Policy Changes - What it means for non-profits

Non-profit social services organisations have no choice but to adapt as changes in demographics, attitudes, and technology make themselves felt. However, government policy is an equally compelling force for change. While some policy changes only require simple process and reporting compliance, other changes can have a radically transformative effect on competitive landscapes, funding models and cashflows. This is when comprehensive change management is required.

In a series of three articles, I will explore three separate, large-scale government policy trends, the impact of these on the non-profit sector and suggest ways of side-stepping the pitfalls. In this, the first, I look in detail at the shift towards outsourcing. In the second article, I will look more closely at what it means for non-profits as governments shift to measuring outcomes. In the final blog in the series, I will analyse the shift towards consumer choice and ways that non-profits can thrive in this new environment.

A Shift to Outsourcing

For the past 20 years or so, Australian governments have shifted towards a simpler model of funding and regulation, outsourcing many of their social services to non-profit and commercial organisations. This is in response to the inherent problems associated with governments regulating and funding themselves in competitive markets, particularly in markets in transition where government is both a provider and funder of other providers.

Outsourcing has occurred at different rates for different sectors. For instance, aged care and disability services have experienced incremental tendering, while under the Howard government job networks experienced large scale tender rounds to outsource the whole sector. In the case of Home Care Services of NSW, the government entity was privatised through a sale to Australian Unity.

What are the regulatory issues for non-profits when it comes to outsourcing?

Along with outsourcing comes the pressure on government to get regulation right. Where this is not the case, significant issues and rorts can emerge. A recent example of this was with vocational training and VET Fee Help. Unethical practices emerged in parts of the private sector, which led to rapid growth followed by the collapse of Careers Australia, Aspire, Sage Institute, Aquire Learning, Australian Institute of Professional Education (and numerous others), and thousands of ill-advised students saddled with crippling long-term debt.

Funding and regulatory models have also created some perverse outcomes over the years, such as limiting organisations to specific geographies and service types. This created unnecessary complication and confusion for customers, as well as poor, fragmented outcomes: “If you live on this side of the street, we can clean your house but can’t take you shopping or give you a shower. If you live on the other side of the street, we can take you shopping but can’t give you a shower or clean your house. If you live in the next suburb, we can give you a shower but can’t clean your house or take you shopping”.

When regulatory approaches fail, the debate often turns into an argument over what type of organisation is best placed to deliver essential services: government versus non-profit versus private sector. It is more helpful to focus on finding the right environment with appropriate safeguards; for instance, which outcomes are desired, and which regulatory mechanisms drive innovation, efficiency and improved client outcomes? Funding can then go where this is best achieved.

What impact does outsourcing have on non-profits?

On the whole, the trend towards outsourcing services has been very positive for non-government providers of social services. It has created opportunities and driven significant growth. It has increased competition while growing the pie so rapidly that, in most cases, it has not had a detrimental effect on organisations. However, as competitive markets mature, new dynamics will evolve.

On the downside, outsourcing creates a dependency for some non-profits on government funding. It can also dampen their enthusiasm to engage in advocacy or have a strong public position if they fear that their funding could be jeopardised as a result.

We hope the first blog in our series called ‘Government changes in policy and what this means for non-profits’ has helped clarify the issues around outsourcing. Our next two blogs will take a deep dive into the government shift to measuring outcomes and consumer choice. What do these changes entail? How do these changes affect non-profits? What must non-profits do in order to come out on top as we ride the waves of change? What are the consequences of ignoring change and/or falling behind?

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