|Quality at Work Forum, 24 November 2011|
|Quality at Work Forum: Creating Sustainable Employment through social enterprise models|
Hosted by Social Traders and Social Firms Australia (SoFA)
Keynote address by David Hetherington, Thursday 24 November 2011
Thank you, Caroline and David, and good morning, ladies and gentlemen.
A couple of months ago, Caroline asked me to share some thoughts with today’s Forum and the topic we settled on was the collision of quality outcomes and quality incomes. Up front, it’s important to clarify whose outcomes and whose incomes we’re talking about. Yours. The outcomes and incomes of social enterprises, social firms and disability employment providers.
I’m going to talk about outcomes and incomes as they relate to work opportunities, rather than other goals of social enterprise like recycling or community renewal, but I hope that’s OK given the title of today’s event is Quality at Work.
Let me start with the story of Rachel. Rachel is 26 and lives in Redfern in Sydney. She only made year 9 at school and a little while ago, she was released from Silverwater Jail where she’d served a short sentence for drug offences. In prison, she received pre-release counseling for both drugs and depression and on release she went to live with her mother and her son, Cooper, who’s seven. Cooper lived with his Grandma while his mum was locked up, and attends Alexandria Park Community School where he is doing pretty well.
Rachel’s determined to make a fist of her new life. She went off to Centrelink, and eventually found a part-time job in a social enterprise in Redfern called Prestige Packing which employs people with a mental illness to do packing and light assembly services. Rachel was getting back on track.
With this story in mind, what do we mean by quality outcomes? We mean a better quality of life for people like Rachel who are marginalized or disadvantaged, brought about by meaningful participation in a workplace. I imagine this broadly matches the mission statements of most of the organizations here in the room. What this means is that quality outcomes for you and for the people you employ are quite closely aligned.
It’s not quite the same with quality incomes. For most of you, quality income means a sustainable revenue stream that allows you to keep delivering those all-important outcomes. Your income stream is a little different from those you support. While theirs will consist of a weekly pay packet supplemented by government, yours might be a mix of commercial revenues, social investment capital, philanthropic donations, and last but not least, government funds.
Managing this mix can be a complex and draining task, with the real potential to distract from the main game of providing quality outcomes. It is this tension I want to discuss today - in particular, as it relates to government funding. The tension has two aspects. Firstly, does the need to deliver narrowly defined employment targets compromise the ability to improve the quality of life of those people you employ? Secondly, does the effort involved in securing and maintaining government funding, or other funding for that matter, detract disproportionately from that core mission? As Caroline put it in the title to this session, “Is the tail wagging the dog?”
Let’s think a bit more about quality outcomes. In the most general terms, it’s a better quality of life for those in need, but what does the journey towards a quality outcome look like in a social enterprise or social firm? In a sense, it doesn’t matter whether you’re helping people with mental illness, or with a disability, or with a history of substance abuse, or recently accepted asylum seekers. We all intuitively recognize the journey when we see it.
Let’s check back in with Rachel. At this point in our story, she’s travelling well. Over time, she has started to build relationships, build confidence. She’s developing resilience and regaining self-esteem. She’s no longer just an ex-con but a co-worker.
This is what happens for people, like Rachel, who get a break through social enterprise. They’re no longer identified as a jobseeker, or disability pensioner, or outpatient. Instead, they’re the guy who helps with the book-keeping or the lady who staffs the front desk or the bloke who drives the delivery van. Eventually, they’re just Eric, or Jo, or Daniel. Rather than being defined by their history, their self-image is defined by their relationships and their contribution to a collective effort.
As an aside, the importance of relationships can barely be overstated. The work of Britain’s Relationships Foundation is groundbreaking in this regard and definitely worth a look, but to illustrate the point, think about the phenomenon in op-shops where elderly customers come in and buy some clothes, only to return and donate them back the following day, all because it allows them to build a relationship with the staff. Extraordinary. This not only highlights the social value of relationships, but shows that social enterprises help more than just the staff they employ.
