. It has also become a common form in monopoly network indus-
tries, commercial governmental activities and not-for-profit operations
(Davies 2008, 1, 33–37).
This separate legal identity facilitates contracting out public services
to external providers that produce components and other value-adding
or value-creating activities (Lei and Hitt 1995). Offshoring is a par-
ticular form of outsourcing where service production crosses national
borders (Zysman et al. 2011, 42; Borrus et al. 2000; Baldwin and Clark
2000). A very broad definition of outsourcing includes not only all
kinds of subcontracting activities but also hiring of workers on non-
traditional job contracts, such as part-time, temporary and contract
workers (Deavers 1997).1
Recognition that ‘steering’ and ‘rowing’ can be separated was a key
point in the development of outsourcing public services. It became
accepted that the organization of public services does not require them
to be provided by the public authorities’ own organization. However,
outsourcing started to spread first in the private sector and, for some
time, has been one of the fastest-growing business models providing new
markets for service companies and to some extent also for non-profit
service organizations (Fill and Visser 2000, 43; Burnes and Anastasiadis
2003, 355–356). Especially in the early phase of outsourcing, the trans-
formation from in-house production to contract-based production was
mainly about non-core operations (Perry 1997). This picture started to
change during the 1990s as services ranging from security and infra-
structure to health care were outsourced to varying degrees in different
contexts.
Contractual accountability
The most prominent feature of new public governance is contractualiza-
tion as governments downsize public sectors by transferring governmental
functions to third-party contractors (Campbell 2007; Vincent-Jones 2007;
Sulle 2010). Contractualization creates opportunities to break organiza-
tional boundaries and extend the outreach of public measures by enabling
the public authorities to acquire and comanage external resources and
expertise. Governments also seem to want to relax bureaucratic control
within public administration through internal contractualization via
quasi-contracts with public bureaus (e.g., service level agreements).
In contract governance, ex ante accountability methods are used
before a contract has been signed and can be competition or collabo-
ration (see Table 3.1). Ex ante methods include external organizations
tendering (i.e., bidding) competitively for public procurement contracts
and auctions of concessions and internal competition (also known as
‘yardstick competition’) where public service producers are managed by
results based on performance measurement and benchmarking (Savas
1987; Revelli and Tovmo 2007). However, some empirical studies have
demonstrated that a competitive environment does not necessarily make
contractors more accountable (Romzek and Johnston 2005, 436–437).
Contracting based on competitive tendering is usually open to a wide
group of potential bidders. The alternative is to use a collaborative con-
tracting model restricted to selected candidates. Collaboration means
that the contractor is selected and the contract is designed through
negotiations. Although public procurement rules generally restrict col-
laborative arrangements (e.g., the EU’s), collaborative contracts may
range from fairly informal and short-term contracts to long-term and
highly structured forms of cooperative contracting as alliances, partner-
ships and joint ventures (McQuaid 2000, 11; May and Winter 2007,
480; Harris 2010, 28–29).
Analyzing Organizational Innovation 41
Dialogic accountability
Bureaucratic control is based on low trust between policy functions and
administrative functions, where, without strict surveillance, the self-
interest of public employees would jeopardize rule of law and budgetary
discipline. Principal-agent theory demonstrates that all-inclusive con-
trol is not cost-effective as agency costs arise from monitoring an agent.
Hence, the accountability approach has gained predominant position
within new public governance (Fama and Jensen 1983, 304–305).
Agency theory tries to identify governance relationships that can
accommodate conflicting aims between the parties to an assignment
and tries to construe an optimal incentive system with which the
principal can control the agent. However, agency theory is similar to
bureaucratic theory as both see the agent in a pessimistic light as a self-
interested slacker (Eisenhardt 1989).
There has been much research in administrative science concerning
techniques that public authorities could use to keep agents accountable
42 Organizational Innovation in Public Services
Conclusions
It has been made clear that organizational innovation involves new forms
of accountability, there having been a clear development over time in the
forms of governance. Direct hierarchical control became increasingly
complemented by economic governance through markets for procure-
ment and use of public services and then by collaborative stewardship
arrangements utilizing dialogic accountability.
This development makes clear that organizational innovation in
public sectors involves much more than just the restructuring of
organizational form. This may be the case in the private sector where
unbundling and outsourcing service components is driven by cost con-
siderations and profits potential as outlined in Chapter 1. In the public
sector, however, organizational innovation is driven by a broader set of
objectives, not only financial considerations but also outcome effective-
ness via engagement of and collaboration with a wider set of stakehold-
ers. Economic governance has to therefore run in parallel with dialogic
accountability and social governance.
These governance foundations of organizational innovations are illus-
trated in the following chapters as they consider outsourcing, agencifi-
cation, corporatization, mutualization, social enterprises, joint ventures
and so on. They demonstrate that the success of such innovations in
Analyzing Organizational Innovation 43
Notes
1. There are many innovative derivatives of outsourcing and related neolog-
isms. These derivatives include smartsourcing (a novel concept developed
in response to problems of outsourcing), crowdsourcing (outsourcing to an
undefined group of people usually in the form of an open call), co-sourcing
(expert functions such as audit that are performed in concert with a client’s
existing internal arrangements) and self-sourcing (the use and empowerment
of own staff to develop service systems and related technologies).
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46 Organizational Innovation in Public Services
Introduction
During the last two decades the structuring and functioning of the public
sector has undergone major shifts from a centralized and consolidated
public sector to a decentralized, structurally devolved and ‘autonomizing’
public sector, including the disconnection of policy design, implementa-
tion and evaluation (OECD 2002; Pollitt and Bouckaert 2011; Christensen
and Lægreid 2006). Systems of public administration have been disaggre-
gated into a multitude of different kinds of (semi-)autonomous organi-
zations, denoted as ‘agencies’ or ‘quangos’ (Flinders and Smith 1999;
Pollitt and Talbot 2004). This disaggregation through ‘agencification’ is
the result of a process of vertical and horizontal specialization, based on
geography as well as different types of purposes, tasks, customer groups
or processes (Christensen et al. 2007; Roness 2007). In this process of
agencification and autonomization, the responsibilities and autonomy of
public organizations are redefined (structural aspect). Moreover, the way
in which they are controlled by government, including the mechanisms
of accountability, is redesigned – mostly from ex ante to ex post, and from
input-based to result-based rationales (functional aspect).
49
50 Organizational Innovation in Public Services
(continued)
57
Table 4.1 Continued
58
(continued)
Table 4.1 Continued
60
Interaction • Informal politicized contacts • Business-like, formalized relations • Combination of formal and
and relation • Frequent interactions • Interaction limited to contractually informal personalized contacts
management through process-based stipulated moments • Frequent interaction in order
between steering • Frequency of interaction kept low to foster collaboration, shared
principals in order to maintain objectivity in values
and agencies ‘hard’ contracting • Congruent organizational
• Fostering of different cultures by rotation and
organizational cultures in exchange of personnel
departments and agencies
• Mainly based on lack of trust
between partners
Top • Agency management • Agency management and board • Agency management and
governance and board members in members competitively selected board members are selected
structures position through political based on merit; no mutual based on corporate governance
appointments membership between boards principles, and mutual
• Governing boards with • Governing boards have only memberships for personal
strong government limited government representation linkages between organizations
representation and in order to avoid steering problems • Governing board as forum to
government control agents; in a contractualized relation. involve service users, experts and
governing boards as forums Independent board members have other stakeholders in the joint
for political control very important role. control of agencies and as form
of horizontal accountability
Coordination • Coordination mainly • Coordination mainly through • Coordination through
of agencies through vertical mechanisms, market-like mechanisms like network-like mechanisms like
such as task allocation, contracting and competition interface functions, coordination
detailed planning and • ‘Spontaneous’ horizontal platforms, joint decision
instructions from the coordination between agencies making bodies, joint planning
principal to different through competition and and budgets, intense information
agencies benchmarking exchange and shared services
• Little horizontal • Horizontal coordination between
coordination and interaction agencies is deliberately
between agencies stimulated in order to deal with
cross-cutting wicked problems
Involvement • Involvement mainly limited • Strong involvement of services • Involvement of broad,
of stakeholders to corporatist representation users at the operational level, pluralistic set of stakeholders
of main strongly organized which are seen as customers; (users, peers, regulators, interest
interest groups in governing customer satisfaction is crucial groups) at the strategic level,
boards of agencies criteria for performance; direct and through horizontal
• No involvement of influence by interest groups is accountability mechanisms (like
service users avoided user panels; advisory committees;
• Vertical accountability is visitations; certification)
enriched with feedback • Horizontal accountability
information from customers relations in a multi-tie
accountability web
Conclusion
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Agencification Processes and Agency Governance 71
Introduction
72
Corporatization as Organizational Innovation 73
Australia in the late 1980s attracted a lot of an attention, and the organi-
zational changes implemented in those countries have greatly inspired
governmental reformers in the countries with a modernization agenda.
More recently, debt crisis and austerities measures may encourage
West-European countries to promote corporatization. The UK coalition
government is considering corporatization of the Highways Agency and
the Greek government has published a reform program including aims
to corporatize regional airports and ports (Glaister 2010, 62; Hellenic
Republic, Ministry of Finance 2011, 21).
The first aim of this study is to conceptualize corporatization from
the perspective of public service delivery systems. Given that corporati-
zation is a somewhat tricky and vague term and that the public sector
management literature includes different definitions (Everett and Pettitt
2006, 222), this study endeavors to bring conceptual clarity to the mat-
ter. The conceptualization of corporatization constitutes foundations to
elaborate different objects of corporatization and types of corporations.
The second aim is to model the process of corporatization and explain
the critical phases of the process. These analyses will produce two dif-
ferent process models that can be understood as abstract descriptions
which help to build up an understanding of the management chal-
lenges in the process of corporatization.
Corporatization can be analyzed as a legal or administrative transac-
tion, but this study attempts to combine these two approaches. Corpora-
tization can also be seen as a private sector, third sector or public
sector innovation, but the idea here is to show how this organizational
innovation lowers and transcends classic boundaries between the three
sectors.
The key methodological problem of conceptual studies of the inno-
vative use of alternative organizational forms is due to differences in
legal frameworks in different countries. The applications and transla-
tions of organizational terms may at times be confusing, as the same
concepts may be used to refer to different organizational variants. This
chapter analyses the use of the concept of corporatization as an abstract
tool without specific contextual relations other than some European
perspectives.
1. 5c.
Contract
department
Contractualization
Public bureau, i.e.
2. classic department Body under
public law Legal
Net personalization
budgeting 5a.
department 5b.
by results
Balance sheet Public
department enterprise
A: Introduction
D: Introduction of a
of management
3. regulatory body
4.
Increasing
budgeting
flexibilities Increasing latitude
of managers
B: Introduction of
C: Introduction of
performance
competition supervision
budgeting and audit Increasing
financial
transparency
81
and the cooperation agreement define very precisely the debt injec-
tions and property items that will given to the new company – which
properties remain with the public authority and which properties will
be rented to the new company. If corporation tax (that is, profits) is a
national government tax, municipalities can be expected to prefer to
rent properties to the new company instead of capitalizing them. If the
municipalities receive profits from the company, they have to pay taxes
on the dividend. However, they can avoid tax if profits are used to pay
rents. A specific extradition treaty can be established between the gov-
ernment and the company in order to specify the items of material and
intangible properties that will be transferred, rented, shared or coowned
with the company. The articles of association resemble the constitution
of a company regulating internal governance principles and mecha-
nisms. The division of powers between the board of directors and the
shareholder(s), the structure, composition and operation of the board
of directors and the areas of business are examples of important govern-
ance issues resolved by the articles of association (Davies 2008, 62–63).
In the fourth phase, registration formalities are simply carried out by
sending the articles of association and the memorandum of association
to the national registration authority with the names of the members of
the board of directors and the auditors of the company. The European
Union Member States may also have to confirm to the EU Commission
whether the corporatized company enjoys any forbidden state subsidies
(Statens offentliga utredningar 2010, 67).
Conclusions
Note
1. However, if the public authority completely owns the corporation, it is con-
sidered in public procurement law as an in-house unit, which means that
the authority is allowed to make procurements from the corporation without
compulsory competitive tendering (that rule is called an in-house exception)
(Pekkala 2007, 104–107; Zatti 2012, 540–541).
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Corporatization as Organizational Innovation 89
Introduction
The drive toward the externalization of public services and the organi-
zational implications therein have been well-documented in the first
part of this book. In large measure, the driver for this trend has been
to reduce bureaucracy, improve quality and to increase efficiency and
value for money. The inability of the public sector to effectively tackle
these issues internally is cited as a consequence of a lack of capacity to
innovate associated with an aversion to risk, and both these aspects are
seen as inherent to the public sector workforce. Thus the emergence of
the managerial state, creation of quasi-market disciplines, agencifica-
tion and the creation of rafts of quangos (alongside straightforward
privatization) have all been identified, in practice, as aspects of the new
public management, essentially imposed from above.
