Review of Operational Effectiveness

for

South of Scotland Enterprise

(SOSE)

2

Executive Summary

The purpose of this report is to evaluate the operational effectiveness of the Scottish

Government’s newest economic and community development agency – South of Scotland

Enterprise (SOSE).

The choice of location was determined by the Scottish government using the Weighted Factor

Method to assess what area would benefit from additional financial investment. This led to

the creation of SOSE.

SOSE’s processes have medium to low volume and medium to high variety and measure

success based on the ability of the organisation to be flexible and maximise outcomes from

cash invested.

SOSE has a limited capacity and unpredictable demand. This results in underutilisation of

staff when demand is low and the potential for staff to become overworked when demand is

high.

Budget monitoring ensures that SOSE maximises outcomes from, and spends in full, the cash

budget awarded annually to invest in client projects.

The following key recommendations were made that could potentially improve efficiencies or

decision making:

-track progress of the key factors specific to the South of Scotland that were used to

justify the creation of the SOSE organisation.

– increase the number of people who can approve investments to reduce the likelihood

of bottlenecks within the approval process.

-introduce demand monitoring

Bias was present in all the sources and tools used in this evaluation. It was both directly via

the authors of the written sources but also indirectly through the assumptions included during

the construction of the process map.

3

Contents

1. Introduction 5

2. Evaluation of Operational Effectiveness 5

2.1 Location 5

2.2 Operations Process Design 7

2.2.1 General Transformation Process 7

2.2.2 Operations Process Map 8

2.2.3 Operational Performance 9

2.2.4 The Four V’s 10

2.3 Capacity and Demand 11

2.4 Financial Controls 13

3. Evaluation of Tools and Data Sources 14

3.1 Date sourced from SOSE/Scottish Government Website 14

3.2 Operations Management Textbook (Slack & Brandon-Jones, 2019) 15

3.3 Online Articles 15

3.4 Process Mapping 16

4. Conclusion 16

References 18

Appendices 21

1. SOSE Investment Approval Process Map 21

4

1. Introduction

The purpose of this report is to evaluate the operational effectiveness of the Scottish

Government’s newest economic and community development agency – South of Scotland

Enterprise (SOSE). This report will look at the operational effectiveness of SOSE across a

range of dimensions. The choice of location will be discussed followed by operational process

design, layout, capacity, demand and financial controls. Recommendations will be made

within each section on possible changes that could improve efficiencies or decision making.

An assessment of the tools and data sources used will then follow.

The organisation was established on the 1st April 2020 and aims to increase sustainable

economic growth and social development within the geographical area covered by Dumfries

and Galloway Council and Scottish Borders Council (South of Scotland Enterprise Act 2019).

SOSE had a cash budget of £28.1m to invest in client projects and building up a staff of over

80 people during the year to 31st March 2021 (Scottish Government, 2020). The budget and

headcount are expected to increase over the next two years.

The majority of staff SOSE employ work in operational roles. Operations are responsible for

appraising investment applications received from clients that include: individuals, businesses,

social enterprises and community organisations (South of Scotland Enterprise, 2020). These

applications are assessed against a range of criteria to determine if the projects are consistent

with the SOSE priorities detailed in the organisation’s Operating Plan and the Scottish

Government’s Economic Strategy. If approved by the senior management team at the

investment panel meeting, financial and non-financial public resources are invested in clients

to ensure their projects successfully return economic and social benefits.

2. Evaluation of Operational Effectiveness

This section evaluates SOSE’s operational effectiveness. In particular, the choice of location,

process design, capacity, demand and financial controls will be discussed to determine if they

are appropriate for the SOSE organisation.

2.1 – Location

The choice of location for operations is crucial for all organisations both initially when the

organisation is established and also when expanding (Hill & Hill, 2012). For SOSE the

situation is slightly different because the organisation was established to improve the

economic position of clients rather than the economic position of the organisation itself.

5

The Scottish Government embarked on a review of support for enterprise in 2016 to determine

where best to deploy resources in support of their economic strategy (Scottish Government,

2017). The Scottish government used the Weighted Factor Method to determine where in

Scotland would benefit from further investment.

This exercise took into account the following factors:

-Size of the investment directed to the area

-Population changes

-Proportion of economically active residents

-Population Density

-Transportation Links

For commercial enterprises the scoring would favour positive aspects of a location however

for the Scottish Government the scoring favoured locations with the most problems to address.

