Vertical integration: a version of voluntary and community sector collaboration in delivering services for children, young people and families

Vertical integration: a version of voluntary and
community sector collaboration in delivering
services for children, young people and families
Author: Hilary Barnard
This report is produced by VCS Engage, a programme funded by the Department for Children,
Schools and Families (DCSF) to strengthen the engagement of the voluntary and community
sector (VCS) in delivering the Every Child Matters: Change for Children agenda. VCS Engage is
steered by a consortium of infrastructure and delivery organisations working in the children,
young people and families voluntary and community sector; and supported by a large number
of individual agencies that are committed to working as part of the programme.
The report was commissioned as part of the VCS Engage work concerned with strengthening
collaborative approaches. By identifying and refining models of collaborative working, VCS
Engage aims to facilitate collaboration and cooperation both across the VCS and among
strategic partners and providers in the public and private sectors.
This report is intended to act as discussion document and does not necessarily reflect
the views of VCS Engage. VCS Engage is very keen to hear the views of VCS
organisations about the issues raised in this report. If you would like to supply
feedback on any of the matters outlined in this document, please contact the author
Hilary Barnard. Contact details are listed on the final page.
Members of the consortium are:
• National Children’s Bureau (NCB)
• National Council of Voluntary Child Care Organisations (NCVCCO)
• National Association for Voluntary and Community Action (NAVCA)
• National Council for Voluntary Youth Services (NCVYS)
• Parenting UK
• Family Welfare Association (FWA)
• NCH
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Vertical integration: A version of voluntary sector collaboration in delivering services for children, young people and families
Contents
Introduction 3
What is vertical integration? 4
Context for vertical integration in delivering services for children,
young people and families 5
Pros and cons of vertical integration 6
Practical considerations around vertical integration 9
Existing practice 11
Conclusions 13
Recommendations 14
Appendix 1: Information about the author 15

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Vertical integration: A version of voluntary sector collaboration in delivering services for children, young people and families
Introduction
The purpose of this report is to:
• consider the meaning of vertical integration
• outline the potential pros and cons of vertical integration in the delivery of
services to children, young people and families by VCS organisations
• review the practical issues raised in developing such collaboration
• provide a brief case study of the application
• offer some conclusions and recommendations for general discussion at a seminar.
This report is based on a wide range of semi-structured interviews and discussions
with diverse stakeholders.
As an approach, vertical integration is at an early stage of development within the
voluntary and community sector. Examples of vertical integration are limited. This
report is necessarily an exploratory study to be further developed in the light of
subsequent discussions.
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Vertical integration: A version of voluntary sector collaboration in delivering services for children, young people and families
What is vertical integration?
• For the purposes of this report, vertical integration is defined as a collaborative
contractual relationship between a larger voluntary organisation, particularly but
not exclusively national, and a smaller voluntary organisation, particularly but
not exclusively local, regional or sub-regional.
• This working definition differs in an important respect from that used in much
economics literature, where the vertical integration takes place within the firm
itself. Here vertical integration is often connected with product extension.
Economics literature focuses on the impact of vertical integration on sharing
costs within the firm, the role of ICT as a driver of change, economic efficiency
and the state of competition within the specific industry.
• A more analogous use of vertical integration is found in healthcare, where
vertical integration describes the integration of services across hospital and
community boundaries. Simeons and Scott (1999) define vertical integration as:
‘a governance structure designed to enhance co-ordination and control of health
case services that are at different stages of the health care value chain, and to
facilitate inter-organisational collaboration and communication between
healthcare providers that are involved in the delivery of those services.'
• A key rationale for this vertical integration is that through better integration
between primary and secondary healthcare, improved results can be secured in
disease and case management, unnecessary admissions to hospital can be
prevented, and seamless care planning can lead to earlier discharge of patients
from hospital stay. In the particular environment of the NHS, there is a
recognition that vertical integration is effectively between different
organisations:
In the new NHS there will be an element of competition … but we also
want hospitals to collaborate – where appropriate, with each other, and
with local GPs and PCTs … And although it may seem odd to expect
organisations sometimes to compete and sometimes to collaborate with
each other, it’s worth remembering that this is exactly what happens in
the private sector.
Patricia Hewitt when Secretary of State for Health in 2005
• The term ‘vertical integration’ will continue to be used, with various meanings. It
is important that its meaning with regard to delivering services for children,
young people and families is clearly defined.
 Simeons, S and Scott, A (1999) HERU discussion paper 03/99, p. 24.

