Providers who are servicing the market will naturally begin to offer services where they can achieve the greatest efficiencies. That is, services will be provided which attract a high volume of clients, or where the needs of clients can be met while maintaining low overhead costs.
One of the concerns which is yet to be addressed is how we, as a community, will continue to support the needs of those individuals which require a very specialist level or type of care, those whose care requires a very high level of overhead costs, or those in remote or regional areas (meaning providers) are unlikely to reach the volumes they require to remain sustainable.
This concern is not fresh, and advocates in the sector have been writing on the topic since the announcement of the social sector funding shift. To date, there has been no firm resolution as to how these clients will be serviced. The National Disability Services (NDS) has advocated there is a case for block funding to remain in place for these types of clients .
Ultimately, the organisations that are/were block funded are likely to either rationalise their services to those they can deliver sustainably, or if they are solely in that service market, they may indeed cease operations all together if block funding does not continue.
However, before this becomes a reality, there may be other options open to these organisations which may allow them to continue to operate in thin markets.
1. Cross Subsidisation
Where organisations are offering multiple services, it may be that some of these are more efficient than others. These services contribute more to our sustainability (or profit) margin than the services which are run at far higher costs to our business. An organisation may make a strategic choice to continue to offer the higher cost services to support clients and their families using a portion of these profits.
2. Social Enterprise
Many not for profits look towards some form of funding by establishing a social enterprise – a profit making entity which exists to address a social problem through its activities, and through the reinvestment of the profits derived from those activities. This is not an easy fix and requires organisations and boards to really understand where their core competencies and uniqueness lie; what do we do better than anyone else in the market, and then how do we turn that into a profit engine?
3. Collaboration with Other Organisations
Collaboration in a competitive market sounds counter intuitive. Many organisations fear that by working with other organisations, they may erode their competitive advantage. However, this does not need to be the case. Organisations should be working and talking with others in the industry and local areas to understand how they can work together. The results of this may be ways to find greater efficiencies through sharing back of house services, creating new organisations to service particular needs in the area, or some other innovative approach to supporting the community.
In the situation where an organisation offers services only in these thin markets, survival may depend on finding partners to investigate the potential of mergers. Often collaboration can be the first step in investigating if a merger partner may be right for our organisation. One of the key considerations if seeking to undertake a merger is understanding what you bring to the table. What is it that makes you an attractive partner? This should be informed by your strategic planning and review processes to understand where your strength and uniqueness exist within your organisation.
While these may be solutions to some organisations, others may struggle with the reality of operating in thin markets. Ultimately, a proactive approach is key. Organisations should not be complacent about the effect this may have on their business. Whether choosing to lobby funders for continuation of block funding, seeking community support or investigating some other approach, providers should be choosing now above all other points in their history to be brave and bold in their decision making.
To find out more about our work with NDS, please contact Louise James or Chris Nash from Pitcher Partners on (03) 8610 5000.