For example, a business may score highly an area with high population density and good

transport links however the Scottish Government would have scored these two characteristics

lower and would have scored low population density and challenging transport links higher.

The outcome of this exercise was that the best location for further investment would be the

South of Scotland. This resulted in the establishment of South of Scotland to address

problems and take advantage of opportunities in an area.

Although the challenges within the area are documented (Skills Development Scotland, 2019)

it should be noted that the main influence for the creation of SOSE was political. In particular,

the requirement within the Scottish Government’s Economic Strategy to promote inclusive

growth. This means that all individuals, communities and businesses in Scotland should not

be disadvantaged as a result of their location in the country. Since there was no economic

agency based in the South of Scotland, SOSE would address this.

Other techniques to determine the most appropriate location such as the breakeven and

centre of gravity method would have been less appropriate.

Breakeven may have been complex to calculate and would have perhaps been too difficult for

the general public to understand. This method would have considered the financial spend on

investments in clients by SOSE against the anticipated future benefits from the investment.

The calculation could have been quite subjective based on the significant assumptions that

would need to have been made to account for potential future economic state of the region.

6

The centre of gravity method is generally used where a decision on a new location is required

in relation to existing locations (Hill & Hill, 2012). For SOSE there was no interdependency

with other locations so using this approach would be at the expense of the aspects considered

as part of the weighed factor method.

SOSE may wish to ensure that the factors that were considered in the setup of the organisation

are tracked to monitor progress. This can be used to confirm that public funds are continuing

to be spent in the way originally intended. This could also provide a justification to ask for

increased budget for the region from the Scottish Government or as justification for Scottish

Government to re-allocate funds to other regions or organisations.

2.2 – Operations Process Design

2.2.1 General Transformation Process

The General Transformation Process shown in figure 1 shows that information that operational

staff obtain from clients and other sources is converted, using information technology

facilitates and office facilities, into bespoke investment products that suit an individual client’s

needs. Staff can also provide access to professional services and advice in addition to cash

investment.

Figure 1: General Transformation Process Model (Adapted from Slack & Brandon-Jones,

2019).

7

2.2.2 Operations Process Map

The high level SOSE operations process map in figure 2 shows the primary process of the

organisation (a larger diagram is included in appendix 1). SOSE exists to invest in clients

within the South of Scotland Region.

Key:

Figure 2 SOSE Investment Approval Process Map

Clients are assigned an operational staff member as their single point of contact. They work

with clients and other sources to get sufficient information to appraise the client’s investment

application. After a meeting with their line manager, Head of Operations, they determine if the

application will progress to the Investment Panel Approval Meeting. Success at this meeting

means that the client is awarded the financial and non-financial support within the application.

The client continues to work with their operations staff contact to track progress and submit

financial claims as agreed milestones are met.

8

2.2.3 Operational Performance

SOSE’s operational performance can be assessed using the five performance objectives:

quality, speed, dependability, flexibility, cost (Slack & Brandon-Jones, 2019). The most

important performance objectives for SOSE are flexibility and cost.

SOSE has a flexible investment appraisal process that allows operational staff to work with

clients in an iterative way to address the issues that prevented access to other sources of

finance such as banks or philanthropic trusts. When staff understand why the client has been

unable to access alternative sources of finance, they are able to design an investment

package that resolves the issues while at the same time mitigating risks for the client and the

organisation.

Keeping the process limited to one member of staff at an early stage, as detailed in the

previous section in Figure 2, ensures that only those applications that are fully prepared and

are likely to be approved are progressed to the Investment Panel Approval Meeting. Clients

also value a more personalised approach as they get the opportunity to explain what factors

influence their organisations and how best to invest in growth (The Good Economy Partnership

& The Ethical Finance Hub, 2019)

No electronic system based submission are required so this ensures all dialogue is efficient

and is suitable for the individual circumstances of each client. From an internal perspective

the flexibility allows applications to remain in appraisal stage until sufficient information is

gathered to reject or proceed for approval.

SOSE must also operate in a cost-conscious way because they are spending public money.

The way that funds are spent will be scrutinised in significant detail and the public could

perceive that the money could be spent in better ways or used to fund other vital public

services.

