Internal markets in the council


Now, that's what I call an internal market

I had a Chief Executive who said that if the work we were doing was not directly benefitting or serving a member of the public then we were probably doing the wrong thing. In the same organisation we were told to focus closely on what the needs of our customers were and seek to deliver it. Finally, I was told, as a member of a support service, that I needed to ensure that I was delivering what the frontline service needed and not just what I felt was important.

All of the three statements are correct and not necessarily mutually exclusive.

However, they do highlight the complex position that people within support services are often in. On the one hand they usually have a formal role to undertake, such as audit, finance or legal services. On the other hand they are working for a public service and therefore should be serving the public and finally they are a SUPPORT service so should really just work for the service they are supporting.

It is a quandary that local authorities have long been trying to straighten out and one of the favoured tactics is to set up the internal business unit, or if this is a bit much, the approximation of an internal business unit.

The support service can then charge the frontline services in the council for their work.

This has its advantages:

  • Those managing a frontline service can plan exactly how much support service they want and pay for it. If they decide they want to flex their service they have control of a much greater part of their budget
  • The support services have to be more customer focused (or at least do what is asked of them by the frontline service)
  • It should help demonstrate the value for money of the support service

However, there are some perverse outcomes from the internal business unit and this is where my concern lies:

  • We might be trying to set up a sense of competition but there is no-one to compete against. Internal business units rely on getting ALL of the council business. So even if the internal design team sucks and is expensive the frontline services are told they have to use them. The argument is that if we want this service internally we have to pay for it. What if we, the frontline service, don’t want them? Sorry.
  • Services are essentially conservative. They roll over the support services from one year to the next without too much consideration. Internal business units assume an intelligent customer but if there is no competition then that manager is more likely to be the unsophisticated customer.
  • Not everything works as a chargeable service. I’m sure services don’t mind paying as they go for design or communications work but if you get lumped with a major employment tribunal do you really want that frontline service to bear the cost of all the HR and legal support? Internal business units can, if not managed properly, focus risk rather than spread it.
  • Finally, it is hilarious trying to work out the amount to charge the support services for other support services they have received which then needs to be passed to the frontline services. It’s a huge financial circular argument!

So what is the conclusion? Well, internal business units are not necessarily a bad thing but surely the only way for them to work is for there to be real competition. Maybe, my manager should be allowed to buy support services from neighbouring authorities?

After all, if we’re going to have competition and financial incentives we should probably do it properly, right?

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8 Comments on “Internal markets in the council”

  1. Marius Kynaston Says:

    I had a chief executive who called this ‘playing at shops’. He was right – it can be wasteful, time consuming and without benefit. VFM challenge has to come at strategic level for support services, led by management team. Not left to service managers desperate to reduce costs without impacting on their ‘own’ service.

  2. Mark Stanley Says:

    Do we want support services spending their time bidding for internal and external work? Do frontline services really want to run a procurement exercise?

    The big advantage of having an internal team is that they are easy to work with?
    …why are you laughing?

    Ok we’ve all met internal teams that are impossible to work with – they *do* provide support, but then so does a bed of nails.

    I wish I knew the answer to this conundrum – performance management of support teams, benchmarks across authorities, sharing best practice etc – has any of it worked? In many cases it has. Maybe social media can help promote cross-authority discussion – local authority auditor tweetup, unconference, whatever.

    The threat to an internal design team of being ditched in favour of using Sparklepants Boutique is probably a stick worth carrying, but be prepared for your local rag to pick up on it and highlight how you are wasting taxpayers hard earned cash at giving your Housing newsletter a new colour scheme while the goes unanswered.

    Damned if you do…

  3. Sara Says:

    Remember BBC Producer Choice? Just saying. . .


  4. I blame the 80s. Maybe it’s an overly simplistic suggestion and feel free to tear this to pieces…

    I blame the 80s because internal markets in government find their roots in Thatcher’s neoliberalism. Now, I’m not wholly opposed to the pure idea of a free market but if parts of it are protected, shielded from market forces and kept alive when they should wither and die that’s not a free market and the ideology falls down.

    What we have is less of an internal market and more a localised cartel laundering public money in a perpetual merry go round.

    And I think that’s possibly one of the things responsible for some of government’s challenges with innovation.

    If you’re an internal supplier you know your market. You know your budget is based on the revenue you receive and you know that’s guaranteed and unlikely to change year on year. There’s not a lot of wiggle room to account for failure, there’s no imperative to budget for R&D and your solutions fit your processes first.

    If you’re an internal client you know your customers but you’ve outsourced expertise in the things you’re looking to buy to those internal suppliers. They’re not pushing the boundaries for you and with the inherent information asymmetry you get sold what you’re sold rather than being able to provide a challenge or impetus to be ground breaking.

    Markets can’t be static, if they’re going to be healthy you need disruption.

    That disruption can come from client, but the disruptive solutions will come from the suppliers.

    If those suppliers have no resources to seed it, or impetus to spark it, why would that happen?

  5. Performance Officer Says:

    The other issue with these internal markets is the one rightly pointed out in the blog – quite often the support services do things that the services don’t exactly want eg audit them, interrogate performance, demand work for central teams/governance etc. If there was a pure market, I’m not completely convinced these services would always be bought. Which makes it seem a bit harsh to make the services buy them via this route – making the whole concept a bit of a mockery…

  6. Abdool Kara Says:

    It is worth taking a look at what has happened with (successful) ALMOs – they were given the right to challenge the range, quality and cost of support services, with highly beneficial results including driving value for money. Of course this is helped by the HRA rules (though those will be going shortly).

    There also tended to be a ‘yellow card’ protocol whereby rather than go directly to an outsourced solutuion the internal support service was allowed the opportunity to put right whatever was wrong. This sort of approach should could easily be replicated in other fields.


  7. In todays market one of the most important issues that Procurement Departments face is the customer service that they provide to the internal departments they support. Many times due to the present economy a procurement professional may not be able to get a big discount on the product or service BUT can really gain advantages in the realm of customer service both externally internally. If you do not provide your internal customers with top notch customer service then they will find ways to get around both you and your companys procurement policies procedures…


  8. [...] To my admittedly limited knowledge, this has to be one of the biggest examples this country has ever seen of a public sector service offered by one Council being sold to other public sector agencies.  I have experience of internal consultancies, many of which prove very successful.  Where a specialism exists which one single team has developed and which other teams need, it is not unusual for that team to charge a modest fee to make use of this service.  Design, communications, consultation, audit, legal advice, training, research, print; all these and more are made use of in the internal marketplace (which we looked at ourselves some time ago). [...]


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