In recent years, there have been trends in the direction of the mutu-
alization of public services, for example in the UK (Mayo and Moore
2002). Although initially the promotion of mutuals as a vehicle to
deliver public services was not part of the twin furrows of the Third Way
and Communitarianism ploughed by UK Prime Minister Tony Blair’s
New Labour government, the potential for third sector organizations in
this direction was promoted by the Co-operative Party and a range of
sympathetic think tanks (Demos, New Economics Foundation, Mutuo,
among others – Birchall 2011). The creation of a Social Enterprise Unit in
the Department of Trade and Industry and a social enterprise strategy –
while initially geared to the development, support and growth of social
enterprises generally – soon became more directed to public services.
The shift of the Social Enterprise Unit to the newly created Office of the
Third Sector, the ChangeUp program to capacity build the voluntary
92
Mutualization and Public Services 93
sector for social enterprise activity and the creation of 25 social enter-
prise pathfinders within the National Health Service (NHS) are just
three indicative policy initiatives in this direction.
One of the main currents behind the new wave of mutualism was that
the ‘public economy has itself been thrown into question by its capacity
to innovate in response to changing needs and technology, which have
left it weakened in the face of pressures to privatise’ (Murray 2012, 2).
Indeed, a survey of local authority chief executives concludes that ‘risk
aversion has been encouraged, while entrepreneurialism and action with-
out explicit approval have not’ (Morales Oyarce and Kirkman 2011).
So the dominant paradigm has involved the problematization of bar-
riers to innovation from within the public sector, with the prescription
being to externalize service delivery to either the private sector or more
recently the third sector. The potential for what Leadbeater and Goss
(1998) call ‘Civic Entrepreneurship’ – which they define as innovation
involving new products or services, generating space for others to inno-
vate or growing social value from a new idea or practice, but exclusively
from within the public sector – has been starved of the oxygen afforded
to social entrepreneurship (Leadbetter, 1997), in particular the claim
that mutual organizations through their characteristic features guaran-
tee a level of entrepreneurial zeal, risk taking and innovativeness that
cannot be present in the public sector.
‘Mutualism claims many attractive characteristics, particularly when
compared with the key drivers and features of the private sector. The
emphasis on the engagement of the workforce, involvement of clients,
innovation and flexibility are all qualities that should be part of the day to
day work of public service provision’ (Unison 2011, 31). Whether mutu-
alism is the panacea for public service delivery will nevertheless be chal-
lenged. In fact, it has long been recognized that ‘membership involvement
in a mutual does not automatically confer upon the organization the inno-
vative capacity their advocates claim’ (Leadbeater and Christie 1999, 23).
Across Britain and Europe, mutuals appear in a range of forms. The most
widely recognized forms of mutualism in Britain today are probably
building societies, cooperatives, friendly societies and mutual insurers.
Many, however, take the legal form of companies limited by guarantee
and have their mutual membership enshrined in their memorandum
and articles of association. In 2005, a specific legal form (community
interest company) was created for emergent (and existing) mutuals to
be identified as serving a specific community and electing to have an
‘asset lock’ written into the statutes of an organization to prevent the
transfer of resources (including profit) outside the organization. ‘The
inclusion of an asset-lock may well be appropriate for a mutual and can
add credibility because it guarantees to third parties that the society’s
assets will only be applied as determined by the asset lock’ (TPP 2012,
17). This is also seen as particularly important to public service mutuals
entrusted with publicly funded assets.
In the UK alone, according to Mutuo (2010), there were more than
one million people working in mutuals. These mutuals had assets of
more than £500 billion, and had over 74 million members. In 2010, the
gross annual turnover of mutuals in the UK went above £100 billion for
the first time.
In Europe, there is a long history of mutual organizations delivering
services to the public. In Spain, around 550 cooperatives deliver largely
free, state-funded education. In Italy, more than 7,000 social coopera-
tives provide a range of social services and provide work for disadvan-
taged groups. In Sweden, around 1,200 coops provide around 7% of the
national pre-school care for children, even though 80% is still provided
by the state. The key features of such public service provision by mutu-
als are that – enabling legal frameworks and state fiscal support – access
Mutualization and Public Services 95
energy of the mutual is said to thrive since it is claimed that ‘they use
their membership structure to unlock innovation’ (Leadbeater and
Christie 1999, 14).
right to provide and the initial 11 pathfinders, and the further 7, cre-
ated in February 2011, are as much a laboratory for the mutualization
experiment as an effort to identify and examine the claimed benefits
of mutualization, in particular employee ownership and membership
systems.
The government, however, has consistently stated its claim as to the
benefits of mutualization to ‘empower millions of public sector staff
to become their own boss – freeing up untapped entrepreneurial and
innovative drive’ (Cabinet Office 2012, 11).
• Absenteeism is lower
• Staff turnover is lower
• Staff retention and recruitment of high quality staff appears to be
easier
• Pay is higher on average than in non-employee owned enterprises
• There is better staff performance (Mutuals Taskforce 2011)
1. Pre–spin out phase: This phase commences when either the public
authority or a group of its employees, normally a professional team,
identify and express an interest in developing and running a public
service mutual. What ensues would be a period of business planning,
awareness raising and negotiation among the workforce and the pub-
lic authority. The barriers to this phase would include any resistance
to the intended spinning out of a service and clearing a pathway for
mutualization, securing support from the public authority to achieve
this, and, naturally, securing impartial advice and expertise and the
financial resources to commence the process.
2. Spinning out or set up phase: This will be part of the process
whereby a number of technical issues will require resolution. These
will include identification, assessment and transfer of employment
rights of the staff spinning out. This will mainly involve adherence
to the TUPE regulations, an assessment of current arrangements and
104 Organizational Innovation in Public Services
Employees within the new PSM may also now discover that
they are working under an expected ethos of disinterestedness that
can become oppressive in that ‘senior managers may consider
that everyone involved in the enterprise should be politically
and emotionally committed to the purpose and aims of the
organisation, and should thus behave accordingly. This can lead
to individual employee rights being overlooked or even sacrificed
in the drive to deliver the social purpose’ (Michie 2012, 12). This
phenomenon is already one recognized in the broader voluntary
and community sector in which such an ethos is expected of
those paid to do the work.
ii. Organizational issues
The likely loss of a centralized HR function is a factor of the nega-
tive impact of change in scale that managers and employees of the
new PSM will experience. This downsizing to a human scale is
often cited as a beneficial aspect that PSMs enjoy, as discussed by
Murray (2012) in terms of the Dunbar number (the level at which
strong ties in human relationships become difficult to sustain –
150 is the suggestion). However, a negative consequence is that
a range of functions now have to be conducted within the limits
of the skills set shared by a smaller team. The loss of economies
of scale can be damaging to the PSM.
The need for the PSM at the sustainability and growth phase to
firstly have access to the market for capital (when all public sources
of finance and resource support may have subsided) is something
that a PSM in its spinning out phase may not consider. This is not
only a dilemma for the PSM but for public bodies also, as while
the PSM can borrow against its asset base, these assets have origi-
nally been created and paid for using taxpayers’ money (Unison
2011). This is the reason why an “asset lock” (a legally binding or
contractual tool preventing asset stripping upon winding up or
the temptation for demutualization among members) is consid-
ered important (and indeed is a feature of the new legal form of a
Community Interest Company). For the PSM, however, the asset
lock can reduce the likely credit pool available to it on the open
market as lenders become aware of restrictions to their access to
recourse to assets in the event of default.
A second issue here is that the growth that is looked for in the
spun-out phase will be dependent upon the PSM finding new
contracts with the public sector (and possibly the private sector
dependent upon the market) beyond the initial services that were
the focus of the spin out. PSMs can under current conditions lose
106 Organizational Innovation in Public Services
Conclusions
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110 Organizational Innovation in Public Services
Introduction
Over recent years, the UK has witnessed the evolution of new methods
for procurement of public services infrastructure (Asenova et al. 2010;
Bailey et al. 2009). Aiming to address the shortcomings of previous
public procurement models, these new methods display innovative
characteristics in terms of financing, operation and implementation of
public services infrastructure and the services thereby provided.
Public services in the UK have been subject to criticism in terms how
adequately they respond to public needs and demands. For example,
Chapman (2004, 23) referred to ‘the perceived crisis in the ability
of the government to deliver improved performance in key areas of
public service’. While the standard Private Finance Initiative/Public
Private Partnership (PFI/PPP) model has been utilized for the renewal
of the UK’s public sector infrastructure, there have been ongoing con-
cerns about its excessive costs to the taxpayer and so poor value for
money (VFM).
The PFI/PPP payments made by a public sector procurer to the Special
Purpose Vehicle (SPV) established to finance, construct and manage the
infrastructure are set down in a legal contract and indexed to inflation.
Hence, the maintenance of these payments (‘unitary charges’) has sig-
nificant budgetary implications for the quantity and quality of public
services, not just those provided by the PFI/PPP but also other services
facing budgetary inflexibility as a consequence of that legal obligation
to pay unitary charges.
In Scotland, the payments for existing PFI/PPP contracts will amount
to £983 million in 2013–14 and £1012 million in 2014–15 (Bell 2012).
Critics of PFI/PPPs have also highlighted contractual and service
111
112 Organizational Innovation in Public Services
Figure 7.1 The main milestones in the SNP’s development of the SFT
114 Organizational Innovation in Public Services
Consistent with its key strategic role as a financial advisor across all
public authorities/services in the planning and delivery of infrastruc-
ture projects, the SFT is also the first organization in Scotland to pro-
mote shared infrastructure models, a concept which has since become
increasingly important.
The SNP government’s 2008 Infrastructure Investment Plan made
explicit its commitment to economic growth and high quality public
Procurement Innovation: The Scottish Futures Trust 115
Service innovation
the Gorbals. The total funding for this program is £2 billion, of which
£1.1 billion will come from traditional capital finance and £750 million
through NPD. Approval has also been sought for NPD funding for North
Ayrshire Community Hospital, the Royal Hospital for Sick Children in
Edinburgh, Dumfries and Galloway Royal Infirmary and the Balfour
Hospital in Orkney (For Argyll 2011).
The Independent Budget Review 2010 highlighted the need to
focus limited capital resources on key priority areas and suggested the
government should enhance further the role of the SFT (The Scottish
Government 2010, 129). Since 2010, the use of TIF has been promoted
to unlock infrastructure investment for major regeneration schemes.
As noted above, to finance projects, money is borrowed against a pre-
dicted increase in locally collected business taxes anticipated by the new
development being created. The City of Edinburgh Council was the first
local authority in the UK to pilot TIF in the £84 million regeneration
of Edinburgh’s waterfront. Other councils followed with proposals for
their own TIF schemes.
Additionally, to provide affordable housing and stimulate the Scottish
housing industry the SFT developed the National Housing Trust (NHT).
There is also a series of large long-term transport projects in partner-
ship with Transport Scotland, including the Borders Rail and Forth
Replacement Crossing projects. The waste treatment sector also presents
major challenges for Scotland in meeting the statutory European targets,
apart from the increasing costs of waste collection and disposal. The
SFT works with project teams across Scotland responsible for delivering
around £500 million of waste management infrastructure (SFT 2010a).
To deliver improved VFM, the SFT draws on European funds, including
JESSICA,1 which is a European Investment Bank fund used to support
urban regeneration capital projects that are not commercially viable or
are considered too risky by the private sector (Audit Scotland 2008).
While the 2010 Independent Budget Review fully endorsed the SFT
approach to service innovation (The Scottish Government 2010), its
recommendations focused on developing further innovative financ-
ing methods for infrastructure investment. So far, the main financing
method at the heart of the SFT is still the NPD model.
Table 7.1 Similarities and differences between the standard PFI/PPP and the
NPD model
PFI/PPP NPD
education projects that can be used for other sectors such as transport
(SFT 2011c). The implementation of the NPD model is at a relatively
early stage, there being only seven signed contracts compared with
a total of 88 PFI/PPP contracts (The Scottish Government 2011). In
December 2011, the SFT reported a pipeline of £2.5 billion planned NPD
projects in the areas of education, health and transport (SFT 2011b). Two
educational NPD projects will provide new campuses for City of Glasgow
College (£200 million) and the Inverness College (£51 million), both
funded by the Scottish Funding Council (Holyrood magazine 2011).
While in NPD projects the procuring authority has to fulfill the statu-
tory VFM requirement, the criteria for suitability is very similar to the
tests required for PFI/PPPs. Thus, emphasis is placed on major capital
programs for provision of assets with long-term life spans, whole-life
costing, effective risk allocation and stable technologies.
In the absence of equity, the funding relies on a combination of senior
and junior debt provided by banks and other financial institutions. The
senior bank debt, which usually provides the largest part of the funding
package, takes priority for repayment before other obligations. The jun-
ior finance is frequently provided through subordinated debt although
there may be other arrangements. Its price is akin to the price of equity,
which can lead to a higher average cost of finance (SFT 2011a).
Unlike PFI/PPP, NPD introduces a new governance arrangement, the
SPV board being structured to promote the public interest. Specifically,
the new position of a Public Interest Director provides more active
input from the public sector into the project company’s decision mak-
ing. This director is independently nominated by the SFT and tasked
with monitoring compliance and reviewing opportunities including
cost efficiencies and refinancing. Better performance of the SPV compa-
nies is encouraged through a combination of performance and penalty
incentives, rather than through profit. This means that the subcontrac-
tors who have responsibility to provide services at a specified standard
have to take on an even larger proportion of the project risk. In order
to achieve the off–balance-sheet treatment, councils are required not to
be directly involved in the running of the SPV company.
