Developing Essentia. Full Business Plan. January 2013

Transcription

1 Developing Essentia Full Business Plan January 2013 Steve McGuire Executive Director Essentia Developing Essentia Full Business Plan Jan 13 1

2 Contents 1. Executive Summary Current Operations Background Overview of current operation and external contracts secured Drivers for change Essentia s Vision Opportunity for the Trust and constraints of current structure Workforce considerations Our unique selling proposition and service offer to the Market The Market Introduction The market opportunity FM Competition analysis Assessment of IT opportunities IT Competition analysis Essentia s market offering Operating model Introduction High level options appraisal of models Criteria for developing Essentia s business form Preferred operating model Essentia Trading Service Offering Contractual arrangements between Essentia Core and Essentia Trading New contracts staffing and TUPE Conclusion Legal Form and Governance Arrangements Introduction Overview of Current GSTT Commercial Structures including Intellectual Property Policy Employee Reward and Incentivisation Legal form Board composition and reporting Governance arrangements Conclusion Developing Essentia Full Business Plan Jan 13 2

3 6. Workforce Introduction Employee and Industrial Relations Equal pay Potential employment arrangements Proposed Essentia employment model Benefits and risks of the recommended employment model/arrangements Essentia Core and Trading Reward arrangements Conclusion Financial Projections Overview Appendix A The Essentia Employee Promise Appendix B Essentia Commercial Form Criteria and Evaluation Appendix C Draft Heads of Terms Services Draft Heads of Terms Corporate/Management Services Appendix D Chart showing GSTT current structure for commercial enterprises and the potential inclusion of Essentia Trading Appendix E Essentia Trading Reserve matters Appendix F Workforce benefits and risks of the recommended employment model for Essentia Core and Essentia Trading: Appendix G Comparison tables showing Market Pricing of Sample Essentia Roles, including Cost Comparison to AfC Appendix H Workforce Next Steps and Dependencies required before 1 st April Developing Essentia Full Business Plan Jan 13 3

4 1. Executive Summary Essentia is an integral part of the Trust providing and managing all of the infrastructure and non-clinical services that contribute to the overall success of the organisation. Whilst most other NHS Trusts have contracted out large parts of their non-clinical services to private sector providers, we have retained control, improved efficiency and raised quality standards. The Trust is looking to directorates to support its strategic plan to maintain and grow its clinical service offering by finding new and innovative ways to generating revenue. In this document we share our detailed vision for a new and innovative operating model for Essentia, which will preserve and enhance the high quality standards delivered at Guy s and St Thomas and across the community, but also has the potential to generate revenue growth and profit for the Trust. In the current economic environment where, in common with all parts of the NHS we are required to reduce costs year on year then continuing with savings targets being achieved through conventional means will result in the department running out of runway in our ability to continue to meet this challenge., There is a determination not to lower the quality threshold provided for patients and clinical service teams and sustain a level of service that has been built up over several years. We believe that the time is right to take the opportunity of income growth in Essentia s area of expertise and to secure the skills and talent of our workforce for the future. This document presents the case for support and investment to make this vision a reality. Over the past 5 years, Essentia has established itself as a leading provider of non-clinical support services in the NHS in London and has developed a strong reputation in the sector. As the health sector reforms in the Health and Social Care Act (2012) are being applied across the country, NHS Trusts will continue to be under pressure to deliver their services more efficiently, whilst not compromising on the quality of patient care. The broad intention of the reforms is for new thinking to drive different, more flexible provider operating models. For Essentia, this presents a significant growth opportunity in the immediate future, and it is against this background that we have drafted this Full Business Plan. We have been successful to date in forming partnerships with other NHS organisations in the delivery of non-clinical services, improving the quality of service provision at lower cost but providing an income stream to Essentia. Our ability to provide integrated Infrastructure solutions through integrated IT technology and hard and soft facilities management services is a unique service feature and key selling point. We are being asked to supply an ever-increasing range of non-clinical services and to operate in diverse structures such as entering into a long term partnership relationships with other Trusts. From discussions with potential future clients, flexibility in approach will be an essential aspect of our service offering going forward. In order to realise our growth ambitions, we will need to address our current structure. Having the flexibility to bring in specialist skills to provide services such as project management, and to grow our business, will mean that we are able to motivate our existing workforce through the ability to grow and develop and attract the right talent by developing a new culture, employer brand and promise, which defines the relationship between employee and employer, investment in a new learning development strategy and promote a stronger performance culture This Full Business Plan describes how the Essentia business operating model will be formed, governed and operated. Developing Essentia Full Business Plan Jan 13 4