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Vertical integration: A version of voluntary sector collaboration in delivering services for children, young people and families
Context for vertical integration in children’s services
There is a huge array of contextual factors for vertical integration in children’s
services.
Long voluntary sector involvement
The voluntary sector has an extremely long history in providing services to children,
young people and families and advocating for them.
Diverse voluntary sector involvement
An extremely diverse range of voluntary, community and faith organisations are
involved in delivering services, particularly at a local level. These include many
organisations, especially among black and minority ethnic communities, that are not
working exclusively with children, young people and families.
Partnership
The voluntary sector is a partner in the local, regional and national delivery of Every
Child Matters. Government programmes, including extended schools services,
enhance the terms of this partnership.
Local authority pressures
In services for children, young people and families, as elsewhere, there is a continuing
move from grant support for VCS organisations to more detailed contracting. In some
areas, withdrawal of funding has led to significant gaps. The market may be in the
process of becoming more homogeneous.
Central government contracting
There is a clear push from both the National Audit Office and HM Treasury towards
large-scale framework agreements, limiting tendering to select lists of pre-approved
contractors who guarantee set prices over (usually) a two to three year period. In
practice this will tend to limit the opportunities for smaller VCS organisations.
Political considerations
There is concern among some politicians that larger, often national, VCS organisations
are taking contracts with local authorities at the expense of smaller and usually more
local VCS organisations.
Changes in local services for children, young people and families
There is an increasing drive towards more integrated services and practice across
sectors (e.g. Common Assessment Framework and the role of the Lead Professional).
Development of the children, young people and families’ workforce
To deliver a huge agenda, the children, young people and families’ workforce,
including the VCS, needs to absorb major changes in qualifications, leadership and
culture. This will require significant investment at every level.
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Vertical integration: A version of voluntary sector collaboration in delivering services for children, young people and families
Pros and cons of vertical integration
The following pros and cons arise frequently in discussion and in interviews about
vertical integration in the context of VCS services for children, young people and
families. The chart illustrates that, while there are benefits to be gained through
vertical integration, the potential drawbacks cannot be overlooked.
Pros
Cons
Delivery to
Vertical integration can
Vertical integration involves
children, young
retain a local dimension,
a larger lead partner, often
people and
keeping in touch with
without local roots. Smaller
children, young people and
VCS organisations do not
communities
communities, combined with wish to lose their direct
greater infrastructural
relationships with local
ability, economies of scale
authorities. Vertical
and more effective
integration may limit the
management of capacity
commissioner’s choice of
constraints.
services.
Policy goals
Every Child Matters is a huge Vertical integration could
programme of change that
mean that the voice of
requires access to all talents. larger VCS organisations will
Vertical integration is an
be even more dominant. The
effective way of pulling
creativity and innovation of
together those talents,
smaller organisations may be
making best use of the
lost.
resources funded through
the public purse.
Voice of children, Vertical integration could
Vertical integration could
young people
motivate/enable the
make for more complex and
and families
partners to implement best
unwieldy arrangements in
practice in hearing the
hearing the voices of
voices of children, young
children, young people and
people and families and
families. It could create a
facilitating their
greater distance around
involvement in decision-
their effective involvement
making.
in decision-making.
Sustainability of Vertical integration is a
Vertical integration is limited
small
counterweight to smaller
in its application and not a
organisations
organisations being
panacea for sustainable
squeezed in the
small VCS organisations.
marketplace. It may offer
greater flexibility in
managing periods of
significant change and may
be an antidote to Tesco-
isation of children and
young people’s services.

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Vertical integration: A version of voluntary sector collaboration in delivering services for children, young people and families
Pros
Cons
Independence/
Vertical integration leaves
Power is unequal within
dependence of
smaller organisations with
vertical integration. Smaller
smaller
their identity, brand,
VCS organisations must meet
governance and
the contractual requirements
organisations
independence, free to
set by the larger partner.
fundraise and develop.
Smaller organisations may
Organisations are able to
be absorbed into an identity
pursue their respective
– which may include faith –
charitable objects and meet
that they do not feel
the needs of their service
comfortable with. The
users and other
experience might be
stakeholders.
perceived as a takeover.
Fit with VCS
Partnerships are an
Vertical integration can be
culture and
important part of the VCS’s
seen as very unequal. Under
values
thinking about its future.
the contracting
Vertical integration builds
arrangements, the larger
on existing collaboration
VCS organisation could be
between larger and smaller
perceived as being little
VCS organisations. Vertical
different from the local
integration could provide an authority. There are
important framework to
perceptions that the values
support black and minority
of large and small VCS
ethnic community
organisations differ.
organisations.
Transfer of skills Vertical integration could be Some smaller organisations
and knowledge
a mechanism to transfer
worry that vertical
expertise to, and facilitate
integration could lead to
training for, smaller
‘asset stripping’ of their
organisations that they
talent and expertise.
would not otherwise be able
to access.
Mutual interest/
Synergies could be achieved Subcontracting to a smaller
organisational
in delivering services and
organisation may not be
interest
reaching more marginalised necessary to secure the
children, young people and
contracts. Larger
families through vertical
organisations may associate
integration.
vertical integration with a
loss of control over
operations and reputation. It
may be easier to manage
risk as a sole organisation or
in partnership with other
large organisations. A
breakdown in the
relationship with the smaller
organisation would carry
added cost and difficulty.
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Vertical integration: A version of voluntary sector collaboration in delivering services for children, young people and families
Pros
Cons
Tenders and
Larger VCS organisations are Vertical integration involves
contract
usually better equipped to
being tied into more
management
bid for and manage
significant overheads carried
contracts. Smaller VCS
by larger organisations.
organisations in vertical
Vertical integration is not an
integration can better
alternative to full cost
devote their time to tasks in recovery. Pressures on costs
which they are more skilled.
may be felt first on the
smaller partner. Smaller VCS
organisations may still
require in-house talent to
bid for contracts.
Creative process
Vertical integration (as
considered in this report) is
in its infancy and can be
shaped to fit the VCS.
Not well
Vertical integration is not
understood
well understood and is open
to misinterpretation.