Most of you know all this already. Confidence. Self-esteem. Resilience. At one level, it seems like a set of motherhood statements. But it’s easy to forget that these things are at the heart of what we’re all trying to achieve. They’re the raison d’etre, the mission.
Amongst the motherhood statements, you’ll notice that there’s a set of words I haven’t used when talking about outcomes. Pathway. Stream. Placement. Job. Not because these things aren’t important, but because they’re part of the journey rather than the final destination. They’re not the quality outcomes in themselves, but the means to those ends. Yet in the world of social enterprise, of disability employment, these words can come to define our existence. There’s a danger we focus too much on the process rather than the outcomes. And often our interaction with government is the reason we do this, because it’s providing critical funding support which often dictates process.
But let’s pause for a minute to remember who we’re trying to support here. The 360,000 Australians with a permanent disability. The 64,000 who are living with a psychotic illness described in a major report released by the Mental Health Minister yesterday. The 37,500 ‘job-ready’ jobseekers who become long-term unemployed. It’s these people we need to keep in mind, even amidst the day-to-day pressures of running a small organisation in a tight economic environment.
What are these people looking for? The same things as anyone else. Decent shelter – somewhere to live. Rewarding relationships – someone to love. And meaningful work – something to do. For Rachel, this means her and Cooper moving out of her Mum’s into a place of their own.
Meaningful work is critical because it supports decent shelter and rewarding relationships. And it’s become even more important in recent years as work has increasingly become the place where we build many of our relationships. Our communities have become more atomized, more individualistic, and the social bonds that used to be built up across the fence or at the neighbourhood shops are these days more often formed in the workplace. This is why providing sustained work, rather than short-term placements, is so important – because it allows these bonds to be formed.
We all know that the process can be fragile, and punctuated by setbacks. Somebody with a mental illness suffers a relapse. An employer underestimates what’s required to support a new staff member with a disability. A co-worker sets back weeks of progress with an ill-judged passing comment.
For Rachel, the setback was the arrival on the scene of her ex, Sean. They started fighting again. One day, Rachel doesn’t turn up at Prestige Packing. They had another fight and she broke her arm. What’s worse, Sean clears out with the cash in her purse and Cooper’s PS2 console. Cooper’s devastated. When Rachel finally rings in the next day, her boss insists she sees her counselor straight away, but fortunately is willing to take her back on some stricter conditions when her arm heals
Setbacks like Rachel’s are all too predictable. But to deliver on quality outcomes, we need to invest in systems that are resilient to these setbacks. Again, this is more than just pathways and placement. It requires a commitment of time, patience and money that is not captured in many of our formal processes or targets or funding allocations. We all know this, and we try to manage it through work-arounds or unpaid overtime. But we can’t do it without this extra time, patience and money. Ultimately these things enable the sustained time in the workplace that produces those high quality outcomes.
What about high quality incomes? If you’re running a social enterprise or social firm, you’re much like a small business owner. Cashflow is all important. While costs matter, none of your operation is sustainable without revenues to provide cashflow. The difference with a small business owner of course is that he doesn’t have a social mandate in addition to his commercial one. He can focus on building cashflow without worrying about a higher organizational mission.
Now there’s no point in telling any of you how to manage your own revenues – you know far more about the coalface experience of a running a social firm than me. What I’d like to do instead is consider the various sources of funding for a social firm and offer some thoughts on trends in the funding environment.
Broadly, I’d identify four potential sources of income for a social enterprise. First of course is commercial revenue. Secondly, there is social investment capital. Next, donations from philanthropists. And finally there are government funds. You might also include contributions of volunteer time and cost savings from social innovations but I’ll leave them aside for now.
Commercial revenue is by definition the lifeblood of a social enterprise. Each firm will have its own sales & marketing approach so I want to just make a couple of general observations here. First, the growth of social enterprise has been remarkable in recent years, which shows there is a real opportunity out there and that it’s possible to sustain a social enterprise in Australia – something we weren’t sure of five or six years ago.
