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CHAPTER SEVEN CONCLUSIONS AND RECOMMENDATIONS

Introduction

7.1 This section draws together the main findings arising from the evaluation study and discusses their implications for future Scottish Government investment in the social economy.

Key Findings

7.2 This evaluation study set out to evaluate the performance and impact of the Futurebuilders Scotland funding programme. A number of key findings have emerged.

Purpose

7.3 Futurebuilders Scotland was introduced in late 2004, following a slow build up and rapid launch. It was conceived as a new form of investment, which focused first and foremost on strengthening the role of the sector in delivering more and better public services.

7.4 As an important demonstration Programme, it adopted a broad focus, reflected in a diverse and ambitious set of objectives and intentions. In most cases, specific and measurable outcomes were not specified.

7.5 The objectives were translated into a portfolio of funds designed to meet an array of needs within the social economy, and designed as a package of direct grants, training and support.

Processes

7.6 The delivery of the Programme was based on quite complex grant-making arrangements, to allocate a relatively modest sum of money. These were needed to manage and test its multiple funding streams.

7.7 The arrangements for Programme management were put under pressure by a high volume of applications. The experience has highlighted the importance of careful planning before implementation, and the flexibility to respond to emerging trends.

7.8 The Programme was managed in a satisfactory way by the Social Economy Unit, given the timeframe available, the newness of the Team, and the complicated nature of the funding scheme. Important local support was also provided by the former Communities Scotland Area Offices.

Activity

7.9 The funding programme has tapped into a rich vein of latent demand for investment within the social economy sector. The demand that emerged clearly outstripped the availability of funding available.

7.10 Collectively the Futurebuilders funding streams:

• awarded direct investment of £17.9m to 538 separate start-up and development projects;
• secured funding at source of £2.4m and helped to unlock up to a further £54.3m of project funding from a variety of sources;
• integrated ESF Global Grants funding, which enabled Futurebuilders funding to go further and helped to extend key project activities;
• invested in the development of 362 established organisations and 220 social enterprise start-up ventures;
• subsidised access to learning for 121 organisations, and introduced a new source of learning that has supported 575 learners; and
• invested strategically, and in conjunction with partners, to kick-start improvements in the support infrastructure for the sector.

7.11 Futurebuilders Scotland has brought forward a significant level of new activity within the sector, which is progressing satisfactorily. However, given the lack of detailed targets and milestones within the Programme, it is difficult to make a full assessment of performance.

7.12 Based on the evidence available, the funding programme has achieved its one headline target; to assist 500 social economy organisations.

Outcomes

7.13 As a series of important demonstration Funds, the Futurebuilders Scotland Programme enabled much experimentation and has given rise to many and varied outcomes.

7.14 In particular, the Programme has:

• had a direct and immediate effect in stimulating an array of promising social enterprise start-up activity;
• improved access to learning and begun to build a base of business and leadership skills in the sector;
• led to marked improvements in the organisational capacity, investment readiness, and financial sustainability of organisations;
• brought forward a diversity of services in areas that are broadly in keeping with public policy objectives;
• brought about improvements in the support infrastructure for the social economy; and
• led to a wider employment and income impacts for the Scottish economy.

7.15 As might have been expected, given its short timeframe and modest resources, the Programme has made less progress in:

• bringing about a cultural shift in attitudes on the part of the sector to risk/debt and in relation to investment in learning; and
• bringing about changes in the public sector commissioning environment.

7.16 Overall, this represents a strong achievement along the lines originally envisaged when the Programme was outlined in 2004.

Issues and Implications

7.17 Looking more closely at the process and outcomes, the evaluation evidence presented suggests a number of main issues and implications for future investment in the social economy.

Clarifying Purpose and Objectives

7.18 Futurebuilders was originally set up to strengthen the role of the social economy in public service delivery. To this was added a diversity of objectives and intentions designed to maximise the Programme's impact on the sector.

7.19 The experience has highlighted an assortment of areas where investment could further the development of the social economy. It is unlikely that these can be adequately addressed through a simplistic one-size-fits-all funding programme.

7.20 In moving forward, it will be important to separate out the different objectives for, and investment needs within, the sector. In keeping with the evaluation findings and policy backdrop, there seem to be three distinct (and not necessarily overlapping) areas where future investment is called for:

• asset development - enabling organisations to build their strength and financial sustainability through taking on the management or ownership of physical assets;
• public service innovation - strengthening the role of third sector (social enterprises and voluntary organisations) in the delivery of services on behalf of the public sector; and
• social enterprise development - specifically focused on the start-up and early development of social enterprises that will trade in consumer, business, or public markets.

7.21 In order to achieve desired outcomes, each investment area will require a clear policy rationale and set of objectives for public intervention, and an appropriate investment method to direct funding where required.