SOSE measures operational performance by monitoring the following performance measures:

-Percentage of budget spent

-Number of Jobs created

-Increase in turnover of client organisations

-number of clients engaged in fair work practices

-number of organisations with increased capacity to grow

From a customer perspective if a grant is awarded this will provide greater benefit compared

with other sources of finance such as a bank loan. The bank loan will need to be repaid

9

however the grant does not. This is in addition to the benefits, such as increased turnover,

that the investment is intended to generate. Social value created should also considered

however this is difficult to measure (Patchett, 2019). Achieving the performance measures

above will be relatively easy however inclusive economic growth that includes social value

and is sustainable in the longer term will be more challenging.

SOSE decision making has a flat structure that allows for investment decisions to be made as

quickly as operational staff can appraise the application. Valid claims received from approved

investments can be paid to clients within 10 days.

2.2.4 The Four V’s

Operations processes can be differentiated by considering the Four V’s – volume, variety,

variation in demand and visibility (Slack & Brandon-Jones, 2019).

Volume – SOSE volume is low due to bespoke nature of each investment. Initial enquiry

volume may be high since the organisation does not limit who can contact it however the

proportion of clients that get progressed to the appraisal stage are relatively small.

Variety – Although the appraisal process is repeated for every client the format and

consequences of the information gathered may be different each time. SOSE offers bespoke

investment options that suit an individual client’s needs. Each client’s situation can be

complex and understanding the best approach can be time consuming.

Variation in demand – In general, SOSE does not market that investment is available so

demand is largely driven by word of mouth. This means that it is difficult to manage or predict

demand. This leads to underutilisation of staff at times and demand that exceeds capacity at

other times.

Visibility – SOSE clients have some visibility of the process as they provide information and

explanations for the investment application. This will increase the cost as these interactions

and progress reports have to be conducted in a professional way.

The Volume and variety that a process is required to produce will determine the design of the

process (Slack & Brandon-Jones, 2019). SOSE has medium to low volume and medium to

high variety so SOSE could therefore be considered to follow professional services process

types.

10

Staff spend significant amounts of time working with clients and performing due diligence on

potential investments. They create customised, bespoke financial solutions that meet the

needs of individual clients. These solutions are often more flexible than other sources of

finance as staff take the time to understand the client’s organisation and structure the

investment to fit the needs of the organisation.

Potentially some basic grants for low values that required very little due diligence could be

processed more like a service shop and therefore the bespoke service offered by SOSE

deviates from the natural line of fit in the product process matrix. This means that providing

the investment to clients in these circumstances costs more and provides greater flexibility

than is required to meet client needs.

SOSE would benefit from value stream mapping to ensure that each part of the process is

adding value for the customer and is optimised for efficiency and cost. SOSE could start by

identifying value add tasks to assess if further value can be leveraged from the tasks or if they

can be completed at a lower cost. If the organisation identified tasks that are underperforming,

they can either change them to be a value add activities or eliminate them. If a task doesn’t

add value but remains necessary SOSE could reduce the costs of executing the task. If a

task is created because of ineffectiveness in other parts of the organisation, improvements

should be implemented in the other part of the organisation.

2.3 – Capacity and Demand

SOSE is currently willing to work with all organisations that are based or planning to locate in

the South of Scotland. This means that demand may be vary significantly but the capacity of

applications that can be processed is limited to the number of working hours that operations

staff have to complete appraisals. There is also a limit to the number of applications that can

be presented to the Senior Leadership team at the weekly investment panel approval

meetings.

This is probably not sustainable in the longer term as staff have the potential to become

overwhelmed if demand is high or be underutilised if demand is low. High demand could lead

to long delays for clients waiting for investment decisions or it could lead to staff being over

worked. This may be without any warning and could result in substandard work as they try to

appraise more projects than the number of working hours permits. An increase in the number

of investment applications presented at the Investment Panel Approval Meeting could result

in time constraints for each application. This may prevent a comprehensive discussion of

each application and therefore bad decision making may result.

11

Little’s Law could assist with planning (Little, 1961). Figure 3 shows that based on the average

time required per application the 20 operational staff that have responsibility for working with

businesses could engage with 400 businesses. There are 11,500 businesses in the South of

Scotland so the organisation would have the capacity to work with 3.5% of them annually.

