The local authority trading company (LATCo) model offers a range of advantages over both outsourcing and traditional insourcing by a direct labour organisation (DLO). The combination of commercial knowhow and public service values can provide cost efficiency without diluting social value, profits are returned to the public purse rather than to private shareholders, the council has control over the company and – perhaps most importantly with devolution and local government reorganisation looming – the flexibility to implement major changes without the need for contract renegotiation, without the risk of variation charges.
But there is a further benefit, which is often overlooked at a time of great change, where the focus is on operational activities and service re-engineering: the development of a commercial culture, and the revenue growth which can result. At Norse we have invested heavily over the years, particularly in our local authority partnerships, to drive external sales as well as the revenues from delivering partner councils' services. Over the years we have been able to win contracts in a range of services through competitive tendering.
This has the effect of increasing turnover and boosting profit share for our partner councils, reinvesting to provide security, protecting jobs and creating employment opportunities, helping the local economy and increasing social value. Returning profits to the public purse also means that vital services can be maintained and improved.
This exposure to market forces is also a key component in developing a commercial culture in the organisation. This is one of the ways in which a LATCo differs from a traditional DLO, while retaining the benefits of insourcing. But in my experience it's not enough on its own. At Norse we have identified other factors which drive success:
• Empowering management teams
• Investing in innovation
• Hiring from the private sector
• Service diversification
• Cost control and operational efficiency
• Support from the board and the council shareholders
• Strong governance
I believe that this combination of factors can make a LATCo truly effective, able to reach its full potential and make a significant contribution to local government in difficult times.
Justin Galliford is CEO of Norse Group
