Strategic Technology Sourcing in the Public Sector

Strategic Technology Sourcing in the Public Sector
Webinar
01 March 2012

Copyright © 2011 Hudson & Yorke Limited
Agenda
1. Introductions
2. Sourcing trends in the public sector
3. Strategic technology sourcing
4. Q&A
1

Introductions
2
Alex Lal
alex.lal@hudsonyorke.com
Senior Consultant in Hudson & Yorke’s government and public
sector practice.
Hudson & Yorke’s local government lead, and responsible for our
public sector sourcing methodology.
Delivery focus on major ICT sourcing and transformation
programmes in both central and local government.

Agenda
1. Introductions
4. Q&A
3

Key drivers in central government
1. Budget cuts (year-on-year reductions except in Health, Education and
International Development)
2. Major public service reform (education, health, welfare, immigration)
3. Significant operational challenges (availability of resources,
redundancies, pension reform)
4. Procurement constraints (infrastructure, services, equipment, ICT)
4

Opportunities and challenges in central government
5
Driver Opportunities/challenges
Budget cuts • Need to reduce operational costs to preserve funds for infrastructure
investment/front line services
• Must look at disruptive/innovative ways of delivering ‘better for less’
• Provides an opportunity (and mandate) to be radical/innovative
Public service reform • Represent a major disruption to existing ways of working
• May require substantial up front investment to deliver long term savings
• Reputational risk if technology is seen as the barrier to reform
Operational challenges • ICT professionalism is developing within government, but is still not seen as a
desirable career path by many civil servants
• Major technology programmes tend to be perceived as highly pressurised and likely
to fail, and of little benefit to those involved
• Technology offers substantial opportunities to create new ways of working that cost
less and are more desirable to civil servants (e.g. flexible/mobile working, end user
devices)
Procurement constraints • External expertise must be brought in for a defined period and to meet a specific
requirement.
• A substantial knowledge base of expertise and good practice is being built up and
made available within government
• More sophisticated procurement/vendor management approaches require new skills
and capabilities within the organisation

Key drivers in local government
1. Localism agenda (elected mayors, regeneration, greater autonomy over
finances)
2. Funding constraints (reductions in services, redundancies, pension
reform)
3. Public service reform (opening up to new providers, integration of
services, multi-agency working)
4. Responsible for delivering central government technology initiatives
(Public Services Network, high-speed broadband, digital by default)
6

Opportunities and challenges in local government
7
Driver Opportunities/challenges
Localism • Greater autonomy (and mandate) for elected representatives and chief execs
• Can prioritise initiatives and design services that are responsive to local needs
• Under increased pressure to demonstrate value for money and successful delivery of
services at local level
Funding constraints • Must find ways of delivering services for less money, or make reductions/cuts
• Some considering radical options for structurally altering cost base
• Technology is a key enabler of reducing costs, but much money tied up in buildings
and people
Public service reform • Consumer society increasingly expects levels of service they have become
accustomed to in their day-to-day lives
• Service integration is seen as having rich potential as a way of delivering better
services at lower cost
• Councils would prefer to deliver services through lower cost channels, closer to their
citizens homes
Central government initiatives • Not yet mandated for local government, but direction of travel is clear. In some
cases (e.g. high-speed broadband), funding is tied to a particular delivery model
• Councils have a proportionally greater number and range of interactions with
citizens. Creating a single picture of each citizen is an inherently greater challenge
than for CG.
• Citizens expect their local council to be responsive to their needs and have a human
face/voice.

Impact on technology sourcing
1. Overall expenditure is broadly similar to previous years (going up slightly in
local government); more rigorous prioritisation of programmes and initiatives
2. Greater focus on cloud services and open standards to reduce costs and
facilitate interoperability
3. Increasing interest in new sourcing models (e.g. strategic outsourcing and
transformational partnerships)
4. Reducing underlying costs of ICT: virtualisation, hosted/shared data centres,
network convergence – expect this to move up the technology stack
8

Agenda
1. Introductions
4. Q&A
9

Preparing for a strategic approach to technology sourcing
10
2. Assess potential
sourcing
approaches
1. Understand your
delivery
organisation
3. Identify the right
approach for your
organisation
5. Prepare for the
transformation
4. Identify
procurement
route(s)
6. Transition planning

‘Traditional’ public sector ICT delivery model
11
ICT Department
Organisation
Networks DesktopApplications
Data
centre
Service1
Service2
Service3
Service4
Service5
Service6
Service7
Service8
Service9
11
Key features:
• Who is best placed to deliver each of the
functions shown in green (‘us’ or ‘the
market’)?
• How to minimise complexity and risk?
• How to ensure ‘the right’ amount of control
with ‘the right’ amount of management
• How to align services and deliver end-to-end
service performance to the rest of the
organisation
• How to incentivise suppliers to work together
• How to source technology services to align
with this model?
Commercial & vendor management
Technology strategy & architecture
Service delivery & integration

Strategic technology sourcing options
12
ICT function/
department
Service
delivery &
integration
Service ‘tower’
(e.g.
Networks)
Individual
services (e.g.
WAN, LAN)
Owned &
managed
in-house
Managed
service
Shared
service/
joint venture
Outsource
More integrated, less
granular
More granular, less
integrated
Technology
strategy &
architecture
Maintenance
contracts
Key drivers in shift to vendor-
managed infrastructure and
services:
1. Reduce cost
2. Reduce complexity
3. Reduce management overhead
4. Introduce new services/greater
flexibility
5. Increase service quality