5 It is proposed that Essentia be formed of two elements: a Core organisation comprising existing Essentia services provided to GSTT; and a Trading arm through which future Essentia services provided outside of the Trust would be contracted. Over the next few years, the Trading entity will become the growth vehicle for Essentia. New services and the renewal of existing services would increasingly be contracted through Essentia Trading and delivered through a mixed resourcing model, using both Trust and external assets. Our proposal is an innovative departure from the current model, but we have designed the proposed structure so that Essentia is retained by the NHS but leave the opportunity for an alternative / scope for movement and continues to delivers services for the NHS by the NHS, with the provision of infrastructure and services to GSTT our priority. Section 7 provides detailed financial projections for Essentia, including an Income and Expenditure model for Essentia Core and a Profit and Loss statement for Essentia Trading for the five years to FY18. In our scenario, we project that Essentia would make limited gross profit in year 1 (FY14), but with surplus generated in Essentia Core, and profits in Essentia Trading, growing rapidly thereafter. There has been a conscious effort to develop the services and staff which constitute Essentia over the last five years to become more commercial in focus, which has resulted in a significant contribution to the Trust s annual surpluses as a result. Other than the funding identified in this Business Plan for reinvestment in growing the Essentia, all of the surpluses and profits generated by Essentia Trading and Core will be reinvested in GSTT to support the delivery of clinical services and research. Within the 5 years of the plan it is forecast that Essentia will generate a cumulative gross profit within Trading of 12.1m, deliver a cumulative surplus of 1.1m in Essentia Core, repay the SSD loan of 5m, and support the delivery of a 4% annual cost improvement and efficiency gain in Essentia Core of circa 4m/annum, leading to a cumulative CIP benefit of 20m over the 5 years. The total financial gain to GSTT from the Essentia Business Plan is therefore 38.3m. We are now seeking support to develop the Essentia operating model set out in this full business plan, to allow the new business model and governance structure to go live in April Developing Essentia Full Business Plan Jan 13 5

6 2. Current Operations 2.1 Background The Capital Estates and Facilities (CEF) directorate was created in 2003 to bring together the component parts of soft and hard FM and capital project management within GSTT that had, for a number of reasons, been managed separately. The Trust s technical infrastructure, environmental conditions particularly associated with the patient experience and the ability to plan and deliver capital development at scale was poor. It was also felt that the leadership and skill mix were also at that time issues of concern. The Director of Capital Estates and Facilities was given responsibility in 2007 for the IT&T functions within the Trust and there was further growth of directorate responsibilities in when Community Support Services for South West London and South-East London were added to the portfolio. In 2012, Essentia agreed to host the London Procurement Project team and this transfer has recently been successfully completed. Having had the luxury of stability in organisational terms over several years, a model of end to end service delivery has been designed that is unique within the NHS, in London and beyond. Growth for the sake of growth has not been a feature of CEF or Essentia to date, but where it has been appropriate opportunities have been taken. The London Procurement Programme (LPP), for example, was created to encourage collaborative procurement across the NHS in London. With an influencible spend of 5bn- 7bn per annum, very significant savings are possible without challenge to organisational sovereignty. CEF was a founder member of the LPP and has created and led the second highest performing workstream and played a significant part in creating savings to date of c 400m. The LPP has also provided a critical insight into the configuration of the NHS in London, particularly with respect to the provision of non-clinical support services, which in summary terms is poor, characterised by weak leadership, poor skill mix, an imbalance in reliance on private sector expertise and low standards. It is as a consequence of a positive and mature culture, effective leadership and an understanding of the market, that there has been a steady growth in Essentia s traded income over the last few years, a strategy that has positively supported the Trust s financial and operational goals. In Essentia there is an opportunity to build on a solid platform and create a vehicle which will: continue to support the Trust in improving core services; create a significant revenue stream for the Trust at a time of financial constraint; positively and materially impact our local communities through increased employment as a consequence of Essentia s growth; and create an opportunity for our staff to benefit through growth and development and ultimately through links between productivity and reward. 2.2 Overview of current operation and external contracts secured Essentia currently operates as a directorate of GSTT and has 4 divisions: Asset Management, Group Operations, Technology (IT&T) and Community (Shared Services). Developing Essentia Full Business Plan Jan 13 6