But despite that, a couple of words of caution are worth sharing. Make sure you have a genuine commercial proposition that addresses a specific commercial need. What’s different about your new neighbourhood café that the other two cafes on the block don’t offer? If you can’t answer that, maybe it’s not the right idea.
Next, always remember the productivity gap. It will cost you more to run your business than your for-profit competitors because you are fulfilling a social mandate. You need to have a very clear strategy to close that productivity gap because you won’t be able to do it with commercial revenues alone.
One way to fill the gap is with seed capital or patient capital from social investors who are willing to take a reduced return in order to generate quality outcomes. “Philanthrocapitalism” has been a recent buzzword in the social innovation circles – you might have seen a big spread about it in last Saturday’s Age. There have been a couple of big social investment successes, notably the GoodStart purchase of ABC Learning, but for the most part, raising serious social investment capital has been hard yards, and there have been few large-scale successes. An attempt to raise $35m in social capital for the Chris O’Brien Lifehouse centre secured only a tenth of that amount. I think the consensus is that while social investment offers considerable potential in the medium-term, it’s unlikely to explode anytime soon.
Creative social entrepreneurs will be able to secure themselves small investments here and there, but the availability of institutional social capital is some way off. The Federal Government recently kicked the ball along as a $16m co-investor in the SEDIF funds which are specifically targeted at social enterprises, and it will be interesting to see how government goes as a patient investor rather than a manager of grants. As a source of quality income, the best we can say about social investment capital right now is ‘watch this space’.
The next potential source of funding is philanthropic donations. For social enterprises, these grants are typically used to fund capital equipment – the new community bus, the kitchen fit-out – rather than ongoing operating costs. So they’re a good source of start-up income if you can access them.
But the GFC has really hit the philanthropic sector hard. With equity markets down over 30% in the last four years, trusts and foundations have seen their endowments shrink considerably. The flow-on effect has been a real reduction in the size and number of grants on offer. At a recent board meeting, one of my directors who sits on a number of non-profit boards observed that the same story has been told at each organisation this year: philanthropic funds winding back new commitments, and carefully evaluating the renewal of existing grants. This will probably remain the case until the world economy stabilizes, so philanthropy is unlikely to grow much as a source of quality income any time soon.
Government funding is the last and most challenging source of income for social enterprises. As you know, JSA spent around $1.5b helping 450,000 people last year, but social enterprises don’t make up a large part of this spending. Most government money for social firms has come through the series of special purpose funds established in the last few years: the Innovation Fund, the Jobs Fund and most recently the impressively named Social Enterprise Development & Investment Fund. Between them, the Innovation Fund and Jobs Fund have provided $74m in grant money to 105 social enterprises and helped established new capacity-building organizations like Social Traders to support social enterprise.
Now the government’s fiscal position is getting tighter, and my feeling is we’re unlikely to see many new funds beyond SEDIF. The Innovation Fund hasn’t been renewed in the latest JSA round and the Jobs Fund is winding down now the GFC has passed. So genuinely new grant money for social enterprise is likely to be thin on the ground.
Don’t despair though, as there is another, potentially bigger source of government funding – through social procurement. Government has enormous purchasing power and the commitment of a tiny slice of this to procurement from social enterprise would boost the sector immensely. The Federal Government used this power a couple of weeks ago to achieve equal pay in the social and community care sector, and we should be gently nudging both the Feds and State Governments to do more in this regard.
So in sum, quality income will continue to come from commercial revenue and the challenge is to close the productivity gap with a combination of social capital, philanthropic donations and most significantly in the short term, government funds. And it’s these government funds that provide most of the collisions between quality outcomes and quality incomes.