The SNP government – which as noted earlier, publicly rejected the
standard PFI/PPP – saw NPD as a more politically viable but not neces-
sarily radically different option. Potentially, the NPD can achieve more
socially acceptable outcomes in terms of delivering infrastructure at
lower costs better aligned to local service needs. This has been promoted
by the government as a major innovation (The Scottish Government
2008a) leading to wider participation of community stakeholders in
120 Organizational Innovation in Public Services
Discussion
(2008) described the SFT as yet another expensive quango (Project data
file 2010). There are continuing reports in the media reflecting frustration
in the construction industry in Scotland coupled with further criticism of
the TIF model that it does not deliver on its promises (Bain 2012).
Chapman (2004, 10) argued that ‘the dominant approach to policy
making is [generally] based on mechanistic and reductionist thinking’
that presumes control and predictability, while the reality is much more
complex and requires creative thinking and flexibility. This again calls for a
more adaptive and flexible approach, particularly in dynamic market con-
ditions. Hence, to be successful the SFT should be a learning entity that
does not mechanically transfer knowledge taken from a different context.
Crucially, for the whole process to be successful, the other participating
public and private sector agents should be simultaneously and actively
engaged in such learning.
The SFT has significant potential for learning from national and
international examples. Within the national context, there is the exten-
sive experience gained from the use of traditional procurement and the
PFI/PPP. In an attempt to build on this experience, in June 2011 the
SFT published a review of the operational PFI/PPP and NPD projects
in Scotland (SFT 2011e). The review covered 87 operational projects
and identified opportunities for savings and for achieving better VFM
through improved approaches to contract management. It emphasized
the need for increased collaboration, commercial discipline and devel-
opment of a shared-service approach. Specific recommendations related
to optimizing the scope for services, reviewing risk transfer, sharing best
practice in cross-sector provision and cost reduction for the public sec-
tor through shared administration. Interestingly, as concerns the cost
of finance, the report noted that given the increase of the Public Work
Loan Board (PWLB) borrowing rates, there is not always a strong case for
replacing elements of private finance with PWLB borrowing.
Furthermore, a report entitled ‘Lessons Learned: Scotland’s Newest
Secondary Schools’ (SFT 2010b) analyzed the experience of staff and
pupils in 28 schools from 16 local authorities across the country.
The review was initiated in response to the Scottish government’s
announcement (in 2009) of the next phase of a £1 billion major schools
investment delivered through the SFT. The report identifies 19 common
themes such as air circulation, internal environment, staff and student
spaces, dining areas, community use, and it draws relevant lessons in
relation to each theme. The SFT can take stock of what has been deliv-
ered in terms of the new and recently opened school buildings and what
lessons could be taken forward into the design of future new schools
124 Organizational Innovation in Public Services
The main risks relate to recruitment and retention of key staff, main-
taining relationships with public sector bodies, misunderstanding of
SFT’s role and the timing and conditions of funding.
Conclusions
The UK set the trend in PFI/PPPs and, over the past 20 years, consecu-
tive governments have been significantly committed to its use for public
Procurement Innovation: The Scottish Futures Trust 125
Notes
1. Joint European Support for Sustainable Development in City Areas.
2. According to the SFT Web site, there are 40 employees including the senior
management (www.scottishfuturestrust.org.uk/people).
3. See for example The Orange Book, Management of Risk – Principles and
Concepts 2004; The Green Book: Appraisal and Evaluation in Central Govern-
ment 2003; HM Treasury The Risk Programme: Improving Government’s Risk
Handling, 2004; HSE Five Steps To Risk Assessment, 2006, and so on.
References
Asenova, D. and Beck M., (2010) Crucial Silences: When Accountability Met PFI
and Finance Capital, Critical Perspectives on Accounting 21(1): 1–13.
Asenova, D., Beck, M. and Bailey, S. J. (2010) Beyond PFI: Procurement of Public
Sector Infrastructure and the Evolving Plurality of Methods in the UK. In Bailey,
S. J., Valkama, P. and Anttiroiko, A.-V. (2010) (eds) Innovations in Financing
Public Services: Country Case Studies. Basingstoke: Palgrave Macmillan.
Audit Scotland (2008) Review of Major Capital Projects in Scotland: How govern-
ment works. Prepared for the Auditor General for Scotland. Edinburgh: Audit
Scotland.
Audit Scotland (2011) Management of the Scottish Government’s Capital Investment
Programme. Prepared for the Auditor General for Scotland. Edinburgh: Audit
Scotland.
Bailey, S. J., Asenova, D. and Hood, J. (2009) Making More Widespread Use of
Muncipal Bonds in Scotland? Public Money and Management 29(1): 11–18.
Bain, S. (2012) Scottish Futures Trust defended by Grossart, The Herald, 12 July,
Glasgow.
Bell, D. (2012) Report on the Draft Scottish Budget 2013–14. http://www.scottish.
parliament.uk/S4_FinanceCommittee [Accessed 18/10/12].
Chapman, J. (2004) System failure: Why governments must learn to think differently.
London: DEMOS.
CIPFA (2007) The Future of Services to the Public – Reviewing the Pressures and
Challenges for Long Term Change. London: Chartered Institute for Public Finance
and Accountancy.
Dinwoodie, R. (2009) Labor: Scottish Futures Trust is a Shambles, The Herald, 2
April, Glasgow.
128 Organizational Innovation in Public Services
130
Outsourcing Public Services 131
into service areas that were previously the monopoly of public agencies –
the assumption being that competition would lower costs and enhance
quality. A more general reason local governments can have for contracting
out is the expectation that competition will enhance innovation (Prager
1994; Domberger and Jensen 1997). Under conditions of competitive
tendering, potential providers have an incentive to innovate in order to
stay ahead of competitors, especially if there is focus on innovation at the
demand side (Edquist and Hommen 2000; Edler and Georghiou 2007).
Moreover, public service innovation could be spurred on by bringing in
outsiders with different perspectives, knowledge and skills (Albury 2005).
The presentation of our argument will draw on research we did in
one specific case of outsourcing a public service by municipalities in
a quasi-market: the case of labor market reintegration services in the
Netherlands.1 Labor market reintegration is the more or less compul-
sory support of jobless people (with some support entitlement) to lead
them back into paid occupation. In the Netherlands, municipalities are
responsible for social security administration – including labor market
reintegration. Over the past 8 years, municipal governments have been
outsourcing reintegration activities on a large scale.
This case of contracting out has a few particularities that drew inter-
national attention (Struyven and Steurs 2005; Van Berkel and Van der
Aa 2005). As from 2004, municipalities were obliged by law to contract
out all services. A (quasi-)market for these services had to come into
being almost overnight. This crash program forced municipal agencies
into a steep learning curve concerning outsourcing. Two years later, in
2006, this obligation was repealed. Now municipalities had the choice
whether to produce internally or buy on the market – another chal-
lenge. The case highlights something known from numerous studies:
innovations such as systematic outsourcing of a public service do not
come easy. Indeed, the nitty-gritty of its implementation is much less
glamorous than lofty NPM recommendations such as ‘steering, not row-
ing’ might suggest. Indeed it is trial and error, coping with conflicting
demands and interests and dealing with complicating regulations. While
doing so, the Dutch municipalities were in a way reinventing contrac-
tual governance. Starting from a simple straightforward approach, they
became more and more sophisticated in dealing with their vendors so
that they actually got what they bargained for.
different ways to model the process, such as the time-line chart devel-
oped by O’Looney (1998) that contains three dozen stops. We start
with a simpler framework put forward by Brown, Potoski and Van Slyke
(2006). In the first stage the agency is pondering whether or not to con-
tract out some specific activity. Once a decision in favor of outsourcing
has been taken, a second stage starts during which a contractual relation
with a vendor is developed and forged. The agency is making choices
concerning the specifications of the transaction in the contract and
concerning the selection of a vendor. During the third stage, that starts
after a deal is closed, the contract is being executed. The vendor will
be providing the services bought, and the agency will be managing the
contract: making choices about the kind and the amount of monitoring
of the delivery process and perhaps also about the kind of interventions
to be applied if the delivery falls short of contractual expectations.
Service characteristics
The more complex the service, the more difficult it is to define and
measure outcomes of the service and to disentangle short-term results
and long-term outcomes (Deakin and Walsh 1996; Van Slyke 2003; Van
Genugten 2008). Thus the results of trash collection are more quan-
tifiable and measurable than those of most social services (Panet and
Trebilcock 1998; Van Slyke 2003). Reintegration services are inherently
complex because they need to deal with a large variety of factors that
may be obstacles on the client’s road to employment.
Market characteristics
A core argument is that the disciplining forces of the market (compe-
tition in particular) will enhance efficiency, innovation and quality
(Domberger and Jensen 1997; Jensen and Stonecash 2005). There should
be a sufficient number of suppliers and buyers or, at least, the market
134 Organizational Innovation in Public Services
Make or buy
extent that the transaction costs of outsourcing are less than the organi-
zation’s costs of in-house production. Transaction costs may include
the costs of selecting vendors, writing contracts, monitoring and taking
action when deliveries go wrong. Organizational costs are all the costs
the public agency makes to ascertain that members of the organization
act in the interest of the organization. They may include costs of train-
ing and socialization of personnel as well as costs of coordination and
supervision (monitoring members). Indeed, socialization is in many
cases the single most efficient organization tool available (Simon 1957;
Perrow 1972; Ghoshal and Moran 1996a).
Even though the Coasian transaction cost approach is theoretically
sound for explanatory purposes (Hart et al. 1997), it is far from a readily
available device for make-or-buy choices (Ghoshal 2005). The empirical
literature shows that it takes a lot of organizational learning to shift from
‘rowing to steering’. Contract governance is a discipline all by itself. The
more public agencies develop their contract management capacities, the
more they do indeed outsource (Warner and Hefetz 2004; Fernandez
et al. 2008). Even then, the public agency often finds it difficult to make
the comparison between organizational costs and transaction costs, if
only because hard data on both are lacking. If some kind of assessment
is made, indirect approaches are more feasible. Thus, the (limitations in)
the capacity of the buyer to produce the service in-house will weigh
heavily. Another consideration is the nature of the market, more par-
ticularly whether suitable providers are at hand (Domberger and Jensen
1997; Brown and Potoski 2003).
In many cases, arguments other than those derived from rational
administration have been or are paramount. Political beliefs about the
blessings of market type mechanisms or about downsizing government
may directly or through legislation predetermine the decision to out-
source (Fernandez et al. 2008). The outsourcing agency will then have
to make do with the given situation, even though the circumstances
(market conditions, product characteristics etc.) may be far from favo-
rable for efficient contracting (Brown et al. 2006).
As mentioned before, for two years Dutch municipalities were required
by law to contract out reintegration services. In the beginning, there
was not a real market of providers to speak of. Most local governments
had limited outsourcing capacity. Local agencies developed a number of
coping strategies to deal with the situation. One strategy – applied by
about one third of the local governments in our sample – was to contract
out to existing or newly created semiautonomous3 municipal agencies.
These agencies are created by a municipal statute or by a memorandum
136 Organizational Innovation in Public Services
The two centerpieces of this phase are selecting the vendor and writing
the contract. These two activities are not necessarily consecutive. In
open tender procedures, however, most if not all of the contract is writ-
ten before the bidding starts. Even though many public agencies would
prefer to select the vendor before writing a detailed contract, procure-
ment law (such as the Dutch and EU regulation) may be prohibitive.
Alterations in a contract after the tender is closed and after the vendor
has been contracted may even result in claims from competitors for nul-
lification of the contract.
The central choice, when writing the contract and selecting the ven-
dor, concerns the degree of specification and elaboration to be applied.
In any contractual relation, the principal (the party purchasing) is con-
fronted with some uncertainty about the future behavior of the agent
(the vendor). Of course the principal will expect the agent to act and
deliver according to the wishes of the principal. The agent, however,
may diverge from those wishes for any number of reasons. There can
be misunderstandings about the exact preferences of the principal; the
agent may earnestly come to the conclusion that another solution than
the one originally agreed upon is better, and so on. For the principal, it
is not necessarily easy to discover divergences. Hard core principal agent
theory is based on the assumption that the principal will always be less
informed about the actions of the agent and about the quality of the
deliveries than the agent itself. The agent then can (and will) use this
information asymmetry to further his own interests ‘with guile’ as the
famous expression goes – at the expense of the principal (Williamson
1979; Van Slyke 2006).
138 Organizational Innovation in Public Services
The most important concern the principal therefore has (or should
have4) is to design contractual relations that minimize cheating on the
part of the agent. We know from empirical research (Macaulay 1963;
Arrighetti et al. 1997) that such opportunistic behavior on the part of
agents is much less rampant than the theory would suggest. Yet even if
one discards the strong assumptions about opportunism (Ghoshal and
Moran 1996a; Williamson 1996; Ghoshal and Moran 1996b) lots of
potential impediments between the principal’s wishes and the agent’s
actions are left. Therefore, making sure that he gets what he wants is
arguably the principal’s central concern. In designing the governance
of the contractual relationship, two options loom large: building on
formalization and building on trust.
