How to recover after losing a major contract
What do you do when a significant chunk of your social enterprise’s income disappears? Laurie Russell of the Wise Group recently offered some advice to fellow social enterprise leaders.
Losing a major contract can be painful, especially when it makes up more than half of your annual turnover.
Laurie Russell, CEO of the Wise Group, found himself in exactly that position in 2011. He spoke at the E3M Social Enterprise Leaders Club recently about the keys to survival after taking a huge financial hit.
The E3M Social Enterprise Leaders Club is a quarterly gathering of leaders of some of the UK’s most successful social enterprises that takes place at the headquarters of Bates Wells Braithwaite in London.
The Wise Group focuses on getting long term unemployed and other disadvantaged people into work, as well as community justice and various environmental services.
After Wise failed to land a £140 million contract from the Department of Work and Pensions things looked dire.
On the 28th October 2010, a time when talk of the ‘Big Society’ was rife, Chris Grayling MP visited the Wise Group’s offices in Glasgow. Russell remembers the then minister of work and pensions being impressed by Wises’s work.
Grayling seemed particularly engaged talking to an ex-prisoner who was now helping to reform newly released convicts himself, Russell said. Grayling asked Russell to accompany him back to the airport in a taxi so he could discuss the work of the group further.
“Contracts with the DWP,” Russell explained “were worth around £20m of our turnover at that time, but the department then tendered the Work Programme which was bringing those different contracts into one larger one.”
The Scottish government had agreed with Grayling that there would be a ‘Scottish approach’ to that Work Programme in Scotland, and that an organisation with Scottish roots and relationships would be best placed to deliver the contract. Russell was quietly confident that Wise’s bid would be successful.
On the 1st April 2011, it became clear that his confidence was misplaced. The initial data-based bidding process did not involve due diligence or an interview. The result was a dead-heat in quality scores and pricing between Wise and a private sector competitor.
The government then made the decision to award the contract to Wise’s competitor based on a single, theoretical tie-breaker question about their implementation plans, rather than looking at the company’s track record or an interview process, which Russell feels would have been fairer.
Russell felt the decision was unfair: “We’re a Scottish social enterprise and we had the infrastructure in place”.
Wise attempted to challenge the DWP’s decision both legally and via a media and political campaign. Despite front page Financial Times articles and questions being raised at both Westminster and Holyrood, it wasn’t enough to reverse the DWP’s decision.
After it became clear that the DWP’s decision was going to stand, “it was all about survival” Russell said. He and the board feared that they might go out of business: the effects of losing the contract were dramatic, with turnover dropping from £32m to £8m from 2010-2012.
After going back over what worked and what didn’t, Russell was able to condense the key lessons he had learned from the experience into some tips for companies going through similar issues:
Be transparent with staff
Open, honest and regular communication with staff is essential to keep them on your side during a difficult period.
Russell emphasised the importance of transparency throughout the process, gathering all the staff together for an initial meeting to tell them what had happened just two hours after being informed.
Act decisively and quickly. Looking back, Russell said the company dragged its heels with moving staff on, which ate into valuable cash reserves.
The majority of staff left voluntarily to competitors and involuntary redundancies were kept to single figures, even though around 400 of Wise’s 600 staff had to be cut. The sluggishness around restructuring meant the search for new business and revenue was more time pressured than if the difficult decisions had been made quickly.
Make necessary changes
Getting on top of your cost base and funding strategy for the future is also key. Russell remembers bringing together the expertise of his board and various consultants, and considered changing the business model.
In the end they decided to stick with their core business activities, but Russell maintains that sort of radical introspection is crucial to dissect the shock and make a change if necessary. The company now employs significantly more staff indirectly through partners to make any future shocks easier to ride out without having to shed Wise group staff.
Retain your culture
Russell related that the most important move was retaining Wise’s corporate culture and values.
Retaining that culture has led to a rise in quality standards. They recently received five stars from the European Foundation for Quality Management – the highest ever score for a company in Scotland.
Although the process has been painful, Russell believes that the award shows how the Wise Group has recovered after the setback of losing a major contract. As proof, turnover has doubled from the low of 2012.
He thinks that a financial recovery which lost the heart of the company wouldn’t have been worth it, nor would it have been possible. “It wasn’t a plan that got us out of it, it was our culture” he maintains.
Photo credit: Nik Shuliahin/Unsplash