Why? There are several points of collision – over grant applications, over compliance and reporting, over targets. Each matters because it diverts scarce resources from the social mission of the enterprise. Take applications – the investment required just to get on the Innovation Fund Panel, never mind win an actual grant – was all-consuming for weeks for many small organizations. I remember doing a seminar with Jobs Australia just before the Panel applications were due. It didn’t take me long to realize that everyone in the room was totally preoccupied with the paperwork for the applications due Friday. And many of them didn’t ever get the grants.
The second collision comes from targets and reporting. Inevitably the need to report outcomes has an effect on behaviour of your organisation. In a strangely Pavlovian way, hitting the targets can becomes all-consuming. And usually the targets are defined in narrow, numerical terms rather than in terms of the broader, quality outcomes I talked about earlier. They’re statistics, not stories. So the risk is that you focus on the statistics at the expense of the stories. You’re tempted to ask yourself, “How do we show how many people we’ve employed?” rather than “How’s Rachel doing? And Eric, Jo and Daniel?” All of us are aware of this risk, but when funding’s on the line, it can be very hard to resist it.
Why does government like this? Why must it insist on the paperwork, the targets, the announcables for the media release? Wouldn’t all our outcomes be improved if government were less intrusive, less cumbersome? Perhaps, but I’m going to be unpopular here and defend government’s approach.
The American jurist Oliver Wendell Holmes said that “Taxes are the price we pay for a civilized society” and that’s what governments’ investment in social enterprise is seeking to sustain – outcomes that we’d all consider civilized. But government has a responsibility to ensure taxpayers’ money is spent effectively, so they need to find some way of measuring effectiveness. How do they assess the relative effectiveness of one program against another?
The only way is to set metrics and track the performance of these metrics. Sounds boring, I know, but it’s the only way to do it. The challenge arises when you’re setting the metrics. The challenge for governments is that metrics are usually either too superficial to capture meaningful change or too difficult to be shifted in a politically convenient timeframe.
The target of “number of jobseekers placed in work” is arguably too superficial to capture meaningful change. Rachel’s story is not the story of starting at work, but staying in work. By contrast, the targets set in the Closing the Gap on indigenous disadvantage are hugely meaningful but insiders in government tell me one of the challenges is that there’s only minimal progress to report each year!
The problem is that governments simultaneously try to minimize risk and maximize ‘announcables’. So they tend to go for the superficial, easily measured targets, and shy away from innovative policy that carries a risk of failure. This is the real failing. We should be pushing governments to embrace longer-term targets and calculated risks. The targets should be ones which tell us whether we’re achieving the long-term work opportunities that improve quality of lives. But we shouldn’t resist the practice of setting and reporting targets which, done properly, is there to ensure accountability for taxpayers.
We should also acknowledge that government is gradually getting better at this. It’s begun to recognise and account for the broader social and economic costs of getting people back into work for sustained periods. And it is gradually loosening its grip on how funds are used to achieve outcomes. When I think back to the structure of the Innovation Fund, with its Panel and its grant process, and then I look at SEDIF, where government has appointed two external managers to oversee investments in social enterprise, rather than government making grants directly to them, I think we’re moving in the right direction.
What’s more, the embrace of risk is something we should demand not just of government, but of ourselves too. This requires continually pushing against the boundaries of the government funding framework, not simply falling into line with it. I recently had a conversation with a large JSA provider who said they had little interest in initiatives like the Innovation Fund because they found more cost-savings by seeking efficiencies in the mainstream JSA system. Fair enough, but if we all operated this way, all we’d do is improve our ratio of jobseekers placed to public money spent, without knowing if the outcome of better quality lives had been achieved.
I’m told that the JSA system currently places Stream 4 jobseekers for about $8,000 a job. Social enterprises may seem expensive alongside that, but that’s because you’re delivering something more than just a placement statistic. You’re delivering a story, a story of someone like Rachel, whose life can be transformed by the opportunities of sustained work. Happily, Rachel did move out with Cooper into a new social housing unit, and has remained in part-time work although not at Prestige. She’s stayed away from the drugs and from Sean, and managed, with her Mum’s help, to buy Cooper a new Playstation. That’s a quality outcome.