‘Building on formalization’ means that the details of the transaction
are made explicit and put in writing in documents that are binding for
both parties. Formalization thus has two meanings: it is a process as
much as a result (Vlaar et al. 2006; Simon 1978). As a process, formaliza-
tion contributes to ‘making sense’ of what parties will agree to, by pro-
moting articulation, deliberation and reflection and reducing judgment
errors and individual biases. The results, as laid down in one of more
contractual documents, may contain, among other things, the perform-
ances expected from the agent, the specification of the discretion of the
agent, a prescription of the actions parties must undertake in specific
situations, the structuring of the interaction between principal and
agent and the stipulation of prerogatives of the principal. Even though
parties can strive for as much specification as possible, contracts neces-
sarily are incomplete: it is just impossible to know all possible future
worlds (Hart and Moore 1999). An unspecified residue of uncertainty
will always remain.
Formalization poses a number of issues the principal will have to deal
with. Foremost, formalization is costly. As a rule, the more detailed the
contract, the higher the transaction costs will be. Also, formalization
can result in contractual structures that stifle the agent’s flexibility and
creativity needed to find innovative solutions to existing problems.
Furthermore, overformalization can crowd out intrinsic motivation
(Deakin et al. 1994; Frey and Oberholzer-Gee 1997; Frey and Jegen
2001).
‘Building on trust’ means that the contractual relationship is based on
positive expectations about the behavior of the other party. In particu-
lar, the principal assumes that the agent will of its own accord act in the
best interests of the principal: so-called ‘stewardship’ (Van Slyke 2006;
Davis et al. 1997). Theoretically, justified trust will save the principal a
Outsourcing Public Services 139
a double function. On the one hand, they provide the public agency
with (reliable) information about the provider’s performance and, on
the other hand, the mere act of gathering information operates as an
incentive for the provider to keep up performance as it experiences that
its performance is being observed. Monitoring activities can take many
different forms (e.g., external surveillance, internal self-monitoring or
some hybrid arrangement), which almost all have specific benefits and
drawbacks (Brown and Potoski 2006; de Ridder 1988). Information about
service delivery can be acquired through direct observation, experience,
inspection or field audits. While these types of information gathering
are relatively expensive (as compared to reporting by the vendor itself)
they do tend to offer richer information about agent performance. Also,
this type of information is more easily put into context (Lengel and Daft
1989). Alternately, information about service delivery can be acquired
by self-reporting: progress reports, review of performance data or client
records that are supplied by vendors. Clearly, this type of information
gathering is much less costly. Still it is evident that information from
such self-reporting is less reliable. If the public agency is wholly depend-
ent on the vendor for performance information, there is a strong risk
involved – the vendor may have an interest in misrepresenting its own
performance.
Supervising the service provider requires that representatives of the
public agency interact with employees of the vendor in order to con-
trol and influence performance. There are different styles of supervi-
sion, varying from hands-on management of the service provider to a
kind of management by exception – remaining aloof unless there is a
clear call for intervention. Hands on management can come close to
a hierarchical approach of direct command and control. Such hierar-
chy is routinely applied in high cost–high risk contractual operations
(Stinchcombe 1985). The hands-off approach resembles the ideal type
of market interactions in which the agent is given freedom to act and is
accountable only for the results delivered. Monitoring and supervision
are closely intertwined. In order to supervise efficiently the principal
must have sufficient and reliable information about the agent’s perform-
ance. At the same time, monitoring can be the first stage of supervision.
Together monitoring and supervision can be more or less strict (Faems
et al. 2008).
Factors that tend to influence the choices made regarding monitoring
and supervision are: service characteristics (particularly the measur-
ability of the services) and the contract management capacity of the
public agency. Services that are hard to measure combined with an
142 Organizational Innovation in Public Services
account should deliver and thus could more easily assess if a client had
received the agreed services. Second, the linking of case managers to
particular providers prompted higher levels of compliance with less
need for explicit enforcement. The prospect of repeated interpersonal
interaction would foster stronger personal bonds that in turn made the
individuals involved try harder to meet the expectations of their coun-
terparts. The pairing of case managers and providers thus comes with a
prospect of future repeated interaction that can act as a proving ground
for the development of trust.
Conclusions
During the five-year period covered by our research project the nine
municipalities developed a number of strategies to ascertain that serv-
ices were procured and delivered according to the demands of the
local government. In doing so they created a succession of incremental
innovations in contract governance. Deconstruction of reintegration
trajectories into smaller modules ranks as the most viable of the strate-
gies developed on the way. Apparently, a careful reconsideration, during
the make-or-buy decision, of what a task to be outsourced really entails
appears to pay off.
A second strategy is the use of ‘trust’ as the basis for contractual gov-
ernance. Building trust relations can help alleviate the transaction costs
associated with monitoring for provider performance. However, trust is
not easy to come by – on the contrary. It ‘comes on foot and leaves on
horse’, as the saying goes. Both building and maintaining trust relations
require careful investments. It takes investments to search for trust-
worthy and reliable agents and investments to develop trust between
contractual parties. Both require an important resource, namely staff
time. Saving on those investments can be done by selecting ‘more insti-
tutionally embedded providers’ as trustworthy partners (Granovetter
1985; Jones et al. 1997). The Dutch municipalities have been doing so
by making use of autonomous municipal service providers.
Procurement regulation, especially the EU law,5 tends to have a strong
constraining effect on efficient outsourcing. It should be noted that
private firms, when contracting out, would never go through all the
motions of a bidding procedure such as that required by EU law for
public outsourcing. Similar effects of the procurement regulations for
the US Federal government are noted in the literature (Fernandez 2009).
In particular, the regulations make it difficult to award stewardship
contracts. Anything that cannot be specified and measured ex ante is
144 Organizational Innovation in Public Services
Notes
1. This particular piece of research was part of a larger five-year research program
under the title ‘Safeguarding public welfare interests under more privatized
Outsourcing Public Services 145
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Contracts: Aligning Values, Institutions, and Markets, Public Administration
Review 66(3): 323–331.
Coase, R. H. (1937) The Nature of the Firm, Economica 4: 386–405.
146 Organizational Innovation in Public Services
Van Berkel, R. and Van Der Aa, P. (2005) The Marketization of Activation
Services: A Modern Panacea? Some Lessons from the Dutch Experience, Journal
of European Social Policy 15(4): 329–343.
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Provision of Public Services at the Local Level. PhD thesis. University of Twente.
Van Slyke, D. M. (2003) The mythology of privatization in contracting for Social
services, Public Administration Review 63(3): 296–315.
Van Slyke, D. M. (2006) Agents or Stewards: Using Theory to Understand the
Government-Nonprofit Social Service Contracting Relationship, Journal of
Public Administration Research and Theory 17: 157–187.
Vlaar, P. W. L., Van den Bosch, F. A. J. and Volberda, H. W. (2006) Coping
with Problems of Understanding in Interorganizational Relationships: Using
Formalization as a Means to Make Sense, Organization Studies 27(11): 1617–1638.
Warner, M. and Hefetz, A. (2004) Privatization and Its Reverse: Explaining
The Dynamics of the Government Contracting Process, Journal of Public
Administration Research and Theory 14: 171–190.
Williamson, O. E. (1979) Transaction-Cost Economics: The Governance of
Contractual Relations, Journal of Law and Economics 22(2): 233–261.
Williamson, O. E. (1996) Economic Organization: The Case for Candor, Academy
of Management Review 21(1): 48–57.
Part III
Governance of
New Organizational Forms
9
Governance of Public Service
Companies: Australian Cases
and Examples
Anona Armstrong
Introduction
151
152 Organizational Innovation in Public Services
Leadership refers to how well a chair and board set the strategic vision
and direction for the entity and added value to its organization. It
relies on clarity about roles and responsibilities and compliance with
ethical and governance standards. Stewardship refers to the structures,
systems and processes for decision-making and control, communica-
tion and financial responsibilities, risk management and compliance.
Accountability addresses standards of behavior and systems in place for
auditing, risk management and reporting procedures such as disclosure,
transparency and the role of audit committees. It also includes the
ways in which relationships are managed with various stakeholders: the
relevant ministers, various partners and external bodies representing
citizens, media and wider society.
Governance of Public Service Companies 153
Outsourcing
Public-private partnerships
tolls are twice as high as they would be in the public sector because
the private sector has to pay higher interest rates for capital than the
government would. The Victorian Treasury (2012) refutes this argument
saying that this is not the case, but instead it claims that the costs of
risks are included in the costs of private finance so that taxpayers do
not bear the costs of failures. In contrast, when the risks are borne by
the public sector, and failures (such as La Trobe Hospital PPP) occur,
the government must step in because the PPPs are unprofitable and the
community groundswell requires a political response.
Overall, it appears that successful PPPs are those funded by user pays
financing and the unsuccessful are those operating under government
and private sector funding. However, the infrastructure projects are
delivered. Either they would not otherwise have been built or they
would have been delayed, without the financial arrangements offered
by collaboration in a PPP with the private sector.
The collaboration intended by moving to PPPs raises a number of gov-
ernance issues. It is usually assumed that a registered company incor-
porated under a general incorporation statute will be legally separate
from its shareholders and have a separate management structure. The
company ‘owners’ would only hold shares in the company, but not own
the company property as this is seen to belong to the company alone.
In the public sector, where the state retains ownership, this separation
is not always the case. While the state divests itself of the responsibility
for services (and potential political consequences of nonperformance),
it retains control through its control over future ownership, strategic
direction and accountability.
The OECD (2005) has raised issues about the dangers of potential
abuse of minority shareholders. Minority shareholder rights are to some
extent protected by the disclosure provisions of the Corporations Act
and the listing requirements of the Securities Exchange (ASX 2005).
In PPPs the minority private shareholders do not experience the same
protection.
A central tenet of governance is control and accountability.
Appropriate performance evaluation and monitoring are difficult.
While performance targets can be relatively easily specified, (how
many services delivered, the return per service, the number of trains
arriving on time, etc.), these types of measures fail to capture the
equity issues or social goals that the public sector is expected to
deliver. According to Victorian Auditor-General’s Office (Pearson 2012,
16), many public agencies report performance but only a few report
relevant, appropriate and useful performance measures. For SOEs there
Governance of Public Service Companies 161
Networks
Conclusion
References
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Governance of Public Service Companies 167
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Governance of Public Service Companies 169
Introduction
170
Governance of Social Enterprises 171
Before Spain joined the EU, Red Cross Spain was a quango. It had
a monopoly for public services such as ambulance transport. Once
Spain joined the EU deregulation and competitive market require-
ments became applicable in all sectors of activity. The Red Cross had
to change its business model: it went from a monopoly to a voluntary
organization providing services in increasingly competitive markets.
Red Cross Spain is a federation of autonomous organizations with
a special legal status based on NPOs formed by volunteers. During
the past 30 years, some of these organizations, such as Red Cross
Catalonia, developed a strong business capacity mainly aimed at the
public sector. Its sources of revenue in 2011 are an indicator of change
in the business model: 44.2% from selling services to the State, 29.7%
from governmental grants and donations, 16.65% from member-
ships, 4.9% from lottery; 4.6% from other income.
For further information, see www.creuroja.org last visited on
December 19, 2012.
justify the social and solidary cooperatives’ presence with official recog-
nition since 1991. In Spain, however, NPOs started to collaborate in con-
struction of the welfare system in the early 1980s, since when the state
outsourced many activities related to providing and producing social
services. Public procurement facilitated creation of a vibrant public serv-
ice industry, which attracted new private organizations, such as coopera-
tives whose gradual incorporation into the spectrum of social services is
recognized institutionally by incorporating them into the Spanish law of
cooperatives. Their members voluntarily adopt the NPO model.
Scholars began to talk about social enterprise as some NPOs became pro-
gressively market oriented and growth of social cooperatives occurred in
some European countries. As Defourny and Nyssen (2010, 239) pointed
Governance of Social Enterprises 175
out, over time EMES built a social enterprise definition based on indica-
tors that ‘they describe an “ideal-type” in Weber’s terms’.
The first EMES social enterprise definition was published by Defourny
(2001), and it remained in use during the following decade. The main
change occurred when EMES members decided to divide the indicators
into three, instead of the previous two, categories. Using three cat-
egories strengthens visibility of the organization’s governance, which
EMES considers vital to distinguish a social enterprise from other agents
producing and providing social services.
EMES (2011) argues that three criteria show the business dimension
in social enterprises:
The Casa d’Infants program must allow the Catalan Generalitat to meet
its institutional obligation to minors in Barcelona city. While ensuring
both quality and efficiency of service, the basic goal is the creation of
200 residential slots to accommodate children and adolescents at risk
with their families currently receiving formal support from the Catalan
Generalitat government’s Department of Family and Welfare.
Both the SIMAP and Casa d’Infants programs are well-established
examples of voluntary collaboration between different organizations.
However, the cooperation between the various agents is different. In
the SIMAP program, it is a continuous, structured and formal dialogue
led and managed by the Red Cross’ Catalonia together with the public
administration, different mobile phone companies and other NPOs aim-
ing to provide a new social service. In the Casa d’Infants program, the
cooperation between the public administration, NPO and the for-profit
company was formalized with the creation of a new legal structure, FASI
Foundation, in which the three stakeholders are represented on the
Board of Directors. The decision-making process is based on the one-
member–one-vote mechanism. However, the public administration has
four members, the NPO has two and the for-profit has one. The public
administration holds the presidency. The mission of the FASI Foundation
board of directors is to provide a better and different organizational
response to provide public services for children and adolescents at risk.
