Commercial Strategy 2024-2027

1. Context
2. Commercial strategic framework
3. Implementation
4. Governance
5. Risk
6. Finance and funding
7. Measuring success
8. References

The purpose of the commercial strategy is to enable the Council to achieve its corporate priority of securing financial sustainability for services the local communities value.

The strategy details the long-term strategic objectives, key activities, resources and capabilities and structures and systems that will be implemented to achieve the corporate priority. These are summarised in the Commercial Strategic Framework shown below.

1. Context

Why we need a commercial strategy

1.1 This draft sets out the Council’s new Commercial Strategy 2024-2027 with a view to encourage a more commercial and entrepreneurial approach within the organisation. Its successful implementation will require a wider organisational input (beyond the ‘obvious’ service areas that generate commercial income) and therefore was written with a broader audience in mind that may not be familiar with what is generally described as ‘commercialism’ in local government and with the process of strategy formulation and implementation in public organisations.

1.2 The Council’s current Commercial Strategy expired in 2023 and a new strategy must be developed, as set out in the Commercial Board’s Terms of Reference. The Commercial Board has resumed its activity in November 2023 after a three-year pause and was then incorporated into a new Transformation and Commercial Board from August 2024.

1.3 The need for a new Commercial Strategy responds to the newly adopted Council’s Corporate Plan 2023-2027, which identifies ‘securing financial sustainability for services the local communities value’ as one of the three corporate priorities. This involves addressing the Council’s financial gap, as detailed in Table 1, and bringing its expenditure into line with its income. A key source of reducing the funding gap is the increase of net income from the council’s commercial activities.

Source: Medium Term Financial Strategy 2024-2027 and Capital Strategy 2024-2034 Cabinet Report 13 February 2024

What is commercialism?

1.4 Local authorities have engaged in commercial activities for a long time, although there is no agreed definition of what constitutes ‘commercialisation’. Association for Public Services Excellence (Apse) and Audit Wales have provided useful summaries recently, as outlined below.

1.5 Commercialisation can take several forms but, in all cases, refers to the participation of local authorities as sellers in commercial marketplaces. On one level, ‘the term commercial is simply about commerce or trading: the buying and selling of goods and services for a financial return’ (Apse, 2020) or ‘selling goods and services to citizens or organisations’ (Audit Wales, 2020).

1.6 In the case of local authorities, it can also be about an attitude to the use of resources that is applicable to everything the council does (Apse, 2020), or, in other words, effective and efficient service delivery to achieve the desired outcomes.

1.7 Looking at commercialism in more detail, a report by Audit Wales in 2020 summarised what working more commercially might mean for local authorities:

• Operating a service more efficiently by, for example, reducing cost, raising charges, attracting new customers or users;
• Generating profit by charging more that it costs to provide a service and not subsidising it;
• Delivering services differently with less council ownership, influence or control by outsourcing an activity or transferring an asset to a community group to enable the service to operate in the commercial world with little or no council subsidy or influence;
• Developing entirely new services in the ‘private’ marketplace in competition with private businesses for the specific purpose of creating profit.

1.8 In the same report, Audit Wales raises the question of how far councils should push the commercial agenda and the need for appropriate parameters or ‘principles of commercialisation’ to be set. In that sense, the Council should consider whether they are going to:

• Pursue commercial activity that builds on its existing services?
• Enter entirely new areas of operation?
• Pursue commercial activity only within its geographical boundaries?
• Pursue commercial opportunities in other local authority areas?
• Compete with local businesses? Compete with the third sector? Compete with other councils?
• Look to recover all costs associated with the activity?
• Seek to maximise profit generation?
• Be clear on how it will use the profits it creates.

2. Commercial Strategic Framework

Aims and objectives

2.1 All commercial activities’ aim is to contribute to the corporate priority of ‘securing financial sustainability for services the local communities value’. These activities are delivered under a commercial strategy framework, shown in Table 2, which includes the strategic priorities and objectives, intervention categories (sources of income), delivery channels and the key success factors underpinning successful implementation.

Key success factors

• Organisational culture
• Objective appraisal of resources and capabilities
• Profound understanding of competitive environment
• Strategic fit

Strategic Objective (SO1) – Increase net rental income

• The commercial rental income under this objective is generated from the following activities: letting of existing vacant space; lease renewals; rent reviews and investment in new assets capable of generating a commercial return. Generation of rental income from housing private rental schemes (PRS) is being explored as part of the Kidderminster feasibility study that looks at several town centre sites.