7 The directorate has a revenue turnover of 127m and external income of 30.4m. It has developed, and is currently delivering an estate and IT capital infrastructure investment plan of 112.5m in the current year, with investment plans totalling 400m over the next 5 years which will significantly improve the Trust s infrastructure and in turn staff and patient experience. This investment strategy in a large part now drives the Trust s financial strategy. The Directorate also provides services into community and primary care across South London, along with a range of services to a number of London NHS Trusts outside the confines of South London, and nationally through the support it is providing for the establishment of the NHS Commissioning Board. This drive to generate income has established Essentia as a leading provider of non-clinical support services in London with a growing reputation for the services it provides. Essentia supports the Trust s financial position, having delivered over and above its CIP target of approximately 7m in 2010/11 and 4.1m in 2011/12. The directorate is on target to deliver a further 5.5m in 2012/13. Over and above these CIP achievements Essentia s contribution to the GSTT 2011/12 surplus target of 20m was 2m, which was further enhanced by an additional 500k provided through over delivery on its financial plan. However, whilst Essentia has secured new business and exceeded its financial targets in each of the past 3 years, without changes in the way the organisation currently operates, there is a risk that this level of performance improvement will become unsustainable resulting in Essentia failing to meet its financial targets. The Essentia Leadership team believe that it is running out of runway in its ability to meet increasingly challenging cost reduction targets. This year, to hit its CIP target, the directorate will be delivering a 10% savings on influenceable spend. If sustained without credible alternatives being developed and taking into consideration the severity of the UK economic climate, this approach will result in a severe deterioration of Infrastructure integrity and of greater importance, the patient experience. 2.3 Drivers for change There are a number of fundamental drivers for change, which have been considered in plotting a direction for Essentia: The international UK and public sector economic situation will be a catalyst for reshaping society and the way that we work and live and for certain the way that the public sector and in particular the way that the NHS is configured. More locally and immediately there is a need to significantly reduce the operating costs of the NHS, whilst still supporting front line services. The pending integration of King s Health Partners is a good example of how these pressures are shaping the local health economic, yet presenting an immediate and significant opportunity for growth. In the field of non-clinical support services in the NHS there is a severe shortage of IT, technical and general management expertise. This shortage is also present in the design, construction and service sector in the UK. This raises, as a consequence, a very interesting market for any organisation within health possessing these skills. Developing Essentia Full Business Plan Jan 13 7

8 We must not lose sight of the moral responsibility that the NHS and its component parts have, as do other large organisations and employers, with respect to their local communities, especially GSTT and Essentia s responsibility to promote careers other than nursing and medical careers to children of all ages and backgrounds, students, schools, colleges and universities in two of the most deprived boroughs of London. 2.4 Essentia s Vision It is as a consequence of efforts to generate income in support of GSTT and in the context of the drivers described above, that the concept of developing a trading subsidiary of the Trust under the brand Essentia has been developed with the ambition: To become the essential provider of efficient, integrated healthcare infrastructure, enabling our customers in London and beyond to deliver excellence in patient care. Through this approach Essentia will: specialise in health infrastructure design and delivery with respect to both the built environment and technology; grow as a consequence of the market within the NHS; grow and nurture a workforce drawn from our community at all levels of qualification and background; generate income and profit as a result of providing services and expertise to other NHS/non NHS bodies in London and beyond and as a consequence support GSTT and create an opportunity for employees of the new organisation to benefit from their own drive to improve efficiency and productivity and the quality of front line services; and in general, create a dynamic to produce an alternative to the public or private sector in the context of a changing world. Essentia s Leadership team are committed to applying this unrivalled expertise for the benefit of GSTT and the wider NHS in London. However, this will take significant effort and will place additional demands on the team and Essentia s workforce. The Leadership Team are keen to ensure that these efforts are recognised and that an appropriate structure is created, and resourced effectively, to ensure that Essentia can continue to succeed and capitalise on the opportunities available. 2.5 Opportunity for the Trust and constraints of current structure The growth potential and opportunity for Essentia is significant. A recent benchmarking report conducted by CIPFA on behalf of 22 London Trust s confirms and triangulates a view that there is a wide range in performance in the delivery of Estate and Infrastructure services across London. This report and other similar reports and benchmarking data confirm Essentia s position as a leading provider of high quality, low cost services in the region and that many other Trusts would benefit significantly from attaining similar levels of performance. However, Essentia s current structure is limiting its ability to take advantage of these opportunities. In particular: Essentia staff are employed under NHS National Terms and Conditions which in the opinion of the Essentia management team can be restrictive in meeting external Developing Essentia Full Business Plan Jan 13 8