The duty of the FASI Foundation’s board of director members (rep-
resenting the stakeholders for and non-for-profit organizations) is to
collaborate with the public administration providing equipment, infor-
mation, knowledge and experience. The stakeholders’ collaboration
through the ‘one member, one vote’ mechanism suggests that the FASI
governance management style is characterized by a combination of the
models outlined earlier: stewardship, democracy and multi-stakeholder
participation.
Conclusions
Note
1. EMES is the acronym for l’Emergence de l’Enterprise Social. It is a network of
European research centers and researchers. Individual and collective books and
articles are published about the social enterprise concept. Access to an important
library of working papers about social enterprises in different social work fields
in Europe can be obtained through a visit to their Web site www.emes.net.
Governance of Social Enterprises 185
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186 Organizational Innovation in Public Services
Introduction
From the outset, the Big Society was, and still remains, a nebulous con-
cept. Exact policy implications have been underdeveloped, and the idea
has undergone several, relatively unsuccessful, reinterpretations. Francis
Maude, the minister in charge of this agenda, has admitted that ‘the
big society is a big idea, not a big plan’ (quoted in Wilding 2010). Three
broad initiatives are generally associated with the policy: increased local-
ism and community empowerment; greater government openness and
transparency; and opening up public service delivery to new local pro-
viders. There is inextricable interweaving between these three themes,
and it is largely the open public-service agenda that has come to domi-
nate through the creation of new mutual service providers. We look at
each in turn but focus mainly on the open public-service aspects.
There are 6 million people who work in the public sector at the
moment. It would be very ambitious, but is not inconceivable, that
190 Organizational Innovation in Public Services
Maude (2010) explicitly linked this goal with making the public sector
more innovative: ‘The creation and growth of public service mutuals are
at the heart of the drive to replace top-down monopolies with open net-
works of diverse and innovative providers’ (Mutuals Taskforce 2012, 5).
The Right to Request Programme was originally instigated under the
previous Labour government, but its inclusion in the 2011 white paper
on Open Public Services highlighted the coalition’s commitment to this
policy (HM Government 2010; 2011; 2012). A Mutuals Information
Service was created in the Cabinet Office to provide help and support for
employees and others that were considering this option and a Mutuals
Taskforce, involving prominent mutual representatives and academics,
was convened in 2011 to provide an evidence base along with recom-
mendations and challenges to government policy. As a result, there are
‘around 20,000 public servants now working in new public sector mutu-
als with contracts worth about £1 billion. By the end of 2011, 40 new
mutuals had formed by spinning out from NHS and Primary Care Trusts’
(Mutuals Taskforce 2012).
The Mutuals Taskforce highlighted evidence to show that mutuals
provide benefits both for employees and service users, whose knowledge
has previously been woefully underused by public sector organizations –
especially in relation to making innovative changes (NAO 2005).
Employee ownership can provide staff with financial and emotional
incentives that make them more committed to their organization and
therefore more motivated (Mutuals Taskforce 2012). This can in turn
lead to increased staff productivity and decreased absenteeism and sick-
ness rates (Ellins and Ham 2009). As mutuals are accountable to their
users, rather than to shareholders, evidence has also shown a higher
level of customer trust and loyalty (Ellins and Ham 2009).
It is quite feasible that, by opening up public service delivery to new
ideas and energies, the government will be able to reduce costs, diver-
sify and share risks, prevent duplication and encourage collaboration
with (and thereby learn from) the wider business and voluntary sectors
who are engaged in fields of shared interest. Coproduction with smaller
and more flexible provider types would allow for particular user groups
to receive localized and targeted services. By encouraging a ‘customer
focused radical disintermediation’ in public services – that is the strip-
ping out of intermediaries in the delivery chain and the simplification
Championing & Governing UK Public Service Mutuals 191
(Social Enterprise UK 2012, 6). New mutuals will simply not be able to
compete on the basis of lowest price, but commissioning for social value
could allow public bodies to focus not just on cost but on outcomes and
well-being too. Indeed, ‘the recent consolidation of EU procurement
framework also makes it clear that social requirements can be fully
embraced in procurement practice’ (Social Enterprise UK 2012, 6).
Once a contractual relationship has been created between the govern-
ment and a mutual, there are a number of levers at the government’s
disposal in order to control the relationship. But the amount of influ-
ence each party has over the continuing relationship will depend on the
strength of the procurement contract and the threat of non-renewal.
Government is not seen as adept at creating contracts that are flex-
ible enough to both provide value for money as well as be able to pick
up the slack when conditions, populations or technologies change
(Dunleavy et al. 2006). The private sector has made considerable profit
from government upgrading or adding new services to contracts during
the course of their, usually long, life. This flexibility will be difficult for
mutuals to sustain because of their size and resource limitations. It will
be for the government to ensure the continued support for mutuals by
examining how the first wave continues to develop following the end
of their initial contracts.
Risk of failure
There are currently no contingencies in place for safeguarding services
if new providers fail. In the case of hyper-local mutuals, their small
scale would make this more manageable, but the collapse of trans-local
mutuals – those that have scaled up and are providing multiple services –
could pose significant problems. When commissioning services, govern-
ments have been keen to try and outsource the risk of failure to private
or other providers, although where the ultimate responsibilities of the
service remain with the government, so too does the risk.
Conclusion
service delivery will progress, what forms it will take (in terms of the
size and scope of mutual organizations), how effectively mutuals will be
governed and how durable they will prove to be in increasingly com-
petitive public service procurement markets.
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12
Improving Governance
Arrangements for Academic
Entrepreneurship
Matthew S. Wood
Introduction
202
Governance for Academic Entrepreneurship 203
and develop the management team to launch the start-up venture. This
collaborative effort has yielded a very successful firm that is generating
financial returns for UCLA, the scientist and investors. The venture also
provides tremendous public benefit.
Success stories like NanoH20 are relatively rare (Agrawal 2006;
Benneworth 2001). Yet, academic entrepreneurship has become a priority
because universities are looking for new revenue sources. Universities
in the United States, for example, are faced with shrinking state and
federal tax dollars, and must find new ways to fund research activi-
ties. On the private industry side, turbulent and fast-cycle markets
(Sawhney and Prandelli 2000) are forcing entrepreneurs and growth-
minded firms to continually innovate. Thus, entrepreneurs need a
supply of ideas and technologies for new products. Also, universities
hold research-derived intellectual property that can be used as an
impetus for new product development (Etzkowitz 1998; O’Shea et al.
2004). When it works, academic entrepreneurship is a win-win situ-
ation because entrepreneurs capitalize on faculty members’ research
prowess, and universities capitalize on entrepreneurs’ ability to turn
technologies into marketable products and services that generate
revenue for them. As with most entrepreneurial endeavors, however,
success in academic entrepreneurship is elusive, and only a fraction of
universities realize meaningful returns on commercialized technologies
(Blumenstyk 2007).
There are numerous reasons for variability in academic entrepre-
neurship, so a number of scholars have developed descriptive and
normative models of university technology commercialization. Shane
(2004) provides seminal work that explains the role of university spin-
off ventures, Agrawal (2006) looks at university technology licensing
strategies and Wood (2009) explores the criticality of innovation
attributes. However, the richness of these contributions masks an
important gap in our understanding of the academic entrepreneurship
phenomena.
Specifically, the literature to date has been relatively silent on the role
of governance in facilitating or constraining effective university tech-
nology commercialization (Markman et al. 2008). This has important
implications because – as Wood (2011) illustrates – successful commer-
cialization requires a diverse group of stakeholders whose goals, inter-
ests and actions may not always align. Thus, if universities and private
enterprises are to engage in the collaborative processes associated with
academic entrepreneurship, new insights may emerge from discourse on
the role of governance.
204 Organizational Innovation in Public Services
In the United States, there has long been a view that public service organi-
zations are distinct. Specifically, public service organizations are to serve
the public good and advance society, as opposed to making a profit or
return on investment. Recent years, however, have seen a blurring of
the lines between public and private sector enterprises. This is evident
in the case of universities. In the United States, universities may be
public or private, but both are seen as serving for public welfare via stu-
dent education and the advancement of knowledge through research.
In terms of public universities, basic research has traditionally been
funded by taxpayer dollars through allocated funds or research grants.
In the past, the research discoveries from these grants (e.g., patents)
became the funding agency’s property. However, the 1980 Bayh-Dole
Act allowed the intellectual property generated under research grants to
become the property of the university. This legislation has been influen-
tial in enticing many universities to engage in commercialization activi-
ties (Carlsson and Fridh 2002; Markman et al. 2005). What this means
is that as university missions are extended to incorporate a greater com-
mercial orientation (Wood 2009), universities and private entities (such
as entrepreneurs) increasingly form collaborative relationships.
the TTO must ‘balance and align the internal interests of the university –
including the researcher, if engaged – with the external interests of
entrepreneurs and other business partners’.
Once a preliminary partnership has been formed, the university and
its industry partner must determine the optimal organizational form for
commercialization. Although they are not always mutually exclusive,
the most commonly used forms are technology license agreements
and spin-off ventures. Technology licenses are arm’s length contractual
agreements that transfer the university’s innovation knowledge to an
outside party in return for a fixed fee or royalty (Agrawal 2006; Thursby
and Thursby 2007).
The license approach reduces risk for the university, but the a priori
value of early stage innovations is unknown, so cost/return ratios may
eventually prove inequitable for the university or the entrepreneur.
One way to overcome this problem is to launch a ‘spin-off’ firm that is
majority owned by the university and may or may not involve outside
partners (Shane and Stuart 2002). The advantages of spin-offs are that
they facilitate tacit knowledge transfer (Wood 2009) and often involve
the research scientist – sometimes as an equity partner (Feldman et al.
2002). The central drawback is that it requires considerable financial
and human capital.
In addition to the license and spin-off, some hybrid and informal
forms have been documented as well. Specifically, consulting arrange-
ments, joint publications with industry and university-industry interac-
tions all help facilitate innovation transfer (Colyvas et al. 2002; Link
et al. 2006). In some cases, informal interactions lead to the develop-
ment of hybrid arrangements, such as joint ventures and strategic alli-
ances. Take, for example, the creation of Joint Venture Spin-Offs ( JVSO)
where the university technology is ‘assigned or licensed into a new
company that is jointly owned by the university and the industrial part-
ner’ (Wright et al. 2004, 288). Wright et al. (2004, 307) assert that JVSOs
are a ‘fast and flexible route to commercializing university innovations
in comparison to university start-ups’. The downside to the JVSO model
is that stakeholders may have divergent interests and perspectives, so
behavioral controls are needed to manage JVSO partners (Siegel et al.
2003; Wright et al. 2004).
When viewed collectively, the various organizational forms have
unique advantages and disadvantages, so selecting the appropriate form
is a key success factor. In this regard, Wood (2009, 993) conceptualized
‘university-industry innovation transfer’ as a transaction and advanced
the idea that transaction and agency cost issues play a salient role in
206 Organizational Innovation in Public Services
The university
The central actor in academic entrepreneurship is the university. In
terms of university governance, it is first important to understand that
governance discussions are typically focused on what happens when
the role of ownership (principals) and management (agents) are not
filled by the same person or group ( Jensen and Meckling 1976). When
this happens, there is a strong possibility that interests may misalign
and that the agent will engage in opportunistic behavior. Governance,
then, is about interest alignment and preventing opportunistic behav-
ior through oversight, incentive and punishment mechanisms (Amit
et al. 1990). Board of director representation (Fama and Jensen 1983),
contractual agreements (Williamson 1981) and performance incentives
(Beatty and Zajac 1994) are just a few of the mechanisms used to govern
principal-agent relationships.
While universities engaged in commercialization clearly develop prin-
cipal-agent relationships, the governance of these relationships has not
received much attention. As such, we draw on the work of Davis (2005,
143) to define governance within this context as the set of ‘legal, cul-
tural, and institutional arrangements’ that determine what universities
and industry partners can do, who controls them and ‘how risks and
returns from the activities they undertake are allocated’. In the university
setting, the governance of internal and external relationships typically
follows a ‘republic of scholars’ ideology such that decisions are made via
faculty and administrator consensus (Bleiklie and Kogan 2007, 477).
This type of collectivist decision making is indicative of the stewardship
approach to governance (Daily et al. 2003), where the assumption is that
agents will act in the organization’s interest because there is a strong
correlation between organizational success and that of the individual. In
other words, pro-organizational behavior trumps individualistic behav-
ior because the ‘steward perceives greater utility in cooperative behav-
ior’ (Davis et al. 1997, 24). However, at the school, department and
individual levels, we will soon see that the organization first assump-
tion often breaks down with devastating consequences for innovation
commercialization.
208 Organizational Innovation in Public Services
Research scientist(s)
Prior scholarship has established the important role research scientists
play in commercialization success (Nekar and Shane 2003; Thursby and
Thursby 2004). These are the individuals (or teams) who have discov-
ered the innovation concept, so they hold knowledge that is required to
develop the innovation from a proof of concept into a marketable prod-
uct or service. This means that, at a minimum, industry partners need
reasonable and reliable access to the research scientist (Link et al. 2006).
The reality, however, is that there is often little incentive for research
scientists to engage in commercialization activities.