Strategic Objective 2 (SO2) – Increase net income from commercial activities

2.3. The commercial income under this objective is currently generated from the activities including external works and contracts (traded services); fees and charges; parking and enforcement and Bewdley Museum.

Strategic Objective 3 (SO3) – Monetise the value of natural assets

2.4 The activities that could generate commercial income under this objective include maximising the opportunities offered by the nature reserves, parks and green spaces in the district; capitalising on the planning obligations for developers to deliver biodiversity net gains (BNG) of at least 10% by selling BNG units to developers both within and outside of Wyre Forest; and attracting more day and overnight visitors to the district.

Strategic Objective 4 (SO4) – Achieve efficiency gains

2.5 A more commercial organisational behaviour is intrinsically linked to delivering services more effectively and efficiently. To achieve this objective, a series of strategic reviews will be undertaken including service reviews to test the efficiency of internal value chains (i.e. how internal resources are deployed to deliver the desired outcomes); a review of all contracts coming up for renewal and new purchasing needs every 12 months; and exploring strategic partnering options for service delivery (shared services; joint-ventures; alliances).

Delivery arrangements

2.6 The achievement of the strategic objectives requires a deep collaborative approach between all council services. Cross-functional delivery units will be set up under each strategic objective to implement the activities required to achieve the targets identified under the respective strategic objective. These delivery units will be led by a relevant service manager.

2.7 These delivery arrangements would require the introduction of a matrix model in the council’s organisational structure and its integration in the performance management system (i.e. MDR). Table 3 shows the delivery units matrix template.

TABLE 3

Strategic choices

2.8 In its broadest sense, strategy is the means by which individuals or organisations achieve their objectives, and involves setting goals, allocating resources, and establishing consistency and coherence among decisions and actions. (Grant, 2019).

2.9 For commercial (for-profit) enterprises, business strategies answer two basic questions: where to compete and how to compete to identify the primary sources of superior profit for a firm, which ‘to survive and prosper over the long term, must earn a rate of return on its capital that exceeds its cost of capital.’ Grant (2019, p.18). There are two possible ways of achieving this: by locating within industries that offer attractive rates of profit and by establishing a competitive advantage over rivals within an industry’ (Grant, 2019).

2.10 For the Council, the Commercial Strategy supports the corporate priority of ‘securing financial sustainability for services the local communities value’. This involves addressing the Council’s funding gap and bringing its expenditure into line with its income, which focuses on increasing the net income from the council’s commercial activities and achieving efficiency gains.

2.11 The above can be expressed more simply, as private firms, and councils operating in commercial marketplaces, must answer a basic question: ‘How do we make money?’, which prompts the two basic strategic choices mentioned above: ‘Where to compete?’ and ‘How to compete?’ (Figure 1, adapted from Grant, 2019).

FIGURE 1

Strategic fit

2.12 One of the most common ways of determining a successful strategy is to recast its elements so that the strategy is positioned as the link between the firm and the industry environment (Figure 2). Fundamental to this view of strategy as the link between the firm and its external environment is the notion of strategic fit, which refers to the consistency of a firm’s business strategy with its external and internal environments (Grant 2019, Localis 2021). A lack of consistency with either the internal and external environment is a major reason for companies’ decline and failure (Grant, 2019).

Figure 2

Furthermore, to be successful, the Commercial Strategy must achieve strategic alignment with other key Council strategies and plans, as illustrated in Figure 3.

Figure 3

3. Implementation

• Understanding the marketplace: PESTLE and Porter’s Five Forces
• Appraisal of internal resources and capabilities: value chain analysis
• Organisational culture
• Finance and funding: Capital Portfolio Fund; Innovation Fund

3.1 In addition to commitment to long-term objectives, the formulation and successful implementation of any commercial or business strategy is underpinned by two critical success factors: understanding the internal (resources and capabilities) and external (marketplace) environment.

Understanding the marketplace: PESTLE and Porter’s Five Forces

3.2 If commercialism is about participating in the marketplace through commerce or trading i.e. the buying and selling of goods and services for a financial return, the Council needs to understand the environment in which it participates. To understand the industry environment, an external analysis needs to be undertaken. Two commonly used tools are PESTLE and Porter’s Five Forces.

3.3 PESTLE is a widely used tool to analyse the macro-environment, by assessing the various determinants that compose the six main macro-environmental factors: political; economic; socio-cultural; technological; legal and environmental (Figure 4).

Figure 4: PESTLE

3.4 Porter’s Five Forces framework (Figure 5) enables an analysis of the micro-environment or the industry in which the firm competes. It is framework for understanding and anticipating future changes and competition. It is a widely used tool that can help managers identify possible sources of competitive advantage; understand the level of threat of new entrants as well as possible substitutes; and the level of competitive rivalry existing in the industry.

