A mutual solution to a complex problem
This is an abridged version of the case study presented in Australia’s Leading Co-operative and Mutual Enterprises in 2022 by T. Mazzarol (part of the CEMI Discussion Paper series). The full discussion paper can be accessed from the Centre for Entrepreneurial Management and Innovation website.
Founded in 2018, Kudos Services, located in Adelaide, South Australia, is a mutual enterprise, a Public Benevolent Institution and charity registered with the Australian Charities and Not-for-profits Commission.
Kudos is a provider of specialist allied health and support services for children and adults living with a disability. Its clients comprise a diverse range of individuals including Aboriginal and Torres Strait Islander peoples, and people from culturally diverse communities. In 2021 Kudos employed 136 full and part-time employees and had an annual turnover of $13.6 million.
The creation of Kudos Services
The origins of Kudos date back to 1976 within the South Australian government. Reforms to the management of disability services within the State undertaken in the early 2010s led to the creation of the Child and Youth Services (CYS), which operated as a business unit within the Department of Human Services. The role of the CYS was to provide specialist paediatric services to children and youth with disability or developmental delay.
The introduction of the NDIS in 2013 and the requirement for State and Territory governments to transition most disability services from government, led the South Australian government to examine ways to work with a for purpose socially minded organisation committed to the values and public service ethos of CYS. The decision to create an employee mutual enterprise was something that evolved from the South Australian Government’s desire to ensure that the skilled workforce that had been created in CYS was not lost and continued to provide the quality services in South Australia.
This model of an employee-owned mutual seemed to satisfy the State Government’s desire for a non-government entity that would retain the skilled workforce from the CYS and deliver Early Childhood Early Intervention (ECEI) services. It was an idea that gained support not only from the SA Government, but also from the Federal Government and the NDIA.
The establishment of Kudos Services stems from an agreement between the South Australian Government and the NDIA. A five-year grant agreement was initially made to deliver services while the CYS team, guided by the Business Council of Co-operatives and Mutuals (BCCM), developed the concept of transitioning to become an employee-owned mutual. This funding agreement provided Kudos with a financial foundation upon which the new entity could continue to serve South Australian communities, whilst developing its self-sufficiency and sustainability.
Photo by Kudos Services
The need for financial self-reliance
By 2021 Kudos was facing a market environment in which the NDIS services sector was in a state of rapid change. The roll out of the NDIS over the period 2016-2020 had seen the sector grow at an astonishing average annual rate. However, average profitability across the sector was modest and the overall trend had been downwards.
Fortunately, a funding agreement with the South Australian Government to support the establishment of the mutual, provided the initial capital to facilitate the launch of the mutual with a strong platform for future growth. Despite this funding support, the Kudos board recognised the need to not remain complacent. The Board and Executive Management of Kudos spent much of 2018-2020 getting their business model right. The payback from this work on operational and financial management systems resulted in Kudos turning a profit from January 2021.
Transition from public service to mutual enterprise
The transition from public service to mutual enterprise had happened much faster than for many other entities that had moved from public to private enterprise. However, the mutual concept, once it was fully explained to members, quickly gained traction.
From the members’ perspective, the foundation years had been an exciting, but challenging time learning to operate within the new mutual. The first 18 months of the mutual’s existence saw the members learning to understand and develop the practical aspects of the mutual business model.
Over time, the focus of the members shifted from daily operations to more strategic issues such as member involvement in how the mutual was managed. This led to discussions over how to better engage members and have them invest their time in how Kudos runs, and to explore the benefits that mutuality brings.
Purpose and member value proposition
Important for co-operative and mutual enterprises (CMEs) is the identification of a clear purpose and member value proposition (MVP) that can engage and unite members, while providing the organisation with a strategic focus.
In October 2021, Kudos issued a new constitution outlining the organisation’s vision, purpose, objectives and principles. It also makes a clear statement of the benefits of membership, and what active membership means (Kudos, 2021).
Vision: We believe that every child, young person, and adult, along with their families and caregivers, has the right to belong to a supportive community. We work in partnership with people living with disability to affect positive outcomes, so they are empowered to contribute, participate, and belong to the wider society.
Purpose: As a community of skilled and experienced therapists, early childhood practitioners, support staff and other professionals, our purpose is to work in creative and innovative ways to provide inclusive and accessible services and supports to people living with disability, enabling them to lead fulfilling lives.
The Constitution also outlines ten principles that Kudos views as important to the maintenance of their mutuality, developed with reference to the International Cooperative Alliance's seven co-operative principles, and the BCCM’s CME governance principles.
Photo by Kudos Services
The benefits of membership
Kudos’ Constitution provides a statement of the benefits of membership, and what active membership within the mutual is characterised as:
- Being part of an inclusive organisation that aims to build on and sustain a positive, can-do workplace culture designed to benefit Members and make Kudos a great place to work.
