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Bigger isn’t always better when delivering public services

By: Naomi Landau, Knowledge Broker at TSCR
Published: Friday, November 2, 2012 - 14:30 GMT Jump to Comments

Naomi Landau from the Third Sector Research Centre writes about cost effectiveness within public services, and how smaller projects can sometimes be better value for money.

For a number of years there has been a push toward partnership and merger in the third sector. Both the current and previous government have increasingly promoted third sector involvement in public service delivery, and many organisations have decided to merge or collaborate in order to compete for commissioning contracts. Policy makers have also put heavy emphasis on larger scale working and the belief that bigger, joined up services deliver efficiency and value for money.

But is there any evidence that ‘economies of scale’ deliver better or more cost-effective public services? The Third Sector Research Centre has recently published a report on partnership working in the third sector which suggests that ‘economies of scope’ should be given greater consideration. Our research team studied case studies from diverse fields, including housing, employment services, and social care. They found little evidence that partnership working leads to savings. While many organisations believed partnership working had created some savings, the effects remained very hard to quantify in most cases.

When it came to other outcomes, such as improved quality of services for users, evidence was even harder to find. Users were rarely involved in defining the outcomes that matter most to them. The outcomes at the heart of employment service contracts, for example, are entirely focused on time-specific placement in a job rather than the quality of the job, the satisfaction of jobseekers or their future employability. Despite the range of service areas that our case studies covered, there were very limited opportunities for users to influence the structures, operation or outcomes of the majority of partnerships.

This is perhaps because partnerships, in the majority of cases, were driven largely by economic and financial concerns and managed by professionals. There is a strong belief in parts of the housing sector, for example, that integrated structures generate savings by consolidating assets, borrowing capacity, reducing senior management and governance costs and simplifying systems. But the relationship between the size of housing associations and their performance is not always straightforward. Large and small organisations are trying to do different things in different ways, and often have different strengths and weaknesses.

They also tend to judge their success in different ways. Large housing organisations use standard performance measures, awards, accreditation, successful funding bids and credit ratings. But smaller organisations often judge success by relationships with communities and local reputation. This comes back to the question of how we define the desired outcomes of partnership – what benefits are you trying to achieve and for whom?

It could be argued that both partnership working and commissioning of public services have been driven by a fixation with economies of scale. This relies on the notion that bigger is necessarily better, without questioning ‘what is better bigger?’ Financial and payroll services may benefit from being merged and streamlined, but the same notions of efficiency may not be applicable to services for teenage mothers or ex-offenders receiving mentoring and support. This is important in the context of the Coalition government’s desire to see scaling up as a result of market competition – assuming that mergers will occur between providers in the Work Programme, for example. 

One interviewee in the employment sector noted ‘There are great strengths in organisations which are growth-neutral, that is, which seek to be the ‘right size’ for the roles which they play, rather than seeking growth ‘at any price’. This has not, however, been an argument which has been given much weight by most commissioning organisations – and certainly not by DWP in the Work Programme.’
The push for ‘economies of scale’ may overlook the need for ‘economies of scope’, where the range rather than the volume of activity is increased. Economies of scope may be as important for delivering successful public services in a holistic way to users – where personal relationships are often more important than systems in achieving outcomes. Smaller, local organisations that are trusted by local people may offer a greater range of services and benefits than large scale service providers – benefits such as customer empathy, team working and relationship-building, which are often overlooked in the commissioning process.

Some housing organisations are exploring ‘economies of scope’ through their community investment activities, working with local residents and partners to build sustainable neighbourhoods through joint initiatives on financial inclusion, employment and community safety.

Our partnership case studies were extremely varied, and there were certainly many benefits identified through joint working in its many different forms. However, our research suggests that benefits of large-scale working are by no means consistent or guaranteed, and they are hard to generalise across different settings. This suggests that, rather than assuming all-encompassing notions of economies of scale and joined up working, we may need to assess each case on its own merits.

This approach must recognise not only that each case is different, but that there are different criteria for assessing success. Both government and third sector organisations need to think about the needs of service users. Importantly, they must not prioritise cost savings and ‘efficiencies’ at the expense of outcomes for service users.

There are many different ways of doing things – and these are likely to fit different organisations, different services, and different situations differently. Our research shows that partnerships are strongest where there is scope for financial benefit, but where partners also have ownership and shared purpose. And while the emphasis on partnership and merger continue to grow, our research emphasises that alternatives always continue to exist. While there is an increasing concentration of ownership by the largest housing organisations, for example, the majority have stayed small and still survive. Economies of scope may help to explain this survival of well connected local organisations. In the future, rather than just assuming ‘bigger is better’, we might argue that ‘even if bigger is cheaper for a while, smaller may be better and for longer’.

This article is based on research by James Rees, David Mullins and Tony Bovaird – available here

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