Saturday, 25 March 2017

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Merger efficiencies

Considered IT strategies are a must for merging organisations, says Colin Sales of 3C Consultants

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Colin Sales

The social housing sector has experienced seismic change caused by government policies. An Inside Housing survey of housing association chief executives found that one in three of the 129 respondents are considering a merger to cope with the reduction in revenues facing many. Another survey of more than 250 housing professionals demonstrated how budget cuts, welfare reforms and rent reductions are causing people to make IT savings, with almost all (97%) relying on technology to create efficiencies.

The justification for a merger is the creation of larger, but leaner and more efficient businesses that are able to deliver high levels of customer service to tenants at a lower cost. Although there are concerns that personal service will suffer as a result of organisations becoming larger, many providers are already demonstrating that service can be improved by adopting best practice and communication methods. However, bigger is not always better and the merger process can be destructive. Any justification needs to be very carefully considered.

The Homes and Communities Agency (HCA) is seeking confirmation that the services delivered by housing associations provide value for money. In June, Julian Ashby, chair of the HCA’s regulation committee wrote to the top 350 housing associations after a 50% cost variation between landlords was found that could not be explained.

Those housing associations with higher costs will need to be able to defend the extra benefit they deliver or demonstrate that they are making savings as part of future in-depth assessments. Some sector commentators have concluded that such analysis could be used to justify future social rent reductions.

A merger provides the opportunity to drive down costs and improve value for money. Indeed, early wins are normally achieved during the preparation phase because it is common for an organisation to own applications, licences, infrastructure and support that are redundant.

An IT review in advance of a merger will normally pinpoint savings that are over and above the cost of the review itself. Some of these savings can be realised in a matter of months, regardless of whether a merger is ultimately achieved.

Economies of scale

When the IT provision of two organisations combine, economies will be achieved through, for example, better procurement terms, reductions in licencing costs and reduced IT resources.

It has been widely publicised that smartphones are now outselling toothbrushes and that for a large proportion of the population, smartphones have made the use of alarm clocks and cameras obsolete. Attitudes to service have also changed and there is now considerable evidence that the majority of people prefer the use of online services to the telephone. This trend is only increasing.

This move to digital communication and self-service provides landlords with considerable opportunity for cost savings and for the provision of improved services. Such services can be available 24 hours a day, seven days a week from anywhere there is an internet connection.

Combine this with the government’s demand for online self-service, and the business case for shifting communication channels becomes compelling and indeed inevitable. Business consultancy PwC and the Society of Information Technology Management have independently reported that moving customers to automated self-service leads to associated cost reductions of more than 90%, and such savings are just the beginning.

Landlords that are moving services online are innovatively achieving other savings, such as reducing journeys and going paper-free (for example, the electronic circulation of newsletters), not to mention improved cash collection, the generation of increased revenue from sales and lettings activities, reduced void times, improved collection of service charges and better customer interaction.

Golden rules

Some landlords are yet to start their journey to digitally transform, but others are completing theirs. A number of golden rules have become evident:

  • Changes in both operation and culture are required. This means initiatives need to be driven from the top, ideally championed by the chief executive. Support must be provided to ensure objectives are achieved in the long term, pinpointing teething problems and introducing further innovation where appropriate.
  • Review how success has been achieved by others. Do not try to reinvent the wheel and make the basic mistakes that so many others have made before you. Pinpoint what best practice for your organisation is likely to look like.
  • Prioritise which services to take online based on the return on investment they will provide or the major challenges they will address. Repairs services are often where many start owing to the considerable efficiencies that can be achieved.
  • The creation of excellent online self-service that customers would choose to use by choice is only the first step. Motivation and incentives initially need to be provided to attract customers online and change existing behaviour.
  • The introduction of digital services should be accompanied by the provision of customer assistance and training. Appropriate help should be given to any customer unable to use online services.

Those landlords that capitalise on the benefits technology can bring are also likely to be the ones which will best demonstrate value for money.

When mergers are being considered, these businesses would be in pole position for their administration and IT set-up to be adopted across the enlarged group. They may also be in a position to demonstrate that big will not necessarily be better and justify their independence from any mooted merger.

The need for any merger should not be taken lightly. It should be based on a properly considered evidence-based review. The creation of an IT strategy will assist in maximising the success and the economies achieved in the short, medium and long term.

It will ensure that the resulting organisation will have an appropriate platform to achieve corporate objectives and provide flexibility should these change (for example, a further merger).

It is common for such reviews to be self-funding, while ensuring compliance, safeguarding governance and identifying important future events, such as when significant cost elements should be tested or cancelled in a timely fashion.

Equally, if a landlord’s ambition is to avoid a merger, it will need to show its services provide value for money. The move to automated, online self-service, where appropriate, will help landlords achieve this and must now form a part of their future business strategies.

Colin Sales, managing director, 3C Consultants

This opinion piece was written independently, but first appeared in a chapter sponsored by Kirona

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