9 customer requirements as it can restrict opportunities to offer flexible employment packages and hamper recruitment initiatives; securing new contracts will involve upfront investment in establishing appropriate infrastructure, including the capacity to bid for and manage additional customers; the current management support structures are restrictive, for example, information systems provide limited contract performance management data and not of the quality required to manage large scale external contracts; and Without addressing these barriers, Essentia will not be able to deliver its twin objectives of greater productivity and growth. The continued performance and efficiency of GSTT services will be put at risk, as will Essentia s ability to respond to the increasing number of opportunities to support the rest of the NHS in responding to requests for support. Essentia would therefore like to establish new ways to: 1. Motivate and Reward staff appropriately, e.g. for improved productivity and efficiency Allowing the Essentia Leadership team and staff to be incentivised to create commercial value and grow revenues and profits; 2. Respond quicker to market opportunities, through access to dedicated Business Development support within Essentia 3. Operate with greater autonomy and flexibility than is currently allowable as a pure directorate of the Trust, to enable more commercially focused investment decisions. The above will enable Essentia to become the competitive provider of choice, delivering efficient, integrated healthcare infrastructure in London and beyond. 2.6 Workforce considerations In developing the baseline information to inform this business plan a series of one to one interviews and workshops with Senior Managers from Essentia have been carried out in order to assess key workforce issues that are already affecting the performance of Essentia. Feedback has shown that there is significant scope to develop the employment model within Essentia to overcome perceived barriers that exist across some areas of the directorate. Challenges highlighted include: Difficulty to attract the right talent in some areas of the business and a need to streamline the recruitment to improve agility in our response to business development opportunities; The need to maintain consistent performance management across all business areas to deliver services to customers at appropriate standards and to ensure effective staff motivation and engagement; The need to explore within the boundaries of Agenda for Change (AfC) alternative methods of rewarding and attracting high performing staff, to support talent management and succession planning; The need to provide a strong focus on learning and development for all Essentia staff, with everyone given the ability to develop to their maximum potential, to enhance business performance. Developing Essentia Full Business Plan Jan 13 9

10 Over the last two years the Directorate has been working to deliver the current Workforce Strategy which has included investing in learning and develop through initiatives such as the Essentia Academy. However, to address the challenges raised above, the Essentia Leadership team believe they need to move beyond the current operating model and are developing a number of critical interventions which are seen as priorities over the next two years. These priorities are in line with the overall Trust Workforce Strategy which promotes holding leaders and managers to account for the services they deliver, but encouraging them to take risks to drive innovation and improvement as well as using our Freedoms as a Foundation Trust to incentivise staff and build performance improvement. We are committed to developing a new culture, employer brand and promise, which defines the relationship between employee and employer and reflects the unique nature of Essentia, its staff and the services it delivers. We also believe this will differentiate our people and provide the core building blocks to deliver our vision and expectations of Essentia going forward from a workforce perspective. This development is being described as the Employee Promise. More detail on this is included in Appendix A. Key elements of the promise will be to introduce a new learning development strategy and plan, which clearly articulates how Essentia will deliver the skills and capabilities it will need to provide both existing and new service contracts. Also, based on the feedback from our staff, we intend to introduce more consistent measurement and management of performance linking reward to performance to create a stronger performance culture. Further work will now be required to take these initial ideas and views forward and develop a Workforce Strategy for Essentia as part of its business development plan. The Trust s Workforce Strategy asked for ways in which Directorates are seeking greater flexibilities so that the Workforce team can help tailor interventions to suit local areas rather than enforce a single solution, and the Directorate want to work in partnership with the corporate Human Resource team to deliver the above priorities. 2.7 Our unique selling proposition and service offer to the Market The time is right for a new business model and commercial form within the NHS, with the drive to secure better value for NHS bodies. Many Trusts have either partially outsourced their infrastructure services, or transferred management responsibilities over to PFI providers, with mixed results. We believe we can offer more, and have a unique selling proposition to the Market: Our ability to design, develop, and manage all aspects of health infrastructure including IT. Our scale and breadth of value proposition as an integrated provider of Health Infrastructure services is unrivalled from within and outside of the NHS. Our team, which is regarded as leading the profession in London, our people understand how to work with a blend of traditional public ethics, combined with a growing commercial and performance culture; Our values, where we can truly offer a high quality, best value service as an alternative to a traditional outsource to the private sector a service delivered by the NHS, for the NHS. The benefits that a more agile and efficient Essentia business model delivers being retained by the NHS and its staff. Developing Essentia Full Business Plan Jan 13 10

11 Our initial service offer focuses on securing new contracts from the NHS in London, but could spread to cover other public services in London and beyond and would be delivered as: Advisory services providing advisory and consultative support to clients, developing new infrastructure schemes from concept through to specification, business case development, and providing training and people development services. The potential immediate market size for this type of service offering type is between 15m and 20m (indicative). Managed services supporting interventions to manage services for clients, contracting to support a client and its teams to improve existing infrastructure programmes and services. The potential immediate market size for this type of service offering type is between 10 and 15m (indicative). Service Operations Operating infrastructure services, including transferring staff into Essentia as part of the transfer of employment responsibilities. The potential market size for this type of service offering type (including current GSTT activities) is between 100m and 150m (indicative). Figure 1 - Essentia s service offering Essentia Advisory Capital projects Property services Engineering Building maintenance Policy and strategy Energy and utilities Catering services Security and reception services Hotel services Customer services Sterile services Waste and support services Patient transport Business systems IT Services support IT Training IT Technology design Information governance Procurement Management Capital projects Property services Engineering Building maintenance Energy and utilities Catering services Security and reception services Hotel services Customer services Sterile services Waste and support services Patient transport Portering Other, e.g. Reprographics IT Services support IT Training Information governance Procurement Operations Catering services Accommodation services Customer services Sterile services Other, e.g. Reprographics IT Services support Procurement Developing Essentia Full Business Plan Jan 13 11

