Nigel Kippax, is head of consulting and training at the National Council for Voluntary Organisations (NCVO), which is the largest umbrella group for voluntary and community sector groups in England. Here he explores the voluntary sectors relationship with lean and how they benefit one another.
When considering the application of lean tools and the broader approach to process management, many of us will be familiar with the leading-edge examples from the corporate sector, others with the changes in the way our public services are being delivered by, for example, HMRC. But what do we know of the voluntary and charity sector? Forgotten cousin or active partner?
Six years ago I began working in the UK voluntary sector and have for the past year been leading the consulting team at NCVO – the largest umbrella body for UK charities with over 11,000 member organisations.
Those new to the voluntary sector may be surprised to learn that there are over 160,000 UK voluntary sector organisations with a combined annual income of £40bn and employing around 800,000 people. Not small by any standards.
The sector has changed enormously over the past 25 years, partly driven through the growth in delivery of social care services which are part funded through government contracts. Government funding has proven to be a two edged sword in that is has provided money, but the greater reliance on government contracts has brought with it the risks associated with funding cuts. The recent years of austerity have placed enormous pressures on voluntary organisations, both directly through reduced contract funding, and indirectly through reduced individual giving.
So how has the voluntary sector responded to the financial pressures? I believe the voluntary sector is now in a fourth phase of response.
Phase 1: Denial
When the financial situation took a turn for the worse in 2008/2009, my conversations with sector leaders were often couched in the idea that obviously no one knew what would happen until the government produced its spending review. Later, once the review was published, the response included an element of procrastinating as everyone waited on what specific impacts that would have on any one charity. As with many major challenges there was a tendency in some quarters to wait and see and continue with charity as normal while government cuts were announced. Eventually, however, the challenges of operating within an environment of reduced financial income became clear. Many leaders then looked for a well tried and tested route to meet these challenges.
Phase 2: Raise more funds
When the consequences of reduced income were clear, organisations increased the intensity and professionalism with which they sought to raise funds assuming that new income could secure the charity’s future. This was reflected in recruitment figures in 2010/2011 where up to 90% of all advertised vacancies were within fundraising. The reaction to reduced income was often get a new director of fundraising to sort this out. Unfortunately although this worked for a few, the overall pot of money available was getting smaller, so returns were ever more difficult to secure. A lot of excellent work was done, but fund raising alone is not the long term solution for the sector.
Phase 3: Salami cost cutting
The third phase saw charities reducing costs, re-focusing priorities and cutting services.
The salami or functional approach to managing costs has a number of advantages. Firstly, it’s easy to understand. If it is deemed necessary to reduce operating costs by 10%, then why not give each department head a target of 10% reduction? This fits well with often established lines of authority, particularly where the default leadership style tends towards command and control. At first sight it would also appear to be fair and reasonable. On closer inspection, however, this approach is somewhat less fair than at first glance. I have often met department heads who are very conscientious about overheads and run a tight ship. If this head is given the same target as a colleague who may have been working with excessive fat in their team, how can this possibly be fair?
Worse still, a salami approach will encourage silo working. It is almost certain to overlook major opportunities to improve ways of working in the links between departments and risks destroying capability.
A functional approach may have advantages, but it also has severe limitations meaning it cannot be considered a sustainable approach to managing costs and performance.
Phase 4: Innovation and managing processes
A sustainable approach to managing costs will focus on the processes that cut across departmental boundaries. This is often not easy to implement as it cuts across normal lines of authority and requires team working to delivery benefits, but the advantages of this approach will far outweigh the challenges.
Several voluntary sector organisations are now in the fourth phase, recognising the need to think differently about their business model, the way in which income is secured, the mind-set adopted in solving problems and the way processes are managed and operated. Lean thinking is alive in the voluntary sector.
To illustrate the point, NCVO convened a leadership forum in early 2014 on the lean charity – how to adopt lean tools in the voluntary sector. Interestingly, there were twenty large charities who were either already doing lean, or who were very interested in finding out more. Even as recently as a year ago I don’t believe such as session would have attracted more than one or two participants.
Examples of what’s currently going on:
CLIC Sargent is the UK’s leaking cancer charity for children and young people operating with an annual turnover of £20m. They provide clinical, practical and emotional support from diagnosis onwards.
Two years ago the charity embarked on a programme of lean six sigma and other business process management methodologies, to innovate and get ready for future growth. Earlier this year they published the results of the Better by Design programme showing how over £1m had been saved from recurring overheads without affecting front line services. A real testament to the process centred approach to cost management and an excellent example of changing times in the voluntary sector.
The Children’s Society provides children’s social care across the UK, operating with an annual turnover of £40m. The charity is focused on the disadvantaged, fighting for change and supporting them to have better lives. Much of their work is centred on delivering government contracts, an area which has faced severe reductions in funding.
The senior team have set out to transform the way the charity operates to ensure the long term success and sustainability of their work. Their selected approach includes the use of a target operating model incorporating architecture on the key areas of strategy; people; technology; processes and performance. This is another excellent example of changing times in the voluntary sector.
Interestingly, in each of the above examples the language adopted by the charity could be regarded as very corporate. There are those in the voluntary sector who balk at the use of such business language, but perhaps things are really changing.
It is clearly not possible to take a given tool or approach and apply it simplistically across sectors, or across different organisations for that matter. Some degree of tailoring is required to fit the specific situation and working culture.
However, my conversations with sector leaders over the past six months suggest, strongly, that the time is now right to introduce process management methodologies, including lean, to voluntary sector organisations. For many it will be seen as a financial imperative. For others it’s a farsighted recognition that change and improvement are inherently good for us and, if implemented wisely, will also be good for our society as a whole.