- Having the opportunity to develop skills through active participation in the governance of Kudos and the shaping of our strategic direction and priorities.
- Enjoying the chance to experience a high level of engagement and meaning in our everyday work roles, knowing that as Members we have a say in how the organisation goes about achieving its objects.
According to Kudos Chair Penny Gale, enshrining these elements within the Constitution provides the membership with a clear understanding that they have a say in the operation of the organisation.
Developing the Member Value Proposition (MVP) and active membership
The ability of a CME to clearly identify its MVP and relate that to active membership is crucial. The primary focus of any CME is to create value for its members, therefore the organisation’s purpose and its MVP need to be in alignment.
The declaration of the organisation’s purpose, principles, benefits of membership and active membership are viewed as the foundations of developing the MVP and active membership engagement within Kudos. A set of key performance indicators (KPIs) has been developed to measure client satisfaction, and employee satisfaction surveys and member engagement surveys have been implemented.
The set of KPIs used by Kudos has drawn upon the Mutual Value Measurement (MVM) Framework© developed by Monash University and the BCCM. Over time, it is the aim of the mutual’s executive team to create systems that can monitor both its overall performance as a service delivery organisation, and as a mutual entity.
The challenge for Kudos going forward is the ability to build on this foundation and use education and internal communications strategies to educate members on what mutuality is. In doing so, this would help members view Kudos as more than just a place to work within their chosen fields of professional interest.
The governance model of Kudos comprises the board and the Members’ Advisory Council (MAC), which are both member-elected. The MAC forms an important part of the mutual’s governance system and provides an active voice for members. This includes helping the board in relation to planning and ways to better support and engage with members.
Selection of directors for Kudos is an important factor in setting the “tone and culture” of the entire organisation. Kudos approaches the selection of directors seriously and is not only interested in their skills and experience, but also with their “mindset” and their appreciation for what mutuality within Kudos is about.
The initial Constitution specified that the membership should appoint the board. It also specified that directors would not become members, and that the CEO would not be a director. The 2021 Constitution expanded these requirements and responsibilities of the board and formally stated that members are eligible to join the board.
The focus of the board and executive management was to use the MAC as a mechanism to connect the board with the members’ voices and to “upskill” the members to prepare them to assume directorships in the future.
Being a specialist in complexity
According to CEO Darrin Johnson, during planning the members decided Kudos should continue to focus on maintaining its established position as a “specialist in complexity”. This refers to how Kudos has traditionally serviced clients with complex needs. The provision of services to such clients is more demanding of time and generally less profitable. However, the Kudos membership wanted to deliver such services due to the need they identified within the community. Because Kudos is not solely focused on profit, it is willing to undertake this work, so long as it can break even.
According to Johnson, the future development of Kudos will depend on how well it can balance the need to maintain the delivery of relatively high-cost, complex services, while expanding its services outside the ECEI Partnership and shaping the future of how the NDIA supports such programs.
Ambitions for growth in an uncertain environment
While not focused on growth for the sake of growth, Kudos does recognise that it must grow to the point where it can achieve a suitable economy of scale and ensure that it can support all its service obligations.
Based upon current planning, Kudos needs to expand its base from 400 to around 1,000 clients. At this size, the mutual would be able to generate sufficient profits to allow it to weather any fluctuations and be sustainable. Given Kudos’ current trajectory this growth forecast is considered achievable.
According to Penny Gale, the aim of Kudos was not to seek growth beyond what was necessary for sustainability. Once the optimal size was reached, the Board and membership may decide to suspend growth and focus instead on assisting new mutuals to establish that can mirror the Kudos model and deliver services in other states and territories.
Key lessons from the case
Kudos is both a pioneer of what an employee-owned mutual enterprise might be, providing an important case study on whether such entities can live up to the optimism advocates have for them.
By the end of 2021, Kudos had successfully navigated the phases of transitioning from government and was poised to continue sustainable development. Kudos suggests that if properly designed, and supported, employee-owned mutual enterprises can deliver both economic and social value, whilst also providing diversity among service providers.
If they are to become self-sustaining, these mutual enterprises will need to learn to operate as wise, efficient, and financially profitable businesses, while also maintaining their commitment to the delivery of social outcomes. In this, Kudos has, to date, achieved this balance.
Kudos provides a good role model for how employee-owned mutual enterprises can contribute in vitally important areas of public service delivery such as the NDIS. . Key success factors will be to ensure the right purpose, leadership, and support through their formative years. Member ownership and control must be a central feature of these entities, and member participation on the Board, either as Member-Directors, or through sub-entities such as the Kudos MAC, are vital to securing member engagement. While Kudos is primarily focused on delivering services to end-user clients, how they perform such services, and what services they offer must be shaped by the members. That is the mutual difference in Kudos.
Photos by Nat Rogers