12 3. The Market 3.1 Introduction Essentia is currently an established NHS service provider across London. This market has been growing steadily at around 14% a year for the last decade and the outlook remains positive. There is a significant opportunity to expand Essentia s services in London, and it is estimated that the size of the addressable market could be between 800m and 1.2bn. Within this market Essentia is offering a unique alternative to the traditional FM providers, to deliver services for the NHS by the NHS. 3.2 The market opportunity The healthcare facilities management (FM) market is dominated by provision of services to acute hospitals, but mental health and PCT estates are also large FM markets with high outsourcing growth potential. Over the last 10 years, healthcare has grown as an industry sector and in the healthcare FM markets in England and London were worth 7.1bn and 1.4bn respectively. In addition to this, we are aware of significant opportunity in the market for IT services, and our initial estimate suggests that the total size of this market in London is around 300m. Figure 2 - Health FM market Total Spend by Trusts in England in Health FM over the last 10 Years Total Spend by London Trusts in Health FM over the last 10 Years m 8,000 7,000 6,000 5,000 4, CAGR: Total 14% Hard FM 23% Soft FM 7% 42% m 1,600 1,400 1,200 1, CAGR: Total 14% Hard FM 21% Soft FM 9% 45% 3,000 2,000 1,000-58% % Hard FM Soft FM Hard FM Soft FM Source: NHS Estates Return Information Collection (ERIC) data Note: Data may be incomplete in some years due to non-returns Expenditure in hard FM (e.g. maintenance, engineering and capital management) has been steadily increasing year-on-year, due to increasing investment in high-cost facilities and more advanced medical technologies. Spend in soft FM (e.g. catering, cleaning and help desk) has grown at a slightly slower rate of around 9% a year in London. London Trusts spend more than average across England for contracted services, spending 7bn on goods and services with external suppliers Almost a fifth of the total NHS spending across England. A number of factors suggest a positive outlook for growth in this market over the next few years, these include: growth of outsourced FM contracts; Developing Essentia Full Business Plan Jan 13 12

13 government s reliance on outsourcing to offset a decline in funding of public services; and greater opportunities for FM in the community setting over the next 5 years. Looking at the sector more broadly, business services have fared better than most sectors in the UK economy in the past year. 3.3 FM Competition analysis Suppliers in this market typically position themselves as either total FM or single service providers. These markets are highly competitive, dominated by a few large multinational firms. Carillion, for example, claims to account for 20% of NHS outsourced FM services; Trillium have a wide offering, mainly in community facilities owning or operates around 50 acute and community hospitals and health centres. Figure 3 sets out the key competitors and their areas of focus. However, none currently provides a total healthcare infrastructure support service. None of these offers the full range of health-relevant services currently provided by Essentia. Figure 3 - Potential competitors in the health FM market Competitor Areas of focus in Healthcare FM Comment Carillion Total FM and integrated packages for PFI Serco Total FM for 3 NHS hospitals Claimed to account for 20% NHS outsourced FM services in 2009 Heavy reliance on continued government capital spending Strong presence in public sector (90% of company s revenue) MITIE Trillium Interserve Initial Dalkia OCS Sodexo Cleaning and security services Wide offering, mainly in community facilities Wide range FM services + consultancy Cleaning services (inc. washroom mgmt) as core offering Energy and utilities management Wide range single and bundled FM services Catering and support services FM seen as key development area; company has particular expertise in schools FM No longer bidding on PFI due to low return on investment Health consultancy business Delivery multi-service contracts (18% group revenue) Built on core strengths to now provide wide range hard and soft FM services Success in contract retention Leading provider energy and utilities mgmt to health sector Wide variety contracts won for different FM services Successful PFI involvement through specialist business Potential over-reliance on diminishing PFI market Source: PwC analysis Developing Essentia Full Business Plan Jan 13 13

