Restructuring and mergers: Protecting the employers brand

11 December 2009 by Beverley Steel, Simon McDonald

Reforms which have tended to diversify the provision of public services are combining with financial retrenchment, more assertive regulation and increasing competition for contracts, to create fertile ground for mergers and restructurings in the public sector. This paper argues that the trend will accelerate, and that it will bring further changes to the organisational landscape, even in those parts of the economy, like the third sector, where mergers have hitherto been relatively rare. The leadership challenges involved in the merger of public and quasi-public sector organisations are considerable; radical restructurings and mergers have a huge impact on employer brands, affecting retention and morale, and present difficulties in terms of ensuring continued performance against quality, safety and financial standards. This Board Paper asserts that managing change through engagement and communication will be crucial.

But one of the biggest challenges ‐ for local leaders, for regulators and for frontline staff –will be that posed by an increased incidence of public sector mergers. Mergers, if managed well and on the basis of rigorous cost‐benefit analyses, can allow reconfigured organisations to deliver improved and/or a wider range of services for users, and –through the better use of shared resources, information and knowledge of service users’needs and changing patterns of demand –substantial efficiency savings. These savings are then available for reinvestment in the coordination of activities, in developing a new, united brand and distinctive organisational personality and for underwriting the risks involved in developing new projects and services under the new, joint brand.

However, the experience of the private sector – where the majority of formal mergers fail to produce any significant improvement in overall efficiency – should inspire caution in public sector managers and policy‐makers. Mergers in the wider public sector should be proposed and pursued only if there is a clear rationale in terms of the continuity of service delivery and a robust business case for the sustainability and distinctiveness of the proposed, merged organisation. They should answer to the logic of the efficient functioning of local public service markets, and the financial viability of taxpayer‐funded public sector organisations, rather than to that of political expedience.

Mergers are difficult, which goes some way to explaining why –until very recently –they have been unpopular in the third sector, in which highly riskaverse, small‐ and medium‐sized organisations predominate. Complex organisational change is always difficult, of course, but delivering this kind of change in the public and non‐profit sectors (where change has tended in the past to come more slowly, or in response to exogenous, political imperatives, rather than the internal, competitive pressures of the system) carries particular risks.

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