Unfamiliar players face-off in competitive new paradigm

WHAT do you call it when a church-based not-for-profit group finds itself competing with an ASX-listed company to take over a service traditionally delivered by government?

Some might call it unsettling, as another of life’s certainties gives way to change; others see it as a big opportunity.

St John of God Health Care sits squarely in the latter camp.

The church-based group has grown to become one of Australia’s larger medical businesses with 13 hospitals, pathology labs and medical centres.

Its next big opportunity has come courtesy of the Barnett government’s decision to privatise the planned Midland hospital.

The government has selected two short-listed bidders to design, build and operate the proposed $360 million Midland Health Campus – St John of God Health Care and stock market-listed Ramsay Health Care.

One operates very commercially in order to achieve its church-based service goals; the other delivers quality service in order to meet its defining profit objective.

Both are competing vigorously to win the contract, on the basis they could build and run the hospital more efficiently than the government.

Hospitals are just one sector where this kind of change is taking place.

Affordable housing and employment services are two other topical examples, where not-for-profit groups are looking to take over traditional government services, often in competition with private companies.

These structural changes have shone a spotlight on the so-called ‘fourth sector’, a term that covers a wide range of cooperatives, faith-based organisations, mutuals and other not-for-profit businesses.

In Western Australia it includes some of the state’s largest businesses, such as grain handler and marketer CBH Group, motoring and insurance group RAC of WA, insurer HBF, and St John of God Health Care.

They don’t fit neatly in the private sector, nor do they fit in the public sector; and they aren’t charities.

Aged-care providers such as The Bethanie Group, Brightwater Care Group and Southern Cross Care all sit in the fourth sector, as they inject more commercial rigour into their socially motivated operations.

Capricorn Society, established as a central buying cooperative for the motor trade and today boasting 12,000 members across the country, is at the forefront.

Its chief executive, Trent Bartlett, is the founder of Social Business Australia and a great advocate of the fourth sector.

He says that social businesses trade for the purpose of creating social value – whether it is to serve members better, generate community benefit, or trade more ethically and environmentally.

“Social businesses share prosperity with all of their stakeholders – members, customers, employees and the community,” Mr Bartlett told WA Business News.

“They make profit (or a surplus) in the service of their goals.

“They are typically forged in local communities to address a community need, fight a fight or to right a wrong – so they have ‘collaboration’ in their DNA.

“My favourite description is that social business forms are a good way of doing business and a business-like way of doing good.”

Affordable housing has become one of the biggest opportunities for social businesses. The sector has already witnessed big changes, and with Housing Minister Troy Buswell due to deliver his affordable housing strategy in coming weeks, more change is coming.

The provision of low-cost affordable housing has traditionally been dominated by state government agencies.

A potpourri of small, charitable community housing providers operated at the fringe for many years; under urging from government, these groups have consolidated into a handful of large operators, notably Foundation Housing and Access Housing Australia in WA, and national operator Community Housing, which has recently expanded into the WA market.

They have been joined by not-for-profit businesses such as The Bethanie Group and Southern Cross Care, church-based groups that operate nursing homes and retirement villages.

These five organisations have been accredited as ‘growth providers’ and are due to be joined by Catholic welfare agency Centrecare as the state’s sixth growth provider.

The changes in the sector were highlighted by the growth provider network, which comprises Foundation, Access, Bethanie and Southern Cross.

In a submission to a state parliamentary inquiry, they acknowledged that community housing organisations have historically been viewed as ‘cottage industries’.

“Many organisations remain in existence to service the housing needs of a narrow target group, for example, people with a specific disability. The housing is a secondary factor in supporting the primary needs of the target group,” the submission stated.

“In contrast, growth providers are fully fledged affordable housing businesses.

“While they are not-for-profit organisations, they operate on sound business practices; reporting to boards and incorporating professional management structures.”

The submission said a significant point of difference was the ability of growth providers to act as property developers, and to partner with government and the private sector to develop larger scale projects for mutual benefit.

“Growth providers also have broader aspirational goals, in terms of their operations, growth and capacity,” it said.

“We see ourselves as sustainable business entities that operate across a range of housing tenures, and not limited to the social housing market.

‘‘We operate across several sections of the housing continuum and also undertake business activities independent of government involvement.”

The entry of new players to the affordable housing sector is not surprising, given the large amount of money on offer.

The federal government, for instance, has committed to spend $6.2 billion on affordable housing over five years.

Houses built under the federal government’s stimulus package are currently being transferred to growth providers.

Foundation won a tender for the transfer of 257 properties in the north metro area, while Access won a tender for 249 properties.

For groups such as Bethanie and Southern Cross, the provision of affordable housing is a natural extension of their nursing home and retirement home operations.

Southern Cross chief executive Stuart Flynn said his group’s move into affordable housing had been slow to get going.

Southern Cross became a growth provider in June 2008 and currently has 71 properties, most of which have come as a result of the federal government’s stimulus package.

It is also participating in the state government’s asset transfer program, which involves the transfer of public housing stock.

Mr Flynn noted that Southern Cross’ very first development was a retirement village.

“We think this is a great way of getting back to what we were doing,” he said.

Bethanie is currently building 200 affordable housing units that will be co-located with its aged care and retirement home developments at Mandurah and Dalyellup (near Bunbury).

The policy driven opportunities in affordable housing are similar to what has happened in the employment services market.

Changes have included the Commonwealth Employment Service being replaced by the privatised Job Network system.

That was followed in 2009 by the awarding of Job Services Australia contracts.

Many charity based not for profits moved into the sector when it was privatised but not all of them have survived.

The exceptions include Rockingham-based Community First International, which has grown to become a major provider of employment services in Perth and the state’s South West (see page 14-15).

Its major competitors include private companies such as AtWork Australia, part of the national WorkFocus Group, and Advanced Personnel Management.

Mr Bartlett said he had picked up on growing international interest in the fourth sector, helped by the United Nations naming 2012 as the International Year of Cooperatives.

He points to a growing body of academic work from Harvard Business School around the concept of creating shared value, which he believes points to a way forward.

“They argue that shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success,” Mr Bartlett said.

“It is not on the margin of what companies do but at the centre.

“They believe that it can give rise to the next major transformation of business thinking.”