14 3.4 Assessment of IT opportunities Strong competition and projected growth in IT spend will make for a highly competitive market as a combination of old and new IT suppliers compete for market share. Within Essentia we are proposing a staged growth in IT services outside of GSTT, targeting customers as follows: Phase 1: Greater London small- to medium- sized Hospital Trusts, Mental Health Trusts, Local Authorities, Social Care and Commissioning Support Units. Phase 2: UK-wide, same as above plus larger Hospital Trusts. Based on research using ehealth Insider as the source, it has been identified that currently, small to medium-sized Trust s typically spend around % of turnover on IT, with contractors capturing around c.50-60% of this spend. Over the next three years, local NHS Trust spending on IT is set to grow by 3.7% per annum. This will take the total size of the English NHS hospital and Mental Health Trust IT market to 883m by IT Competition analysis There are a number of large incumbent private sector IT providers (e.g. CSC, Capita, SERCO), and these are complemented by public sector agencies operating individually, or collaboratively as part of a Health Informatics Service (HIS). As part of the latest NHS reforms there are also new emerging competitors e.g. Commissioning Support Units, who are looking to provide support into primary care and community sectors. Essentia will need to establish a credible track record in delivering services for GSTT if it is to hold its own in the market place. The business plan strategy is therefore for the main growth in IT service provision to take place from FY16 onwards, when Essentia will have successfully delivered the GSTT IT Strategy and hence have gained the experience and reputation that will support market penetration and growth. 3.6 Essentia s market offering GSTT has to date retained its non-clinical support services. Essentia operates a flexible model to deliver some services in-house and manage contractors for other services. This has allowed Essentia to build up expertise and maintain a clear focus on improving basic standards, efficiency and the patient experience. This is unique in NHS terms, many NHS Trusts having outsourced in parts these functions or relinquished responsibility under PFI, and will help Essentia to secure and retain new business by offering our clients an alternative to traditional outsourcing. Essentia s Leadership has identified significant opportunities for growth from within the existing portfolio of capabilities and believes that with the right business model, strategy and investment, we can build on our reputation and capabilities and differentiate our offering from other public and private service providers in a market. These include total infrastructure solutions for Trust s wanting to work with a partner to run parts of or the whole of their estate, facilities, and IT&T functions, or individual services from a service schedule as illustrated below. This framework reflects the existing Essentia Core structure, and may change subject to the requirements of Essentia Trading. Nevertheless, to make modelling the projection of the growth of the business more straightforward, we have assumed that Developing Essentia Full Business Plan Jan 13 14

15 Essentia Trading would initially maintain this framework of operation, but it is recognised that this will need to change over time. Asset Management health planning and the planning, designing and project management of major capital projects including stakeholder engagement; advice on Estate/technical compliance; advice and support on energy and utilities cost control and management; maintenance services. Health planning and project management accounts for around 10% of the NHS capital investment budget. In , total capital investment in London was 800m which indicates an addressable market of around 80m for Essentia s asset management services. This market has been growing consistently for five years at a rate of 10% per annum on average. Group Operations catering services, making use of the spare capacity we have at present and capitalise on our experience delivering health specific menus; customer services (including helpdesk, switchboard and call centres); sterile services to capitalise on the recent investment in a new facility; advice on soft FM operational and compliance issues. The Sterile Services redevelopment business plan estimated the potential identified market in the immediate area would be worth around 6m per annum in The external potential is generated firstly by the economies of scale that make small scale decontamination facilities for low volume users less viable. Secondly, the significant investment required, and the space needs can present a significant barrier to even large hospitals creating their own decontamination units. IT&T As a national award-winning provider of training and an accredited Microsoft training academy, there is the opportunity to provide a national training programme; In the medium-term, following the implementation of our current IT investment programme, there is an opportunity to provide an integrated support service across health and social care, as well as advising local government and educational establishments in the area of technical design; IT support desk services. Community (Shared Services) As an established shared services provider to primary care organisations across both South West and South East London. There is a potential opportunity to trade the shared Developing Essentia Full Business Plan Jan 13 15

16 service concept and provide customers with a pick and mix type offering. We have identified procurement and provision of advice on, and management of waste services as potential areas for growth in the short to medium-term. We have the potential to expand our customer base to new external commissioners (GPs, pharmacists, dentists), as well as additional Trusts across London and beyond. In summary, we believe that there is a substantial market opportunity in London in the four main areas of Essentia s service provision. Overall, the size of Essentia s addressable market is estimated to be around 200m a year, which represents approximately 12% of the total NHS spend in London on the services provided by Essentia (see figure 4). Figure 4 - Potential competitors in the health FM market Source: ERIC and PwC estimates Developing Essentia Full Business Plan Jan 13 16