These individuals are embedded in a structure that rewards reputa-
tional capital, which is built by publishing findings in highly prestigious
journals (Wood 2011). This means that there is often little incentive for
them to further develop their innovations or to participate in venturing
activities. Indeed, as much as 30% of commercialization efforts do not
involve the research scientist at all (Agrawal 2006). This is a reflection
of a clear and present governance problem where university systems’
incentive structures are not well-aligned with those who wish to com-
mercialize innovation discoveries (Laukkanen 2003).
The lack of a university governance structure recognizing the impor-
tant role that the research scientist plays in commercialization success is
both expected and surprising. It is surprising because the highest levels
of universities, university systems and governments in the United States
have publicly supported greater university and private industry collabo-
rations. For example, the University of North Carolina system Board of
Governors stated, ‘Our universities need to emphasize entrepreneur-
ship and leadership across all disciplines both inside and outside the
classroom’ (research.unc.edu/n/CCM1). However, there is a disconnect
between this statement and what actually happens on campus.
The individual faculty member/researcher is focused on tenure and
promotion objectives, which do not include ‘entrepreneurship’ or com-
mercialization as a metric. In that way, the lack of university govern-
ance enhancing commercialization success is expected because deans
and department colleagues who establish faculty incentives and weigh
in on promotion and tenure decisions have little reason to focus on
university-level entrepreneurship or commercialization. This means
that senior administrators assume that stewardship governance will
somehow facilitate the entrepreneurial objective, but the individual
researcher is focused on activities that advance their careers. In this way,
the current governance mindset is quite ineffective. As the cliché goes,
‘what gets measured and rewarded gets done’, and from a university
Governance for Academic Entrepreneurship 209
TTO: ‘Not because they want to keep the innovation to themselves, but
because they perceive the TTO as slow moving and ineffective’. In other
words, university researchers feel that TTOs will not do much with their
innovations. This mirrors Siegel et al. (2003) findings and suggests that
important innovations are often not disclosed to TTOs. Hence, there
is clearly a breakdown of effective governance, and perhaps the most
disturbing effect is that society at large misses out on potentially life-
altering technologies.
The entrepreneur
In cases where TTOs have decided to commercialize patented technolo-
gies, they must attract external partners. Business partnerships can be
difficult to navigate, however, universities need the vision, skills, and
networks entrepreneurs use to enact entrepreneurial opportunities
(Thursby and Thursby 2004; Wood and McKinley 2010). This means
that as entrepreneurs unite with universities, the TTO must adopt a
‘multi-stakeholder perspective to align the internal interests of the
university with those of business partners’ (Wood 2011, 157). However,
interest-alignment is difficult because entrepreneurs are typically peo-
ple who think creatively, move quickly and embrace calculated risk
(Barringer and Ireland 2010). The literature suggests that entrepreneurs
are also well-aware of the agency costs that arise when self-interests
reign (cf. Arthurs and Busenitz 2003) and realize that agents must
be closely monitored to prevent opportunistic behavior (Williamson
1981). However, unlike the university ‘stewardship’ governance model,
entrepreneurs see the world through the ‘corporate governance’ lens
(Donaldson 2012). Corporate governance focuses on rent-seeking and
incentive systems to align the interest of owners, investors, managers
and other organizational stakeholders (Gibbons 2005). These arrange-
ments are typically authoritarian, directive and outcomes based and use
compensation packages (Beatty and Zajac 1994), equity exit agreements
(Aghion et al. 2004) and so on to align interests.
The advantage of the corporate governance model is that it clearly
defines relationships, expectations and reporting procedures as well as
addresses likely ‘what if’ scenarios (Davis et al. 1997). The disadvantage
is that a corporate governance focus on monitoring and outcomes does
not always work well in technology commercialization because entre-
preneurship is an evolutionary process with many uncertainties and
contingencies. Because of the nascent nature of university innovations,
these uncertainty and contingency problems are especially salient.
Despite this, the corporate governance model remains one of the more
Governance for Academic Entrepreneurship 211
The investor
Despite receiving considerable attention in the broader entrepreneur-
ship literature, investors in the academic entrepreneurship context are
quite understudied. Rothaermel et al. (2007) comprehensively reviewed
and modeled the academic entrepreneurship literature, and it is notable
that their model does not include investors. Instead, they cite govern-
ment policy and industry conditions as the two salient external factors
discussed in the literature. In our view, this is a critical gap because turn-
ing university innovations into marketable products typically requires
extensive financial capital (Wright et al. 2004). Governments may
provide some initial funding (Patzelt and Shepherd 2009), but angel
investors (AIs) and venture capitalists (VCs) are increasingly seen as
important sources of capital in university commercialization (Wiltbank
et al. 2009). These investors are also important sources of knowledge,
reputation and network connections needed to develop new ventures
(Ahlstrom and Bruton 2006), and thus universities’ links with VCs
and AIs improve the odds of commercialization activities (Powers and
McDougall 2005).
Because only a few studies explicitly address investors in university
technology commercialization activities (cf. Wright et al. 2004), we
draw on the broader AI and VC literatures to develop a broad under-
standing of the types of governance models they favor. Our literature
review revealed that investors consider a variety of factors when making
investment decisions. For example, the entrepreneur’s prestige (D’Aveni
1990) and the attractiveness of the opportunity (Murnieks et al. 2011)
have been identified as key variables. However, investors are also con-
cerned about agency issues and, therefore, closely consider the degree
to which they have control over entrepreneurs’ actions (Gorman and
Sahlman 1989; Wijbenga et al. 2007). In short, AIs and VCs want to
212 Organizational Innovation in Public Services
that way, technology license agreements are a gamble in which the uni-
versity is not only betting on the strength of the innovation but also on
the entrepreneur’s judgment and decision-making ability. The problem
is that if things turn out poorly, the university has no idea whether to
attribute the failure to the technology or the entrepreneur, which is a
significant governance issue rarely discussed.
In some cases, universities recognize that the issues associated with
technology licenses are too great and, thus, migrate toward hierarchical
governance via a university spin-off firm (Breznitz et al. 2008). Because
a university spin-off is a completely new business based on the univer-
sity’s innovation (Shane 2004), it is well-suited for novel technologies
that have uncertain commercial applicability (Wood 2009). Spin-offs
also appear to be good when the research scientist wants to be heavily
involved.
These individuals often want to profit from their discoveries and,
therefore, want to ensure that things are done in the proper way. Given
the governance limitations for technology licenses, spin-offs are better
suited for such monitoring. However, developing a successful spin-off
firm is difficult, and research shows that most ventures do better with
non-university surrogate entrepreneurs at the helm (Franklin et al.
2001). In that way, spin-offs reduce the agency risk of opportunistic
behavior but increase the entrepreneurial risks associated with lack of
experience (Wood et al. 2012), related knowledge (Haynie et al. 2009)
and reputation (Wood and McKinley 2010) that are key success factors
in entrepreneurship.
A new approach
Our discussions thus far have highlighted the role of governance in aca-
demic entrepreneurship, but the management literature suggests that
the alignment challenges and governance problems in academic entre-
preneurship are not particularly unique. As such, one possible avenue
to reconcile some of the governance problems outlined above would be
to utilize ‘hybrid’ (Makadok and Coff 2009) or ‘network’ (Larson 1992)
governance models.
Hybrid governance adopts ‘resources and/or governance structures
from more than one existing organization’ (Borys and Jemison 1989,
235), while network governance ‘involves a select, persistent, and
structured set of autonomous firms engaged in creating products or
services based on implicit and open-ended contracts to adapt to environ-
mental contingencies’ ( Jones et al. 1997, 914). The advantages of these
Governance for Academic Entrepreneurship 215
Conclusion
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218 Organizational Innovation in Public Services
Introduction
221
222 Organizational Innovation in Public Services
1994; Wettenhall 2003). For decades this has been a prime option for
many small municipalities, which have established merged utilities.
By collaboration in joint ventures, municipalities can reach the scale
of provision required in order to gain economies of scale and scope.
Further, larger organizations tend to be more attractive employers, so
collaboration tends to facilitate the recruitment of employees with the
right type of competence. Also, the owners of the joint venture share
costs and risks, which enable development of the services.
However, collaboration in joint ventures or in other forms has
proved to be complicated (Bachiller and Grossi 2012; Bringselius 2008).
Research on different types of collaborations in different context and for
different services point toward the difficulty to overcome power imbal-
ances between the collaborating partners, to find common goals and
incentives, to align separate organizations with separate history and cul-
ture, to align stakeholder interests and secure stakeholder influence and
legitimacy (Ren et al. 2009; Ansell and Gash 2008; Hardy and Phillips
1998; Bryson et al. 2006). Legitimacy is perhaps especially important
when it comes to public sector services for which accountability is cru-
cial (Bovens 2009).
All the aforementioned challenges address issues that are related to
the corporate governance of organizations. Corporate governance con-
cerns the relationship between the actors involved in the governance
process (i.e., owners, board of directors and the managing directors).
Further, corporate governance concerns the rights and responsibili-
ties of these actors and the relationship between the organization and
its stakeholders (Aguilera 2005). A good corporate governance system
ensures a clear division of responsibility between the afore-mentioned
actors and also that they can be held accountable toward the stake-
holders of the organization (Clatworthy et al. 2000).
According to Ryan and Ng (2000) accountability in corporate gov-
ernance systems is about ensuring that boards of directors can be held
accountable toward shareholders. Others regard accountability to be
about securing the relationship between a principal and an agent (Gray
and Jenkins 1993; Sinclair 1995; Mulgan 1997; Hodge and Coghill 2007).
Corporate governance and accountability is thus closely linked, and it is
through the construction of the governance system that accountability
can be ensured. However, neither of the two considers the horizontal
relationships that emerge in the case of joint ventures.
According to Huse (2005), value is created in the relations between
the organization and internal and external actors, and this value is the
basis for the evaluation of the corporate performance. The definition of
Governance and Accountability of Joint Ventures 223
According to Shaoul et al. (2012), however, the public sector has dif-
ferent and potentially conflicting corporate governance and account-
ability relationships to manage compared with the single driving
relationship between the board and shareholders that is the focus of
private sector corporate governance. Thynne (1994) emphasizes the dif-
ficulty in achieving the right balance of autonomy and control in order
to secure accountability, but without compromising the performance of
the corporation. These challenges are mainly related to the corporate
governance of governmentally owned corporations (Thomasson 2009;
Luke 2010).
Corporations that are jointly owned also face challenges that can be
attributed to the fragmented ownership and the need to respond to
the interests of more than one owner at the same time (Child 2005;
Kamminga and Van der Meer-Kooistra 2007). With more than one owner,
several principals want to exert influence and control over the organiza-
tion, but often the purpose for their ownership differs. As joint ventures
are ‘owned’ by different independent local governments, control issues
involve additional complexities. Owners not only have to focus on the
control of the joint venture itself, but also on the relationship between
the cooperating owner(s). Therefore, the question of accountability in
governmentally owned corporations with fragmented ownership is not
only restricted to the vertical relationship between the owners and the
company but also encompasses the horizontal relationship, that is, the
relationship between the owners.
Theoretical framework
Research method
Case description
The Chairman and Vice-Chairman of the Board are of the opinion that
there is no confusion about roles and that the ownership role and the
customer role are clearly separated. The separation of roles is facilitated
by the fact that the ownership is delegated to The Association of Local
Authorities in Skåne and the Joint Government Council of Kronoberg,
while the customers are the social services in each of the 41 munici-
palities. The 41 municipalities are therefore never really involved in the
governance process and this prevents confusion of roles and municipal-
ities overstepping their boundaries as owners so that they do not start
230 Organizational Innovation in Public Services
This distance has also, according to the CEO, influenced the role of the
board.
However, sometimes the distance is too large. During the interview the
CEO pointed out how several of the municipalities and administrators
purchasing services from VoB do not even know that they own the
corporation. This is supported by statements from the Chairman and
the Vice-Chairman as well as by information provided during inter-
views with the owners. When talking to politicians on the Municipal
Executive Committee in two of the 41 municipalities, it became evident
that even if they knew about the corporation few of them were well-
informed about VoB. If they knew more about the corporation, it was
often because they were representing their municipality on the board of
the Association of Local Authorities in Skåne or the board of the Joint
Government Council in Kronoberg.
twofold. The first reason was to secure the desired quality of services pro-
vided and the second was to align the culture in the different facilities in
order to have the employees work toward the same goals. To introduce
a quality control system was, according to the Chairman of the board,
important, since:
the system was new for everyone and not something that one organi-
sation took over from the other.
Vertical relationship
The control of VoB is focused on the use of traditional governance
mechanisms. The owners appoint members to the board and the board
controls the CEO and evaluates the performance of the corporation
based on reports from the CEO and the auditors.
More interesting is how the relationship between the corporation and
the owners is constructed. The control over the corporation has been
232 Organizational Innovation in Public Services
Horizontal relationship
The horizontal relationship can be divided into two parts. On the one
hand, we have the relationship between all 41 owners; on the other
hand, there is the relationship between the two groups of owners. The
corporation is also constructed so that the division of shares and number
of members on the board is divided equally between the two groups of
owners. This gives the two groups an equal stake in the corporation and
has contributed to the fact that they are both striving toward what is in
the best interest of the corporation. Consequently, less focus is directed
toward the interests of each owner, as is otherwise the risk with joint
ventures.