Refined Funding Procedures

7.22 Futurebuilders funds were allocated through parallel application processes that were specific to each funding stream. Funding procedures were tested, and put under pressure by the high demand from applicants. The processes were modified over time where possible, in light of early experiences. This reflected the willingness of the Social Economy Unit and Area Offices to listen and respond.

7.23 The findings outlined earlier have reinforced the importance of a number of key features that should be incorporated into any successor funding programme. These include:

• a robust assessment of the likely scale and nature of need/demand in order to inform total and individual Fund allocations;
• carefully specified and clearly communicated Fund objectives/criteria from the outset;
• pre-application appraisal and support to avoid unnecessary or unproductive effort in making a full application;
• an open continuous application process to help smooth demand;
• open and transparent decision-making processes that draw on relevant expertise; and
• ongoing and proactive post-approval monitoring and support.

7.24 A final point is that, where possible, funding and support should be packaged around the needs of individual applicants rather than allocated on a project-by-project basis. Where similar but separately branded funding 'silos' exist these are likely to attract numerous and wasted applications. Where divisions in funding streams are necessary, this might best be internal to the funding programme and packaged around the needs of each applicant.

Offering More Engaged Support

7.25 The advice and guidance offered through the Futurebuilders Programme has met with much satisfaction on the part of beneficiaries. However, the support available was limited by the staff time and expertise available to the former Communities Scotland and was not designed to include additional technical assistance ( e.g. in financial management) or capacity building support/training ( e.g. for voluntary boards).

7.26 As part of any continuation programme, the Scottish Government should consider ways in which development support and training can form part of a tailored package of support. In practice this would mean:

• an upfront assessment of the technical assistance, capacity building, and training needs of applicants;
• the provision of agreed business advice and training support to help ensure successful implementation; and
• an element of aftercare support to help build on achievements.

7.27 The support could be offered in a variety of ways. For example, it might be offered as a condition of grant, with a continuing or phased release of funds linked to the satisfactory achievement of capacity-building milestones. It would be possible to offer support through a pool of accredited providers (building on the array of existing expertise available), rather than adding needlessly or expensively to Programme set-up and management costs.

Encouraging a Culture of Learning

7.28 The evaluation has shown the significant benefits to be derived from investment in learning for the social economy. While this has tended to encourage demand for further or more regular investment in learning, this is likely to occur on a limited scale. Often social economy organisations (and the funders that support them) are unwilling or unable to pay the market price for learning.

7.29 This calls for further public intervention to stimulate the market for learning in the social economy. Such investment might best be used to:

• take actions to promote and encourage the take-up of relevant business, management and leadership training within the sector;
• help organisations to assess their learning needs and to make appropriate choices from within available learning provision;
• educate learning providers on the needs of the social economy and the opportunities to take learning to the sector; and
• provide targeted bursaries to improve access to learning where skills gaps exist and where business benefits can be demonstrated.

7.30 After the initial experimentation of Futurebuilders it is advisable that further investment in learning be guided by a coherent Skills Strategy/Framework. This would clarify the skills required by the sector, areas in which skills gaps/needs exist, where there are gaps in learning provision, and the areas in which further investment will be required.

Influencing Public Service Outcomes

7.31 Futurebuilders set out to extend the role of the social economy in public service delivery; this proved challenging. Desired public service outcomes were not clearly articulated, but rather mixed in with the then Executive's broad CtOG objectives. Ongoing challenges have also been noted in introducing and sustaining services where public service commissioners are unable to purchase services from the sector at a fair price or on reasonable terms.

7.32 Should the Scottish Government wish to take this forward, further action will be required to bridge the gap between the supply of services from the social economy sector and the demand for these from public purchasers.

7.33 A number of actions are possible. Particular consideration might be given as part of any successor programme to:

• clarifying the public service outcomes sought from investment, and the public sector purchasers and markets that might provide the focus for engagement/investment;
• a more robust appraisal of applications to ensure that proposed services will mainly be purchased and sustained by the public sector and that there is a prospective purchaser willing and able to pay;
• a more active role in supporting organisations to tender for, and negotiate with, prospective purchasers where mutually beneficial contracting opportunities exist;
• investment in pilot activity to stimulate innovation in public sector procurement and service delivery, using mechanisms such as Public Social Partnership arrangements; and
• further and more intensive measures to inform purchasers of the virtues of buying from the sector, advice and training on the methods for doing so, together with examples of good and bad practice.

7.34 Without concerted effort to open up commissioning processes and procurement markets to the sector, then further investment in building the service offering of the social economy is likely to have a limited impact.

Offering a Menu of Investment Options

7.35 Futurebuilders Scotland was conceived as an important new form of investment in the social economy. Paradoxically, it made use of traditional approaches to grant making to build financial sustainability and reduce the sector's dependence on grants. This recognised the known aversion to risk and debt within the sector, and the increasing availability of lending through Social Investment Scotland and others.