17 4. Operating model 4.1 Introduction Essentia currently manages and operates both internal and external contracts. Whilst this model has operated successfully to date, it is not ideal. The structure has a number of inherent operational constraints that is restricting its ability to grow its external business. These restrictions include an ability to respond quickly to market opportunities and enter into collaborative arrangements, access alternative funding and more flexibility around working practices etc. Recognising these constraints, earlier in 2012 Essentia Leadership embarked on a programme to assess the growth potential in its external NHS business, review its current operational structure and identify a preferred future operational model. The initial review concluded that there was significant potential for Essentia to grow its external NHS business but recognised that the current structure would need to be changed if this was to be achieved. This section summarises the work done to date in considering the growth potential for Essentia, the evaluation of potential operational forms and concludes on a preferred future operational model for Essentia. 4.2 High level options appraisal of models In March 2012, Essentia conducted a high level appraisal of a number of potential business forms drawing on external advice. Each form was evaluated against a set of high level criteria based around Essentia s Vision and Value Proposition and focused on the retention of both aspects of Essentia s business (GSTT services and externally traded services) within a single entity. A summary of the criteria and assessment is included in Appendix B. Following discussions with GSTT senior executives and Board, it was recognised that Essentia was a valued asset and a critical component in the delivery of GSTT s core NHS business, and as a result it was concluded that any future operational form for Essentia must ensure that GSTT retained ownership of the internal delivery arm of Essentia. It was recognised that a different form would be required for Essentia s external services if it was to deliver its target growth and Essentia was tasked with developing its potential business form to reflect this. 4.3 Criteria for developing Essentia s business form A model has been developed which will deliver the Essentia Vision and Value Proposition whilst addressing the Trust s requirement to retain control over Essentia s internal service delivery capability. It was advised by GSTT s Board that the future model would need to satisfy the following key criteria: safeguard services, assets and staff within GSTT; allow Essentia to trade freely with KHP and the wider NHS market including access to GSTT staff, assets and know how held within Essentia; incentivise staff, shareholders and leadership of Essentia; allow Essentia to develop new working practices for both internal and external work to deliver improved productivity and innovation; Developing Essentia Full Business Plan Jan 13 17

18 enable Essentia to deliver an Employee Promise to its staff, and offer a more flexible reward structure that allows the workforce to benefit from increased productivity and the generation of new income; and provide Essentia with greater financial and decision making autonomy and the ability to respond quickly to market changes. 4.4 Preferred operating model The review concluded on a preferred new operating model for Essentia. Under the model Essentia is made up of two entities, Essentia Core and Essentia Trading as follows: Essentia Core will comprise existing Essentia services provided to GSTT and will continue as a division of GSTT (i.e. remain as is). All existing staff will remain GSTT employees under existing terms and conditions, but through the development of the Essentia workforce strategy they will start to benefit from opportunities to motivate staff within the boundaries of Agenda for Change (AfC), through taking forward the Essentia Promise. All existing assets and contracts would be retained within Essentia Core. Essentia Trading will be formed as a new stand-alone legal entity owned by GSTT with the intent that future Essentia services provided outside of the Trust would be contracted through this organisation. Essentia Trading will become the growth vehicle for Essentia and provide a future income stream to GSTT through the distribution of profits. Under the proposed structure Essentia Trading will deliver services via a mixed resourcing model with some services being provided by staff recruited and employed directly by Essentia Trading and other services delivered by Essentia Core staff via an arm s length Service Level Agreement (SLA). Due to the separate governance arrangements, the SLA agreements will be legally binding contracts. The figure below illustrates this structure. Figure 5 - Essentia Trading Operating Structure Developing Essentia Full Business Plan Jan 13 18

19 Essentia Trading will deliver its service contracts to the market using three models: Model 1 - Where the service requires the use of GSTT assets and infrastructure, Essentia Trading will subcontract the service delivery to Essentia Core under an SLA arrangement; Model 2 - Where the service is delivered using a mixed service delivery. Here, whilst Essentia Trading will be responsible for the overall service delivery it will subcontract elements of the service delivery to Essentia Core under an SLA agreement; Model 3 - Essentia Trading will deliver the service using its own assets and staff. As the level of trading grows, Essentia Trading will increasingly look to recruit staff directly for dedicated services to external clients and rely less on services being provided by Essentia Core, i.e. it will move towards Model 3. It is envisaged that Essentia Trading will be managed by the current Essentia senior management team under a SLA, reporting to the Essentia Trading Board. The Essentia Trading Board will in turn report into GSTT Enterprises Board and through this into the GSTT Board (see Section 5 on Governance). Operating both businesses with a single management team is seen as critical in the early period as management will need to have full visibility of the activities within both operations to: ensure that Essentia Trading costs are contained; maximise the benefits of the knowledge and know how generated by Essentia to date; maximise the use of surplus capacity within Essentia; and effectively manage staff in both operations. At launch on 1 st April 2013 the current Essentia Senior management team will continue to be fully employed by GSTT providing their time and services to Trading via an SLA. It is envisaged that over time as Essentia Trading grows, it will look to recruit a dedicated management team who will be employed by Trading on a full time basis. To support the operational model, during the early period, Essentia Trading will purchase certain support services, such as finance and HR, from GSTT via Essentia Core. The proposed model provides the following key benefits for GSTT: allows GSTT to retain direct control of Essentia Core activities, staff and assets; provides a potential future income stream for the Trust; enables Essentia Trading to recruit new staff on flexible employment arrangements; and provides greater flexibility and autonomy for Essentia in the delivery of external contracts. Developing Essentia Full Business Plan Jan 13 19