Figure 3 Littles Law Applied to SOSE Business Team (Adapted from Little, 1961)

SOSE currently has no techniques to manage demand. The organisation does not currently

limit the number of organisations that it is willing to work with. Based on the previous

calculation this is an unsustainable position. Stricter investment criteria could be used to

reduce demand to a level that can be managed within the capacity available.

In addition, the organisation could consider how electronic solutions may assist with managing

demand. There are a number of implications of automating decision making however in

particular transparency for stakeholders both for internally and externally should be

considered from an early stage (Allen, 2020)

Capacity could be increased by employing more staff however with no management of

demand the current utilisation issues would still be present. An alternative could be to reduce

the time taken per client. If operational staff perform less due diligence or provide less ongoing

support this may increase the risk of investments failing to obtain the intended outcomes.

Managers at SOSE could arrange for each element mentioned in Figure 3 to be measured

and regularly reported. This will clearly show if there is an issue and allow for it to be

addressed. It will also show if the remedial action has been successful (Little, 2011).

12

2.4 – Financial Controls

Unlike a commercial enterprise that may aim to maximise organisational profit or shareholder

wealth (Arnold, 2019) SOSE exists to spend money on investments in projects that will result

in economic and social returns for individuals, businesses, social enterprises and communities

located in the South of Scotland.

SOSE is awarded an annual budget by the Scottish Government that must be invested in full

during the year. There is not opportunity to carry cash forward to future financial years.

Finance business partners provide management information to the Investment Approval

Panel. In particular, they track progress of spend against budget. Although the finance

department may provide the information it is the responsibility of operational managers to plan

how the budget will we spent and deliver these plans (Atrill & McLaney, 2019).

All investment decisions are made by the panel of at least 3 senior managers or directors. A

director must be 1 of the panel members. This approach limits the number of people making

decisions so allows for a clear and quick decision making process. The senior managers and

directors have access to decision ready management information that ensures they know if

there is sufficient budget available prior to approving investment.

If demand is high this approach has the potential to create a bottle neck at the Investment

Panel Approval Meeting stage and delay investments being approved. SOSE could consider

expanding the scheme of delegated authority to allow less people or more junior members of

staff to approve investment proposals. This could allow investments below a certain value to

be approved by more junior members of staff rather than by the panel. This would reduce the

number of investments approved via the panel meeting. It would be important that any staff

approving investment had access to appropriate management information to ensure that

budget was allocated in the correct way and total commitments did not exceed total budget

awarded.

Now that the operational effectiveness has been evaluated the next section will assess the

tools and data sources used.

13

3. Evaluation of Tools and Data Sources

This section will evaluate the main tools and data sources used in section 2 using the OPVL

method. The Origin, Purpose, Value and Limitation of each will be reviewed as well as

advantages and disadvantages.

3.1 Date sourced from SOSE/Scottish Government Website

Origin – The websites contain information produced and published by SOSE and the Scottish

Government. It is the most up to date source of information as well as a repository for historic

information. Reports and information on these sites can sometimes have named authors or

can be created by teams within the organisation.

Purpose – The information is published to keep key stakeholders informed. It is an

opportunity for the organisation to justify its existence to the public. The details of any

publications are always accurate but may be used in a way that tells a version of the truth. It

is for that reason that it could not be considered an impartial source.

Value – This is a very useful source since all official publications and reports can be found

online from these websites. SOSE and Scottish Government have no choice but to provide

factual or statutory information such as the legal framework and policies that the organisation

must work within. The organisation can choose if they proactively use them or link external

communications to them. The information has not been reviewed independently however often

refers to third party input or public consultation.

Limitation – Since SOSE is a new organisation there is very little publicly available

information. Currently sources are limited largely to the SOSE and Scottish Government

website. The Scottish Government and other public sector agencies dedicate significant

resources to ensure the provision of reliable information. This does not mean that the

information published is comprehensive and therefore vital details may be missed. There is

significant organisational and political bias since SOSE exists to implement the policies of the

political party in power. Information is likely to be more positive than the reality may actually

be.

14

3.2 Operations Management Textbook (Slack & Brandon-Jones, 2019)

Origin –The book was first published in 1995 and last updated in 2019 when the nineth edition

was published. This indicates that the text has credibility and has kept up to date with

changes. The Authors Neil Slack and Alistair Brandon-Jones are professorial academics who

have experience in industry, research and as authors of books and papers. This provides a

more rounded approach to theory by bringing in real life experience.