Figure 5 Porter’s Five Forces diagram

Appraisal of internal resources and capabilities

3.5 Translating any strategy, including business or commercial strategies, into action requires organisational capability. Hence, the development and deployment of organisational capabilities lies at the core of strategy implementation (Grant, 2019).

3.6 Thinking commercially requires a council to be able to generate insight by joining different parts of the organisation together. To do this well, councils need to have people with the right skills who understand the wider operating environment and have commercial acumen (Audit Wales, 2020), so successful implementation will require building commercial acumen and a commercial culture within the council.

3.7 To assess the council resources and capabilities a functional analysis will be undertaken to identify the resources within functional areas which are engaged in delivering commercial activities (i.e. in property; environment; procurement; finance; legal; marketing/comms etc.) and a value chain analysis to define the sequential chains (i.e. capabilities) involved in the implementation of commercial activities. These will be disaggregated to provide a more detailed identification of commercial activities and the capabilities that correspond to each activity.

3.8 The appraisal process is summarised diagrammatically in Figure 6 (Grant, 2019). The focus of the appraisal process will be on the two right-hand boxes: how do we exploit our key strengths most effectively and how do we address our key weaknesses, how do we correct them to reduce their impact.

Figure 6

Value chain analysis

3.9 The value chain analysis identifies the sequential chain of activities within an organisation, which together create a product or service. The value chain consists of five primary activities, which are directly concerned with the creation or delivery of a product or service, and four supporting/enabling activities, which help to improve the effectiveness and/r efficiency of primary activities. Figure 7 illustrates the value chain activities.

Figure 7 (Grant, 2019)

Organisational culture

3.10 Thinking and behaving commercially at individual, team and organisational levels, is not a destination, but a journey. It does not start and finish with a specific financial period (financial year or medium term financial strategy) and it needs to be embedded in the Council’s organisational culture to ensure its long term financial sustainability.

3.11 To implement commercial strategies successfully, councils need a commercial culture that is lived and breathed throughout the organisation internally. The council’s commercial ethos and approach needs to be shared to all staff – and in staff inductions – to set the context from the start. This means communicating clearly, consistently and often, explaining how commercial activity is aligned with the organisation’s core purpose and supports the delivery of place-based public value across the locality (Localis, 2021).

3.12 The need for a more commercial and entrepreneurial approach within the organisation requiring a wide organisational input was one of the Corporate Peer Challenges Report (2024) recommendations, which stated that ‘it is important that everyone realises they have a part to play in supporting commercialisation and having a business mind set even if they are professional and business support services like HR and IT.”(Corporate Peer Challenge Report, 2024).

3.13 The same report emphasised that to establish a more entrepreneurial culture amongst all Council employees that supports the focus on commercialisation, internal communication (clear consistent language on commercialisation) needs play a key part to enable all staff to understand their role in delivering corporate priorities including commercialisation.

3.14 To achieve the above, a series of key enabling interventions are proposed:

• Establish a Commercialisation Enabling Group (CEG) to act as champions and enablers across the organisation offering support to service leads and their teams on a regular basis.
• Deliver a series of workshops at the Managers Network, as outlined in Figure 8. The workshops will be delivered by CEG with external specialist support where relevant and appropriate.
• Service managers to replicate the above within their service areas (applying a level of proportionality relevant to their service scope and scale), working with their teams to cascade down a clear and consistent message.
• Regular communication via Wyred Weekly to celebrate success stories, share best practice and keep encouraging and inspiring staff to think and behave more entrepreneurially.

Figure 8

Theme A: Why/purpose

• What is commercialism?
• Why do we need a commercial strategy?
• What does it mean to be more commercial / entrepreneurial?
• What does it mean for my service and my role?
• How can I contribute?

Theme B: internal and external analysis

• Internal analysis:
  • Analysis of resources and capabilities
  • Classifying capabilities:
  • functional analysis and value chain analysis (understanding end to end processes/operations which generate income)
• External analysis:
  • PESTLE
  • Porter’s five forces

Theme C Implementation

• Goal setting/re-setting
• Integration into service plans
• KPIs and monitoring
• Timeframe
• Understanding and managing risks

4. Governance

Corporate governance structure

4.1 Good governance is a key tenet of organisational success. Figure 9 details the proposed governance structure and process (adapted from Commercial Guidance and Toolkit, Local Partnerships, 2023).