20 4.5 Essentia Trading Service Offering Essentia Trading will offer 12 services via 4 divisions. The services and divisions follow Essentia Core s existing structure and are as follows: Figure 6 - Essentia Trading Service Offerings to be taken forward as part of the Business Plan Essentia Trading Catering Services Project Management Property Services IT Training Services Customer Services Healthcare Planning Environmental Consultancy IT Helpdesk Services Sterile Services Engineering Maintenance Procurement Services IT Managed Services As an asset intensive service, operational services will primarily be delivered by Essentia Core under an SLA. Initially, IT and existing community focused shared services will be offered via a blended solution, moving towards an Essentia Trading solution over time, whilst Asset Management services will mostly be provided directly by Essentia Trading. Over time, Essentia Trading will look at entering into partnerships with other Trust s whereby it can offer the full range of FM services to Trust s without the need for individual procurement. Any partnership entered into would be subject to a separate business case. 4.6 Contractual arrangements between Essentia Core and Essentia Trading A key feature of the proposed operating model is that Essentia Trading will be drawing on Essentia Core capabilities particularly during the first few years. Services provided by Essentia Core will fall into four categories: Traded Services whereby Essentia Trading subcontracts the service delivery to Essentia Core (Figure 5, Model 1 above); Staff Services whereby Essentia Trading subcontracts a particular function of service delivery to Essentia Core to support its blended service solution (Figure 5, Model 2 above); Corporate Services whereby Essentia Trading will purchase specific corporate support services from GSTT (via Essentia Core). It is envisaged that this will include both finance and HR in the initial years; Developing Essentia Full Business Plan Jan 13 20

21 Management Services Essentia Core senior management team will be responsible for managing the performance of Essentia Trading and will provide this service under an SLA arrangement. Separate SLA s will need to be agreed for each service provided. These will be based on the GSTT s standard form agreements and will cover areas such as proposed service, contract term, pricing, KPIs etc. Consistent with State Aid and Competition rules, a clear commercial approach will be required with pricing on an arm s length basis. Draft HoTs for each of the four service areas are included at Appendix C and have been developed to outline the commercial approach to be followed when purchasing services between the two entities. These will clearly identify the pricing basis e.g. a cost plus arrangement based on predetermined rates. These HoTs will need to be converted into signed SLAs prior to the commencement of service delivery. To support the governance arrangements of Essentia Trading in order to minimise the risk of disputes and service failures, it will be essential that a strong contract management function is established to oversee the SLA s between Essentia Core and Essentia Trading. The function should include monthly performance management meetings to discuss each SLA and the meetings should involve an independent Trust representative. The recent Wragge & Co LLP (Wragge report) to GSTT on governance arrangements recommends that the contract management function for SLA s which GSTT holds with its commercial ventures involve the Commercial Directorate and are monitored by both the GSTT Board and GSTT Enterprises. It is proposed that this approach be adopted by Essentia for its SLA s with monthly review meetings being held involving: the Commercial Directorate; service lead for Essentia Core; service lead for Essentia Trading. This approach is subject to necessary investment being made by GSTT to improve skills and capacity of the Commercial Directorate to enable it to undertake the function. 4.7 New contracts staffing and TUPE Essentia Trading will be bidding for services contracts with other NHS entities and commercial organisations. These contracts will include consulting contracts, management service contracts, and service delivery contracts. In some instances the contract will involve the Transfer of Undertakings Protection of Employment (TUPE) with respect to the transfer of staff. The proposed operating structure provides Essentia flexibility with respect to the employing entity for staff transferring under such contracts. It is proposed that the decision regarding which entity employs transferring staff (Essentia Core or Essentia Trading) will depend on which entity will be responsible for service delivery as follows: if Essentia Trading has subcontracted the delivery of that type of service to Essentia Core for other contracts e.g. catering or SSD, it is proposed that staff transferring under TUPE will join Essentia Core on their existing terms and conditions; or if Essentia Trading is responsible for service delivery, staff transferring under TUPE will join Essentia Trading on their existing terms and conditions. Developing Essentia Full Business Plan Jan 13 21