What has also facilitated the alignment of interest between the owners
is how the governance of the corporation is organized, so that the owners
interact on two different levels. The first level is found in the two organi-
zations that make up the ownership, VoB Kronoberg and the Association
of Local Authorities in Skåne. At this level, the representatives from the
local government in Skåne do not interact with representatives from
Governance and Accountability of Joint Ventures 233
the local government in Kronoberg. These forums are, thus, to align the
interests of the local governments in each region: accordingly, they are
composed of representatives from the local governments.
The second level is the board level. At this level, the representatives
appointed to the board by each owner interact during the board meet-
ings. This is the level where representatives of all the owners meet.
However, this forum is also composed of selected members from the
local governments in each region and it is only a fraction of the owners
that have a political representation on the board.
It is at the second level that decisions are made regarding how to
evaluate the corporation and what types of performance measurements
are to be used for this evaluation. Here, we find financial performance
measurements as well as evaluations focusing on non-financial perform-
ance (such as capturing the level of quality of the services provided).
Thus, performance measurement is a reflection of the directives given
by the owners stating that the corporation is to deliver social value in a
more business-oriented manner.
The analysis of the horizontal relationship shows few signs of the
conflict of interests between the owners that is often the case in joint
ventures (Child 2005; Kamminga and Van der Meer-Kooistra 2007). The
reason for this is probably that the majority of the decisions are made at
the second level (that is, the board), and not all owners are represented
here. Thus, many issues are never raised in the local governments. This,
of course, increases the ability to reach alignment of interests.
There is thus a distance between the owners, the corporation and the
local governments. On the one hand, this appears to facilitate the inter-
firm relationship; on the other hand, the organizational structure makes
it more difficult to define who is accountable to whom with the corpo-
rate structure chosen.
Also, the question of what the corporation is to be accountable for
can also be discussed. There seems to be no apparent conflict of inter-
est in regard to performance measurement. However, the corporation
is and has been financially stable and has no apparent problems. There
has, thus, not been any reason to raise the question of what the corpo-
ration is to deliver and if the business-oriented focus of the corporation
has a negative influence on public value.
Concluding remarks
One conclusion that can be drawn from the case studied here is that
the organizational solution and the corporate structure facilitate the
234 Organizational Innovation in Public Services
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Introduction
238
Contractual Governance 239
and service users, which may be essential for allocative efficiency. Since
in conventional quasi-market organization consumers cannot exercise
choice directly, public participation is vital to producing services ‘that
individual users value and in the quantity and quality that they prefer’
(Jackson 2001, 18). Here the concept of ‘performativity’ refers ulti-
mately to ‘the capacity of a contractual system to generate added value
for the stakeholders’ (Davis 2007, 387). In another quasi-market variant,
consumers may exercise choice directly in publicly funded vouchering
schemes. In this instance the role of the state, either instead of or in
addition to service commissioning, is to establish the scheme and over-
see the operation of contracts between citizens and service providers
(Le Grand 1995).
Quasi-markets in some form have become widely accepted as a means
of increasing efficiency and improving quality in tax-funded healthcare
systems. However, the precise nature of the mix of bureaucratic and
market elements – and in particular the role accorded competition and
market incentives in structural reforms – have been hotly contested.
After 2000, in the wake of political devolution to Wales, Scotland and
Northern Ireland, there has been significant policy divergence in the
four home countries from the common baseline of the ‘internal mar-
ket’ established throughout the NHS in the 1990s. While England has
sought to intensify quasi-market competition and increase independent
sector involvement, the other three UK territories have opted either
to retain a softer version of the purchaser/provider split (as initially
in Wales) or to abolish the split and revert to bureaucratic integration
(the path taken by Scotland and recently also by Wales). Devolution
has therefore created the conditions for a ‘natural experiment’ with
different forms of governance that is relevant to other publicly funded
healthcare systems beyond the UK, for example in countries such as
Norway and New Zealand (Hughes and Vincent-Jones 2008, 413). This
account of governance by contract in the NHS focuses in particular on
the comparison of ‘hard’ and ‘soft’ versions of quasi-market organiza-
tion in England and Wales, respectively, in the period before the most
recent Welsh reforms have taken effect.
patients and consumers are also coproducers. They may help resolve
problems by raising issues and posing questions that professionals have
not considered (Tritter and McCallum 2006). Effective public engage-
ment entails constructive dialogue aimed at reshaping the relationship
between professionals, managers and other stakeholders (Mullen 2008).
The state has an important role to play in fostering such basic condi-
tions of social learning. Government interventions may help build
capacities for citizens and service users to contribute in various ways, for
example by providing education and training opportunities and devel-
oping communicative skills necessary for their effective involvement
(Vincent-Jones et al. 2009). The state can play a part also in establish-
ing appropriate democratic fora of participation and deliberation, and
in creating an institutional framework for incentivizing key decision-
makers such as commissioners and service providers to listen and be
receptive to stakeholder input.
The challenges to realizing this vision of social learning in public
service quasi-markets may be considered in the context of the NHS in
England. Recent legislation has created an elaborate regulatory frame-
work in this field which might, in principle, provide a basis for reflexive
governance. Independent regulatory agencies (Monitor and the Care
Quality Commission) have acquired extensive new powers to regulate
for quality, choice and competition. Under the Local Government and
Public Involvement in Health Act 2007, Local Involvement Networks
(LINks) have been constituted as representative bodies in 150 local
authority areas in England, charged with promoting and supporting the
involvement of people in the commissioning, provision and scrutiny of
local care services. LINks have the potential to serve as ‘learning plat-
forms’ by opening channels of communication between stakeholders
and key actors in healthcare networks. For example, they may obtain
views from people about health and social care needs and experiences,
convey those views to organizations responsible for commissioning,
providing and managing local health and social care services and make
reports and recommendations to those bodies on how services may be
improved.
As well as playing a major role in commissioning, LINks should be ide-
ally placed to monitor contract performance and service provision in a
rigorous and robust way by going out to groups and communities (DH
2006, para 2.7). The government’s aim is that they will form part of the
incentive structure encouraging commissioners and providers ‘to talk to
local people, to seek their views and insights, and to involve them in
how to plan, prioritise and decide their activities’ (para 2.9). The 2007
244 Organizational Innovation in Public Services
Act includes further incentives in the form of legal duties: (i) on Primary
Care Trusts (PCTs) and Strategic Health Authorities (SHAs) to report
on consultations before the making of commissioning decisions, and
on the influence that the results of consultation have had on those
decisions and (ii) on commissioners and providers to reflect upon and
explain what they have done differently in response to reports and
recommendations made by LINks. The effectiveness of these regula-
tory mechanisms in social learning terms will depend on how far they
succeed in encouraging proper reflection by the parties concerned, as
might be evidenced by the quality of the account and reasons they give
in explaining their decision. To date there has been little indication of
what will be expected of PCTs and SHAs in responding to consultation,
although the Department of Health will issue guidance in this regard
and LINks may choose to review the ways in which responses are made
(DH 2006, para 1.51).
Just as government may help facilitate such conditions of reflexive
governance, so its policies may inhibit their development. Policy confu-
sion and the privileging of economic over democratic elements in the
reform agenda are preventing the embedding of economic relations
in social relations (Krippner and Alvarez 2007; Polanyi 1957), which
is arguably essential in order for social learning effectively to occur in
healthcare networks (Vincent-Jones 2011). A major problem with NHS
modernization in England has been the simultaneous pursuit of voice
and choice initiatives that are in mutual tension and lacking in coher-
ent overall rationale (Vincent-Jones et al. 2009). Before the 2007 Act
was fully implemented, the government embarked on a further round
economic reforms in the Health and Social Care Act 2012, entailing
the abolition of LINks and PCTs and their replacement, respectively, by
Local Healthwatch and GP Commissioning Consortia. Inappropriate
or contradictory state interventions pose obstacles to the capacity of
key decision-makers such as those engaged in the commissioning and
provision of services, to resolve governance problems in the public
interest. This conclusion is consistent with studies highlighting prob-
lems of public contracting in other contexts such as the procurement
of public service infrastructure under the PFI (Treasury 2011). The con-
ditions of social learning must be established not only within public
service networks, but also at the level of policy-making and in public
administration. Experimentation at this level can only be legitimate
where it conforms to procedural and other requirements, including the
clear articulation of policy purposes, and provisions for monitoring and
evaluating success and for learning from failure (Vincent-Jones 2006;
Ladeur 2007).
Contractual Governance 245
The idea that contractualization might open up new spaces for social
learning in quasi-markets may be further explored with reference to
relational contract theory. Ian Macneil has analyzed the ways in which
all social exchange behavior is supported by the ‘common contract
norms’ of role integrity, reciprocity, implementation of planning, effec-
tuation of consent, flexibility, contractual solidarity, the protection of
reliance and expectation interests, the creation and restraint of power,
the propriety of means and harmonization within the social matrix
(Macneil 2000, 879–880). While discrete norms are particularly impor-
tant for planning, relational norms are necessary to support coopera-
tion throughout the duration of the contract.5 The term ‘relationality’
connotes an optimal configuration of discrete and relational norms
(both legal and extra-legal) in the contractual environment, enabling
the parties in private market transactions to govern and adjust their
ongoing relationships to mutual benefit (Campbell and Harris 1993).
It is important to note how this behavioral account differs from more
conventional legal approaches, which define contract in terms of the
enforceability of agreements at private law: ‘If we wish to understand
contract, and indeed if we wish to understand contract law, we must
think about exchange and such things first, and law second’ (Macneil
1980, 5). However, the point that the contract norms are not essen-
tially legal is not, of course, to deny the importance of this dimension.
Having stated that ‘law is not what contracts are all about’, Macneil goes
on to say that law remains ‘an integral part of virtually all contractual
relations’ (ibid. 5).6
Macneil’s relational theory may be considered in conjunction with
the social learning perspective introduced in the previous section.
The suggestion here is of a link between contract norms and behav-
ioral qualities of relationality, on the one hand, and the potential for
social learning in exchange relationships (including those that occur
in quasi-markets), on the other hand. Where exchange relations of
whatever kind are operating effectively, the common contract norms
are likely to be in robust condition and to be supported by additional
relational norms. This should enhance the capacities of the parties to
learn from one another and be receptive to external sources of informa-
tion. On the other hand, where contractual relations are in unhealthy
condition, and where the contract norms are revealed in ‘varying
degrees of disarray’ (Macneil 1983, 351), the social learning capacities
of the parties are likely to be reduced.7 The theoretical advance made by
linking the social learning and relational contract approaches lies in
246 Organizational Innovation in Public Services
Conclusions
This chapter has explored the links between relational contract and social
learning in organizational arrangements for public service provision.
250 Organizational Innovation in Public Services
While the main focus has been on healthcare in England and Wales,
the perspective should be applicable to other services and be of rel-
evance to mixed governance regimes in developing and transitional
societies as well as in western liberal democracies. The selection of
healthcare as a case study is justified by the complexity of the issues
involved in the organization and governance of this particular human
service. Healthcare systems throughout the world face problems of ever-
increasing costs associated with an ageing demographic profile, rising
levels of chronic disease and increased expenditure on pharmaceuticals –
all in the context of the financial crisis and pressures to rein in public
expenditure. In the face of such challenges, what is required in order to
inform policy and decision-making is a robust set of tools for designing
and evaluating experiments in different modes of organization, based
on clear theoretical foundations.
We have suggested that public contracting in healthcare quasi-
markets opens up new spaces for social learning and organizational
innovation that may not exist in more traditional bureaucratic struc-
tures that rely on hierarchical ordering. However, the relative advan-
tages of bureaucratic and quasi-market organization in these terms
(and the specific benefits of the contract mechanism in the latter case)
remain unproven. The potential advantages of quasi-market contracting
may be outweighed by the negative effects of top-down reforms that
may undermine the relational conditions that are necessary for social
learning. There is also the danger of unresponsiveness in failing to pro-
vide adequate opportunities for public participation in the development
of policy and in decision-making on public-service issues. It should be
clear from the foregoing argument that social learning is by no means
guaranteed to take place through contractual processes and that the
conditions of reflexive governance may be achieved just as effectively
by the reform of public bureaucracies and by other forms of stakeholder
engagement.
If the driving force behind contractualization in England has been the
pursuit by central government of a policy agenda of increasing privati-
zation and commercialization of public services, it is hardly surprising
that the political preference for more traditional, unified forms of public
service delivery in the devolved governments of Scotland and Wales has
resulted in a declining emphasis on governance by contract. However,
while bureaucratic integration may help resolve tensions between the
choice and voice elements in the NHS reform agenda, the problem of
how to increase patient and the public involvement in the governance
of healthcare remains. The abolition of the purchaser-provider split
Contractual Governance 251
removes the potential for social learning through the contract mecha-
nism, while limiting the scope for innovation associated with competi-
tion and diversity of provision. Further empirical research is needed in
order to determine what type of public service organization provides
the best environment for social learning and reflexive governance in
the public interest.
Notes
1. Similarly in the United States, contract was regarded from the 1950s as an
instrument of regulation and a means of social control (Miller 1955). The
associated breakdown of the private/public distinction was marked by a trend
toward discharging governmental responsibilities by the sharing of govern-
mental power with independent entities (Miller 1961, 967; Langrod 1955;
Freeman 2000).