7.36 While loan funding may on its own be a viable option for a minority of organisations, this report has noted that a tailor-made package of grants and loans has been appropriate in many Investment Fund cases. It has also highlighted the potential for funders to work in the space between investments made solely to generate financial returns and grant-giving to achieve social objectives.

7.37 As part of any future programme to strengthen the trading potential of the sector, the Government should consider all alternative investment methods. As a point of principle, grant subsidy should be used only where no other form of finance (earned, borrowed or self-generated income) can be more (or as) effectively used to meet objectives.

7.38 In practice, this means making use of loans, equity-like investments, patient capital, or underwriting agreements as a part of the funding mix (either provided directly through a successor funding programme or in conjunction with an appropriate delivery partner). Grants might be used to good effect to build investment readiness while various types of lending offer longer-term financing options.

7.39 There are a number of potential advantages to this. By pursuing financial returns in addition to social returns, it is conceivable that a much larger pool of investment capital becomes available, greater effectiveness can be achieved, and projects are more likely to become less reliant on subsidy.

Achieving Financial Synergy

7.40 The report has shown that Futurebuilders Scotland was combined to good effect with funding from other sources. This was particularly the case in the Seedcorn Fund, where it was co-financed at source by funding partners and used to unlock project funding from a variety of other sources.

7.41 It is clear that any successor funding programme must fit within the changed funding environment in 2008 and beyond. In practice, this might lead to structured alignment (or integration) of various funding programmes that invest in:

• building community assets - for example, the Growing Community Assets programme of the Big Lottery;
• opening up public service markets - for example, the INCREASE programme for social enterprises in the recycling sector; and
• social enterprise start-up and development - for example, funding from UnLtd and the new EU Structural Funds programme in Scotland.

7.42 This will help ensure that the funding from partners can go further, and be used more strategically to achieve mutual objectives; in other words, to ensure that the total investment in the sector is greater than the sum of its parts.

Managing the Investment

7.43 Futurebuilders Scotland, as a grant funding programme, was managed by the Social Economy Unit. It drew on specialist staff expertise (through secondments), the experience of an award partner (Scotland UnLtd), and local connections of its network of the former Communities Scotland Area Offices.

7.44 This report has highlighted a growing trend for social economy funding programmes to be delivered independently of government ( e.g. Big Lottery Growing Community Assets, Futurebuilders England, etc.). This recognises that intermediaries are often better placed to take on the role of direct investor, managing risk, and providing hands-on support. They can bring the right blend of third sector, grant-making, and venture capitalist experience required to invest creatively and well in the social economy.

7.45 At the same time, the Social Economy Unit has now been integrated into the Scottish Government's Third Sector Team. Although much learning and experience has been accumulated by the Communities Scotland Area Offices in supporting the social economy, the agency has now been abolished.

7.46 As part of any successor programme, the Third Sector Team should therefore consider fully the opportunity to deliver future investment with and through intermediaries.

7.47 Depending on the design of the Fund(s), this might involve delivery through or in partnership with independent bodies:

• making use of expert secondments within Government from the private sector and social economy sector;
• buying in specialist expertise to provide particular functions ( e.g. the financial appraisal of applications, ongoing applicant support, etc.);
• partially investing in existing schemes that have shared objectives and tried and tested funding approaches/systems; and/or
• commissioning one or a consortium of organisations to manage and deliver the Fund or Funds in their entirety.

7.48 This offers the prospect of introducing an approach to funding which is fit-for-purpose and fully attuned to the investment needs of the sector.

Recommended Actions

7.49 Given the achievements of Futurebuilders Scotland as a demonstration programme, and the potential for further needs that it has revealed, we recommend further and sustained investment in the social economy sector.

7.50 In designing and bringing forward a successor programme the Scottish Government should consider:

• redesigning and rebranding Futurebuilders as a series of carefully targeted Funds designed to progress:
  • asset development - supporting organisations to take on the management or ownership of physical assets;
  • public service innovation - taking demand and supply side actions to open up specified public service markets to the sector;
  • social enterprise development - focused on the formation and early stage development of social enterprises;
• investigating opportunities to align, integrate, or jointly package funding with existing funding streams to the sector;
• taking time to consider and plan the funding mechanisms best placed and most appropriate to address investment needs;
• making use of a full range of investment methods including development grants and various forms of lending;
• fully integrating technical/capacity building support and training into any offer of investment to organisations;
• introducing a skills strategy/framework to reinforce direct investment and promote a culture of learning in the sector; and
• exploring opportunities to deliver investment through, or in partnership, with independent partners and intermediaries.

7.51 These actions to introduce future investment to the social economy should be considered in light of the Government's wider Vision for the Voluntary Sector.

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