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Vertical integration: A version of voluntary sector collaboration in delivering services for children, young people and families
Practical considerations around vertical integration
The previous section addresses issues of principles and tactics. If vertical integration is
seen to be applicable to delivering some parts of children, young people and families’
services, there is a further set of important operational and tactical considerations
that need to be addressed.
Not a quick fix
Brokering vertical integrations will often be a lengthy process, requiring mutual
scrutiny of the other organisation’s governance, structure, values, objectives, policies
and procedures, as well as the detail of any contract. While the scrutiny may be
streamlined with increasing practice, it is essential to plan effectively and build trust.
Dynamics may differ between rural and urban settings, requiring rural proofing of
the contractual requirements.
Trust needed
A high degree of trust is required, particularly where the potential collaborator may
be perceived as a current competitor. Trust also requires effective leadership, good
communications and a reasonable level of stability, including trust among trustees,
who should be aware of the responsibility that has been taken on.
Resource intensive
The process could place demands on stretched infrastructure resources. It is not clear
whether children’s centres have yet significantly taken on, or will take on, Sure Start’s
role in building smaller organisational capacity. Start-up costs, which often include
leases and the cost of premises, need to be taken into account when considering
vertical integration.
Not the only option
Consortia, based on more horizontal collaborations, may be a better option in some
settings. Interviews suggest that they are a more comfortable option, particularly for
some smaller VCS organisations.
In place of what already exists?
Larger national VCS organisations have indicated that they already have a range of
different collaborative arrangements with smaller organisations. Many of these are of
an informal character, including mentoring and coaching of smaller organisations,
and are felt to be of real benefit.
Is there a minimum size?
Subcontracting under vertical integration will bring formal legal responsibilities to
the smaller organisation. It is likely that this arrangement will not suit a number of
very small organisations that play an important role in their communities in
supporting children, young people and families.
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Vertical integration: A version of voluntary sector collaboration in delivering services for children, young people and families
Felt fair?
By their nature, contracted arrangements are more prescriptive. With vertical
integration, liabilities need to be shared fairly. Subcontractors have a reasonable
concern that they are at risk of taking on an unbalanced share of liabilities.
Assuring quality
To assure quality there will be considerable demands in ensuring effective sharing of
project information and in addressing safeguarding needs.
Procurement rules
Vertical integration is one approach to managing the market. In some local
authorities, such arrangements might be viewed as anti-competitive collusion. Under
EU Procurement Rules, there are opportunities for discussing more collaborative
approaches under the provision for competitive dialogue.
Commissioners’ preferences
A moot point is the extent to which most commissioners are presently interested in
giving time and creating opportunities to help foster collaborations between VCS
organisations, whether through vertical integration, consortia, other forms of
alliance or merger. Local authorities could choose longer-term purchasing models, as
they do in commissioning other council services. Allowing three-year rather than
one-year contracts, or five-year contracts instead of three, could give greater
stability to both vertical integrations, consortia and the services that can be
delivered to children, young people and families.
Let the market decide?
The real reason that a small minority of smaller VCS organisations may be
experiencing difficulties in getting funding, is that their services may not be the best
or the most reliable. It is uncomfortable, but nonetheless appropriate, to make this
point. It could be in the interests of children, young people and families that the
services of those particular smaller VCS organisations should not continue. Of course,
the same point can equally be made about a small minority of larger national
organisations, statutory services or private sector provision. It is possible that vertical
integration may appear as a lifeline to poorer services that, on reflection, would be
better not extended. Elimination of poorer services by market forces would be a
benefit, but this could be impeded by the introduction of vertical integration.
Shared services
While considerable claims may be made for shared services, this can prove difficult
for larger organisations in areas such as human resources and learning and
development. This is particularly true where reducing costs is a high priority in the
larger organisations, reducing the flexibility to take on new arrangements under
vertical integration.
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