Academic study finds back-to-work scheme’s reliance on financial incentives undermines service innovation
When the £5bn work programme, the government’s flagship back-to-work scheme, was launched, it gained all-party support for a framework that was intended to deliver personal services to jobseekers and significant savings for the government.
However, initial enthusiasm for the programme has waned. The number of long-term claimants has remained static, smaller specialist providers are suffering cash-flow problems and delivering service innovation is proving much more difficult than either companies or policy makers had anticipated.
The Department for Work and Pensions (DWP) devised a procurement model for the work programme that would deliver service innovation through payment-by-results, tapered incentives and the transfer of financial risk from the taxpayer to the companies. A two-tier procurement model of prime and subcontractors was designed to reduce the number of prime contractors and give subcontractors the freedom to deliver service innovation. The model was neat but is it working in practice?
This was the question addressed by Manchester Business School’s institute for innovation research, which concluded in a study that the new system delivers financial incentives but appears to be inadequate as a framework for service innovation.
DWP commissioners awarded contracts to 18 companies as prime contractors on the basis of financial assets – service innovation capabilities were secondary. Underbidding and exaggerating claims for initial contract awards was commonplace. Smaller specialist suppliers were unable to afford payment-by-results and suffered cash-flow problems.
The work programme’s emphasis on prime contractors and financial incentives was shown to be undermining the creative capacity of all contractors to engage with local specialists and business.
The study finds that the work programme is attempting to deliver multiple policy objectives: rationalising government procurement; delivering personalised services to long-term claimants to reduce the number of claimants; and making savings. These policy aims cause a tension between the efficiencies delivered through a top-down supply chain model and the interagency relationships and specialist organisations that have the capacity and motivation to deliver service innovation.
Evidence shows that centralisation can reduce the cost of transactions, but it can also undermine the very local engagement that underpins service innovation. The innovation models for efficiency are not necessarily a good fit for service innovation, which is underpinned by personal relationships and co-design, rather than coercion.
Merely transferring risk and ownership does not necessarily produce results if those results are dependent on trusting and long-standing relationships that cannot be speeded up by financial incentives.
While the media focus is on the incompetence of companies and the size of their contracts, it is the government’s commissioning framework that is responsible for the work programme innovation strategy and procurement process. The public procurement of service is not a technical process but a framework for innovation service delivery, which requires specific systemic support and alignment with government and specific capabilities and providers where there is a balance between social and financial objectives expressed best in long-term strategies not short-term gains.
At present, the DWP prioritises financial assets over service outcomes and incentivises the larger companies at the expense of specialist suppliers. A social market of innovative suppliers may have driven innovation into the public system, but outsourcing to large companies or any company on the basis of financial assets alone is a poor lever for personalised service innovation.
A key message from the study is that the framework and gearing of procurement systems influence the capacity of suppliers to deliver innovative services and that financial incentives alone are not enough to support the connections and relationships that sustain social change.
Locally-based commissioning could be a better procurement vehicle when underpinned by local connections between business, personalised services, training and education and where interagency working and social enterprise consortiums are strongest.
The work programme could be transformed, in spite of austerity, if there were a better strategic alignment between the government’s welfare reform strategy and locally-based commissioning, which could stimulate innovative services for all claimants.
Dr Su Maddock is an honorary fellow of the Manchester Business School’s institute for innovation research and visiting professor, University of the West of England