Purpose – The purpose of the book is to educate the reader. Academic books such as

Operations Management (Slack & Barndon-Jones, 2019) are good at providing theoretical

explanation of key definitions, concepts, frameworks, models and theories. The authors are

attempting to provide the reader with information and tools to better understand and potentially

improve the organisation that they work in. Since the book has not been written for any

particular organisation or industry it could be considered an impartial source.

Value – This is a very useful source since the authors have compiled information from a variety

of other sources to provide comprehensive and verified comments on the subjects covered.

Limitation – Academic books can be considered objective however since they are written by

humans there would be an element of subjectivity. This may give rise to the introduction of

personal biases of the authors.

3.3 Online Articles

Origin – Online articles that do not originate from an academic journal, such as those from

Chartered Institute of Procurement and Supply, are posted rather than published so there is

uncertainty surrounding the degree of review prior to posting online. The authors are stated

however there is little detail on their work experience or current employment. Academic

journal articles undergo scrutiny prior to publication and the work includes references this is

not the case for these online articles.

Purpose – The purpose of the information is to provide a point of view that may rely more on

opinions rather than facts. The details of any publications are not expected to be impartial

and may be trying to advance a particular agenda. It is for that reason that it could not be

considered an impartial source.

Value – This source is a useful way to get a single authors opinion or information from a

particular organisation. In this case since the article is published on the website of the

Chartered Institute of Procurement and Supply it is expected that there would be some degree

of review prior to publication.

15

Limitation – This source cannot be considered in isolation and must be considered subjective.

The bias will be personal as well as towards the professionals that subscribe to or read the

articles on the website. The advantage of the article is that it provides an unstructured point of

view that could provide the catalyst for future academic research.

3.4 Process Mapping

Origin – The process map in this document was created based on knowledge of the process

since no such process map has been published by the organisation either internally or

externally.

Purpose – A process map provides clear documentation of a particular process. It can show

the number of tasks, the order they need to occur and how they are interdependent. The

information should be factual however this will rely on collaborating with relevant members of

staff to ensure the process map accurately reflect reality. It can also be open to challenge and

can be easily updated as required.

Value – Process mapping is useful to build up knowledge of an organisations process. It can

also be used to assist document process improvements (White & Cicmil, 2016). Internal

stakeholders are best placed to verify a process map.

Limitation – The staff involved directly in the process should be consulted in the construction

of a process map. The greater the input from staff involved in the process the more reliable

the process map will be. Failing to involve staff with knowledge of the process will leave to

greater assumptions that may result in inaccuracies. In addition, managers may introduce

personal bias to convey their personal views on how the process should work rather than how

it is currently working.

3. Conclusion

This report has reviewed the operational effectiveness of SOSE across a range of dimensions.

The choice of location was discussed. The Scottish government used the Weighted Factor

Method to determine what area within Scotland that would benefit from additional financial

support. This led to the creation of SOSE.

SOSE’s processes are influenced by the fact the organisation has medium to low volume and

medium to high variety. Successful performance is measured by SOSE’s ability to be flexible

16

with investment funding for the individual needs of clients and maximise outcomes from costs

incurred.

SOSE has a limited capacity and unpredictable demand. This results in underutilisation of

staff when demand is low and overworked staff when demand is high and exceeds capacity.

The investment approval and budget monitoring part of the operational process ensures that

SOSE maximises outcomes from, and spends in full, the cash budget awarded each year to

invest in client projects.

The following key recommendations were made that could potentially improve efficiencies or

decision making:

-track progress of the key factors specific to the South of Scotland that were used to

justify the creation of the SOSE organisation. This could provide justification for

additional funds to be allocated to the region.

-expand the scheme of delegated authority to increase the number of people who can

approve investments to reduce the likelihood of bottlenecks within the approval

process.

-SOSE should monitor demand against available capacity to ensure remedial action

can be taken in a timely manner.

Bias was present in all the sources and tools used in this evaluation. It was both directly

through personal bias of the authors composing the written sources but also indirectly when

assumptions of those constructing process maps are considered.

17

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Appendices

1. SOSE Investment Approval Process Map