How to fund, govern and run a hybrid organisation

Author and economist John Kay wants public sector leaders to think more about hybrids. He is not talking about breeding animals or plants; nor about the new-generation petrol-battery vehicles. Kay's hybrids are organisations that deliver public services, with business management skills, but whose functions are of a broad public interest concerns and with revenues not normally earned in competitive markets. Kay's examples include universities, Network Rail, the electricity and gas infrastructure networks, Channel 4, housing associations, contracted-out public sector providers and Transport For London. Delivering the recent NHS Confederation Foundation Trust Network Lecture, Kay outlined how hybrid organisations all have different governance, capital structures and regulatory arrangements. Quality, management, governance and regulation The governance of hybrid organisations, Kay says, is not merely central to issues of output quality. Output quality depends on management, which depends on governance, which depends on the regulatory framework. We have, Kay adds, invented these arrangements from scratch each time, creating new governance structures, financing and regulatory arrangements for each new body without learning from previous successes and failures. He suggests that "the way we deal with hybrids is perhaps the fundamental public policy issue of our time". The role of the state Kay suggests that the state's major role today is about providing a variety of economic services. The state has thus become an economic agent like any other, providing health education and economic and physical security. Services and goods are provided through a public agency and sometimes by hybrids, rather than through private competitive markets. Changing public attitudes to state-hybrid provision We have, Kay adds, come quite a long way in thinking about governance, finance and management issues of hybrid organisations - but we still think about state activities through the prism of processes, rather than outcomes. Objectives of hybrid institutions include: * to distinguish the control and availability mechanisms for semi-commercial organisations from those associated with process and propriety * to give professional management responsibility and autonomy in day-to-day decisions, removing those decisions from second-guessing (which he dubbed "meddling without responsibility") and direct political accountability * to combine this with meaningful accountability for both output quality and financial performance over a medium-term period * to affirm that the purpose of limited financial autonomy is to reinforce managerial autonomy not to support 'funny financing' such as PFI (attractively bringing in private sector project management) or financial services * to prevent capture of the organisational structure by particular interest groups, which tend to be employee interest groups with a large veto over management activities Outcomes, not processes Kay concludes that successful hybrid organisations must find a challenging balance between offering short-term autonomy (at every level, from chief executive to employee) with medium-term accountability for performance. In almost all public sector activity, delivery relates to overall organisational performance, and can rarely be reduced to a simple list of metrics. The complex objectives we seek from hybrids mean that we must develop difficult and complex judgments of the quality of outcomes in economic terms for the public sector, as opposed to our previous measures of the quality and propriety of processes. Andy Cowper is the editor of Health Policy Insight