2. Recent policy initiatives include the outsourcing of prison and policing
services such as the investigation of crime and detention of suspects; the
contracting out of employment services to private companies remunerated
according to their success in finding work for jobseekers; and the transfer of
ownership of roads and transport infrastructure from the Highways Agency
to the private sector. Through the contract mechanism responsibilities for the
provision of public services are shared with an increasing range of private and
non-profit entities in sectors such as environmental management, health and
social care, welfare and social security, employment and training and policing
and criminal justice.
3. For a more detailed exposition of the theoretical perspective, including discus-
sion of a fourth (‘genetic’) set of conditions of social learning in the health-
care context, see Vincent-Jones and Mullen (2010). Lenoble and Maesschalck
(2010) consider that fully reflexive governance is not possible without such a
genetic dimension, incorporating all the other dimensions.
4. See Burris et al. (2005): ‘A node as we conceive of it is a site within an OGS
(Outcome Generating System) where knowledge, capacity and resources
are mobilized to manage a course of events’. The node as a site governance
comprises four essential characteristics: a way of thinking (mentalities); a set
of methods (technologies); resources to support the node’s operation; and
institutions that structure the mobilization of mentalities, resources and tech-
nologies over time’ (12). ‘Superstructural nodes are the command centres of
networked governance’ (13).
5. The exercise of choice through planning requires both ‘discreteness’ (‘the
separating of a transaction from all else between the participants at the same
time and before and after’) and ‘presentation’ (‘the bringing of the future into
the present’) – Macneil 1980, 60.
6. While the debate as to how far the law of contract should promote relation-
ality is of secondary importance in the present analysis, the social learning
approach must remain sensitive to the possible effects of different types of
norm (both non-legal and legal) on problem solving and decision making
in contractual relationships. Such differences are likely to be particularly
252 Organizational Innovation in Public Services
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260 Organizational Innovation in Public Services
private sector within their own countries but also to offshore them to
international service providers.
It has been made clear that unbundling services can enable local, func-
tional and financial specialization to gain economies of scale and scope.
However, some types of services can be improved if they are integrated
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This is perhaps most likely to be the case for top-down, centrally
driven attempts to micromanage local government performance in
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to cut costs. Roberts and Bailey (Chapter 2) argue that this can stifle
innovation in the longer term and that this negative outcome is made
more likely due to the ongoing public sector austerity. Hence, the future
scope for innovation may be better facilitated by bottom-up innovation
facilitated by ‘double devolution’ to enable and empower community
organizations and social enterprises and mutual organizations to become
the locus of innovation – adopting the forms of innovation, governance
and social learning outlined and analyzed in the previous chapters.
Marketization supposedly makes organizations more accountable to
the end users of services and so more innovative (Stewart and Walsh
1992), but this profit-driven ‘fragmentation’ of public service delivery
systems may create disjuncture in the flow of information (e.g., due to
commercial confidentiality), asymmetric incentives (e.g., private profits
contradicting pursuit of social value) and inequalities in accessing serv-
ices (‘cream skimming’ resulting in exclusion of those with highest serv-
ice needs). If so, organizational fragmentation can be seen as a threat
to strategic effectiveness and to the stability of democratic government
because it frustrates transparency and makes achievement of the agreed
262 Organizational Innovation in Public Services
goals of public policy more difficult (Bogason and Toonen 1998, 218,
225; Ling 2002, 616; Stewart and Walsh 1992, 506).
This possibility requires attention to be paid to governance of the new
forms of service delivery. The traditional form of governance is vertical
accountability (of politicians to voters and of bureaucrats to govern-
ment ministers), whereas unbundling requires development of govern-
ance systems based on horizontal and network accountability as service
organizations become more dependent on external resources and as
strategic partnerships, joint ventures, multi-stakeholder dialogue, com-
missioning and shared services develop. In principle, the development
of co-planning, codesign and coproduction of public services with their
stakeholders should strengthen this horizontal form of governance, but
it remains to be seen whether this is the case in practice.
much more systemic and ambitious. The case studies analyzed in the
preceding chapters focus on piecemeal standalone initiatives, as do the
initiatives noted earlier. They tend to have fairly limited objectives in
their approach to organizational innovation, focusing in particular on
reducing the costs of some but not all service components. In contrast,
systemic organizational innovation focuses on a comprehensive recon-
figuration of the service model.
The first example of systemic organizational innovation is the ‘easy
council’ model being considered by several local governments in
England during 2012, the model being based on the low-cost budget
airlines. The council provides a ‘no frills’ basic service to local residents,
ensuring it meets its statutory duties but no more than that. In so
doing, the council outsources all its service functions, both back office
and front line, allowing it to focus on its core policy-making function
in keeping with its role in the democratic process. Residents who want
levels of service higher than the basic level can purchase them from the
outsourced providers or from elsewhere.
A second example is where universities completely reorganize their
internal systems by contracting out all non-core services, including man-
agement of their human resources, estates, sports facilities, office and
student accommodation facilities, marketing of courses, student recruit-
ment and so on. A university’s core activities are its teaching and learning
environment and its research. Its academic ‘brand’ is heavily dependent
upon their quality and this requires it to focus on the quality of its pro-
fessoriate. Delivery of high academic standards does not require universi-
ties themselves to provide car parking, accommodation, marketing and
other such administrative services. A university’s engagement with the
local community of business, governmental and social and charitable
organizations may also be regarded as important, but these are not core
academic activities per se and paying too much attention to such social
and civic engagement may detract from its focus on its academic brand.
A third example is the systemic organizational innovation of the
National Health Service (NHS) in England. This entails opening pro-
vision of health services to ‘any qualified provider’, development of
independent treatment centers and General Practitioner (GP) com-
missioning of medical services on behalf of their patients (King’s
Fund 2012). The aim is to transform the NHS, moving away from the
traditional closed model of predominantly in-house provision (albeit
GPs, dentists and opticians are private sector organizations) through a
partially open model utilizing quasi-markets (internal) and contracting
out (external) hospital services to a fully open model involving any
qualified service provider.
264 Organizational Innovation in Public Services
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Index
1980 Bayh-Dole Act 204 budgeting 29, 36, 80–1, 131, 165
bureaucracy 5, 10, 75
accountability 40–2, 84–5, 152–6, see Weberian theory
160–1, 163, 193, 224–5
contractual 40–1 collaboration 33, 40–1, 162–3, 170–3,
definition 222–3 204, 221–2
dialogic 41–2 commercialization 203–17
horizontal 60–1, 224–6, 232–5, 262 community 20–1, 32–5, 93–4, 101–3,
vertical 61, 223–5, 231–2, 233–5, 118–19, 122–4, 126, 159–60,
262 162–4, 166, 174–6, 187–9, 194,
agencification 34–5, 49–68 267–8
NPM-style 52–3, 57–61 buyouts 35
post-NPM 52–3, 57–61 Care in the Community Act 96
pre-NPM 52–3, 57–61 community-based budgets 196
process 52–6, 67–8 development company 32–3
agency 31, 49–51, 53–6, 62, 80, 130, health programs 116–17
132, 145 interest companies 94, 101–2, 105
costs 41, 157, 210 organizations 96, 170, 184
departmental 50 Sandwell Community Care
governance 52, 56–68 Trust 100
private law 50, 76–7, 82 service obligations 79, 85, 153
problem 74, 156–7, 179, 182 companies 32–3, 35, 37, 50, 77,
public law 50, 62, 77, 82 160
risk 214 chartered 78
theory 41, 178 limited 32–5, 37
agents 30–1, 41–2, 87, 134, 137–9, non-profit 79
178, 207 registered 78, 160
see principal-agent problem statutory 78, 154
see principal-agent theory see corporations
asset lock 94, 105, 191 competition 33, 40–1, 63–4, 74–6,
audit 14, 24, 161, 197–8 87, 131–2, 194
autonomization 49, 80 contracting 30, 37, 40–1, 55, 130,
process 87 249–50
semi- 87 contracting out 30, 131–4
autonomy 5, 53–4, 59, 74 performance 55, 67
managerial 50–1, 53–4, 67 relational 55, 65, 239, 245–7
policy 53–4, 63, 65 contractualization 40, 55, 80–1, 238,
245–6
bankruptcies 4, 157 control 37–42
Big Society 102, 109, 187–92, 194 ex post result-oriented 51, 54
board 39, 64, 66, 155, 164 ex ante input-oriented 62
composition 66, 155 internal 32, 234
of directors 85–6, 178 structural 55
270
Index 271
debt 6, 37, 73, 77, 85–6, 112, 114, Improvement and Development
118–20, 266 Agency for Local Government
demutualization 34, 96, 105, 107 (IDeA) 16
departments 32–3, 50–2, 56, 58, information and communication
62–6 technology (ICT) 7, 151, 163,
departmentalization 83 179, 259–60
dividends 34, 79, 86, 95, 107, 118, infrastructure investments 114–15,
120–1, 154 117, 125, 166
innovation 3–4, 24–5
employee-owned definition 28
organizations 99–100, 189–90, Innovation Catalyst 16
193 Innovation Forum 14–15
entrepreneurship practice 18–20
academic 202–3, 212 Public Services Innovation
academic entrepreneurship Laboratory 16–17
process 204–6 service 115–17
civic 93 see organizational innovation
social 93
equity 34, 78, 82–3, 85, 94, joint ventures 205, 221–35
118–21, 157, 160–1, 205, 210,
215–16 learning-based approach 112
Eurozone crisis 6, 266
monitoring 64–6, 134–5, 139–43,
governance 10, 23–4, 32–3, 42–3, 160, 210, 214, 241
51, 113–15, 152–3, 159–60, multi-stakeholder dialogue 171,
163–6, 177–84, 206–12, 224–5, 176–83
231–5, 260–2, 265–6, 268 mutuals 32–4, 93–6, 99–101, 188,
collaborative 42 192–3, 195–8
contract 40, 135, 238–40, definition 187
247–9 public service 95, 101, 103–4
corporate 39, 152–3, 155, 176–9, mutualism 93–5, 191
210–13, 222–3, 225 mutualization 108–9, 188–92
definition 37–8 definition 93–6
external 38–9 policy agenda 96–102
hierarchy-based 56–63 process of 103–8
272 Index
National Health Service (NHS) 93, quango 34, 49, 114, 173
96–7, 100, 104, 116, 121, 126, quasi-market 5, 74–5, 79, 83, 134,
190, 196, 238–40, 243–4, 246–50, 239–40, 249, 250
263–4, 267 theory 5, 74
networking 66, 121–2, 151, 162,
170, 174, 176, 181, 183 regulation 8, 79, 133, 143, 163,
networks 7, 57–61, 65–7, 162–6 241–2, 246
new public management (NPM) 5, remuneration 39, 155–6
24, 30, 51–3, 56–7, 67, 74–5, 131, right to challenge 33, 101–2, 189
151, 264 right to provide 98, 101
new service economy 6–8, 260 right to request 107, 190
non-profit distribution (NPD) risk 7, 9, 56, 83, 116–20, 124, 126,
model 114, 117–21, 126 139, 141, 160, 172, 175, 198,
not-for-profit organizations 79, 107, 205–7, 209–10, 232, 264
114, 162 allocation 118–20, 247
aversion 6, 9, 64, 92–9, 124
offshoring 37 distribution 120, 122
organizational entrepreneurial 213–14
form 27–8, 30–7 governance 9, 120, 124, 126, 265–6
innovation 8, 28–9, 260–8 management 9, 24, 98, 124, 126,
learning 124, 267 152, 164–5, 217
outsourcing 37, 43, 130–44, 153–4, political 52, 165
262 sharing 88
social 21, 267–8
para-private organizations 32–4 transfer 112, 120–1, 123–4, 126,
para-public organizations 32–4 158, 260
principal 30, 38, 41, 53–5, 137–8
principal-agent problem 73–4, 87, Schumpeterian perspective 4
156 Scottish Futures Trust 111–27
principal-agent theory 30, 41, 51, semi-autonomous organizations 27,
178 50–1, 75, 77, 135–6, 247
private sector 31–4 service charter 154
privatization 82–3, 108, 193, 250 social enterprise 32–3, 92–3, 95,
productivity 3–4, 35, 99–100, 170–84, 189, 191–2
119–20, 190, 193, 267 Social Enterprise Investment Fund
public bureaus 31–3, 35, 80, 259 (SEIF) 101–2
public choice theory 5, 73–4 social learning 238–51
public finance 6, 151, 259, 266 special purpose vehicle (SPV) 111,
public interest 114, 118–19, 126, 118–19
131, 153, 156, 239, 241–2, 246 spin in 98
public procurements 111–27, 239 spin-off 205, 214
public sector 31–3, 57 spin out 95, 98, 101, 103–6, 191
public services 3, 4–5, 10, 267 stakeholders 152, 163, 176–7
opening up 102, 189–92 state owned enterprise (SOE) 153,
Public Work Loan Board (PWLB) 123 155–7, 163–4, 226
public-private partnership stewardship 152, 207, 212
(PPP) 111–27, 157–61, 166 governance 208, 210, 212, 215
purchaser-provider split 75, 153, theory 42, 138–9, 178
250–1 supervision 39, 41, 82, 85, 140–2
Index 273