Figure 9: proposed corporate governance structure

First line of defence: Delivery unit leads

• Coordinate the delivery units responsible for the achievement of targets under their specific strategic objective.
• Complete progress reports, including dashboards on risks and results and report to the Transformation and Commercial Board when required.

Second line of defence: Commercialisation Enabling Group (CEG)

Third line of defence:

• Core group led by Deputy Chief Executive: Regeneration and Commercial and made up of the delivery units leads.
• Monitors delivery on a monthly basis.
• Champions a commercial culture in the council.

Transformational and Commercial Board (TCB) - officer and member group

• Provides oversight and assurance – summary reporting to Cabinet
• Consider risk to the authority identified through escalations
• Setting and monitoring detailed targets and KPIs – lead officers attend when relevant or by invitation
• Troubleshoots, addresses poor performance, understands risks

Cabinet and Corporate Leadership Team

Identify corporate targets for income generation as part of medium financial term strategy, based on advice from the TCB
Consider decisions which the TCB is not empowered to make (as prelude to formal decision-making by Cabinet and/or Council.

Transformational and Commercial Board

4.2 A Transformational and Commercial Board (TCB) has been set up in July 2024. It is chaired by the Chief Executive and includes the following officers: Deputy Chief Executive: Regeneration and Commercial, Section 151 Officer, Monitoring Officer, and Members: Deputy Leader and Cabinet Member for Operational Services; Cabinet Member for Finance and Capital Portfolio; and Cabinet Member for Culture, Leisure, Arts and Community Safety. The Board meets every six weeks.

Business case approval

• Five Case Business Case model
• The Business Canvas Model

4.3 All new commercial proposals must be submitted to the Transformation and Commercial Board for approval. The proposals must be submitted using the appropriate templates. New and complex proposals must use the Five Case Business Case Model with the level of detail provided proportionate to the scope and scale of the proposal. Where new ideas / proposals are being developed, the Business Canvass Model is recommended in the first instance as a useful tool to test the feasibility of a new commercial/business proposal.

5. Risk

Risk analysis / risk management / risk appetite

5.1 Identifying, understanding and managing the risks associated with commercial activities or commercial enterprise are critical success factors in any business, but even more in the context of a public sector organisation. Successful enterprises are characterised by risk intelligent cultures, which means that everyone understands the organisation’s approach to risk, takes personal responsibility to manage risk in everything they do and encourage others to follow their example.

5.2 A key element of understanding and managing risk is establishing the Council’s the risk appetite associated with growing commercial income through commercial trading. In that sense, the Ansoff Growth Matrix (Figure 10) offers a good starting point by identifying the main options that are open to the Council in terms of commercial trading of products or services and the risks associated with them. The matrix will be used in the assessment of new business cases.

IMAGE TO BE INSERTED

Figure 10 (Source: Commercial Guidance and Toolkit, Local Partnerships, 2023)

5.3 The Council has recently refreshed its risk management approach with each council department adopting updated risk register templates that capture the key operational risks, including any risks arising from commercial activities. The Corporate Leadership Team (CLT) manages the corporate risk register, which is presented regularly to Cabinet and the Audit Committee.

6. Finance and funding

• Service budgets
• Capital Portfolio Fund
• Innovation Fund: business case development; soft market testing; training and development.

6.1 Current commercial activities are funded through service budgets. New investments in commercial property are funded through the Capital Portfolio Fund following assessment of new business cases which are evaluated using a bespoke assessment tool.

6.2 It is recommended that the Innovation Fund is used to support the development of new business cases, where feasibility studies are necessary or specialist external support, soft market testing activities and officer and Member training and development.

7. Measuring success

• Key performance indicators
• Monitoring framework

To measure success, key performance indicators (KPIs) are set for each source of income and monitored on a monthly basis by each delivery unit.

8. References

APSE (2020) Taking a commercial approach. A guide for local councils in Scotland to income generation, trading and charging, available online at apse.org.uk

Audit Wales (2020) Commercialisation in Local Government. Report of the Auditor General for Wales, available online at www.audit.wales

Grant, M. G. (2019) Contemporary Strategy Analysis, 10^th ed. Hoboken, NJ: Wiley & Sons

Localis and Human Engine (2021) The Commercial Edge: Renewing the case for the local investment state, available online at localis.org.uk

Local Partnerships (2023), Commercial Guidance and Toolkit

Wyre Forest District Council (2024), Cabinet report: Medium Term Financial Strategy (MTFS) 2024-2027 and Capital Strategy 2024-2034, available online at wyreforest.gov.uk