Examples of strategic sourcing approaches
A. Service towers as a managed service
Description:
Discreet service towers (e.g. Applications, Networks)
delivered as a vendor-managed service
Key features:
• Provides balance of flexibility and control over
services
• Leverage vendor investment in infrastructure and
economies of scale
• Allows customers to retain ownership of key strategic
assets
• Requires mature vendor management to deliver end-
to-end service performance
B. Service delivery & integration as a
shared service or joint venture
Description:
Service integration delivered with public or private
partner organisation(s)
Key features
• Pool resources to deliver improved services and
create operational efficiencies
• Leverage greater buying power of multiple orgs or
vendor ecosystem of suppliers
• Create platform for future collaboration/ innovation
• Retain management stake in delivery organisation,
while reducing operational overhead
13

Examples of strategic sourcing approaches
C. Outsourced service delivery/
integration
Description:
Service delivery and integration managed and delivered
by an external vendor
Key features:
• Manage integration complexity and risk through a
single set of contractual SLAs
• Leverage supplier innovation and economies of scale
• Manage end-to-end service performance through a
single, contractual set of SLAs
• Loss of in-house expertise may be difficult to replace
D. Full outsource of technology function
Description:
Whole ICT function/capability managed and delivered
by an external vendor
Key features:
• Manage all ICT provision through a single, contractual
set of SLAs
• Leverage supplier innovation and economies of scale
• Remove costs of management and operational
overheads
• Manage outputs rather than processes
14

Choosing a sourcing approach that fits
• Scope: Which technology services are in scope for
the new sourcing approach?
• Management model: What is the best
management model for each of these services?
• Suppliers: Should a single- or multi-supplier
strategy be pursued? Should there be a ‘lead’ or
‘anchor’ supplier?
• Geographies: How should different
sites/areas/regions be provided for?
• Execution approach: Should the new services be
rolled out service-by-service, site-by-site, or all
at once?
15

Choosing a procurement route
Procurement option Suitable for Avoid if
Open procedure • Your requirement is straightforward or commodity-
based
• A relatively small number of suitable vendors exist, or
responses will be straightforward to evaluate
• Your requirement is bespoke or not commodity-based
• You expect your requirement to elicit a large number of
responses that may not be straightforward to assess
Restricted procedure • Your requirement is well defined and understood, but
not complex enough to warrant competitive dialogue
• You do not yet have a clear view of who in the vendor
market is qualified or capable of meeting your
requirements
• Your requirement is ambiguous, or needs to be
developed in conjunction with a vendor
• Vendor solutions to your requirement may differ
substantially
•A small number of established vendors exist for your
requirement
Existing framework
(mini-competition)
• You have a clear understanding of your requirement
and confidence in the market’s ability to deliver
• A suitable framework exists covering the services you
require and the vendors you wish to respond
• The framework is seen as the ‘easy’, ‘cheap’ or ‘safe’
option, but the services available do not adequately
reflect your requirement
• The framework contract does not include vendors you
wish to respond, or you could secure the services at a
better commercial rate independently
Competitive dialogue • Highly bespoke, complex or ambiguous requirements
• Significant differences between vendor solutions that
meet your requirements
• Your requirement is not complex, or the does not need
to be developed in conjunction with potential vendors
16
Choosing the correct procurement route will maximise competition and interest
from potential vendors and avoid unnecessary costs or delays in procurement

Prepare for the transformation
• A stakeholder engagement and
communications plan should be used
through the entire project lifecycle to
manage stakeholders and communication
activity
• An effective communications plan is critical
to the success of the project and must be in
place for the entire lifecycle of the project
• How will communication for the project be
handled?
• Who is responsible for communications?
• What delivery methods will be used to
disseminate communication?
• What milestones will trigger a
communication?
• The communications strategy should have
CIO-level sponsorship
17
Wider
organisation
Affected
employees
ICT
organisation
Finance and
procurement
Facilities
Other IT
vendors
First-line
service
desks
End-users
Stakeholder Groups

Transition planning
18
Consolidate and align existing services and contracts to chosen model, e.g.:
ICT Department
Networks DesktopApplicationsData centre
Service1
Service2
Service3
Service4
Service5
Service6
Service7
Service8
Service9
Commercial & vendor management
Technology strategy & architecture
Service delivery & integration
Organisation
Consolidate and
outsource
Let as a managed
service
Extend
existing
contract
Procure via common framework

Critical success factors
19
- Moving to a new sourcing approach is a
significant transformation and requires strong
executive leadership
- Your chosen sourcing approach should form
part of – and be fully aligned with - your
technology strategy and vision
- Moving towards vendor-managed services
requires more sophisticated commercial and
vendor management
- Understand your ‘target’ operating model: what
capabilities and skills are needed in your
‘retained organisation’?
- Identify the right people and get them in place
before the transformation takes place
Critical success factors
1. Executive leadership
2. Alignment with technology vision
3. Mature commercial/vendor
management
4. Understand your service delivery
model

Preparing for a strategic approach to technology sourcing
20
2. Assess potential
sourcing
approaches
1. Understand your
delivery
organisation
3. Identify the right
approach for your
organisation
5. Prepare for the
transformation
4. Identify
procurement
route(s)
6. Transition planning

A note on Accelerated Procurement procedures
21
• The Cabinet Office has mandated ‘Accelerated Procurement’ procedures for
Central Government procurements
• These apply Lean principles to Government procurements, with the aim of reducing
the time, cost and complexity of taking part
• ‘Accelerated Procurement’ procedures have been created for Open, Restricted and
Competitive Dialogue procurements
• These are also available for other public sector bodies to use
• Key principles of the ‘Accelerated Procurement’ procedures align with
Hudson & Yorke’s recommendations on strategic sourcing
• Complete thorough due diligence before you begin
• Follow a comprehensive, end-to-end procurement methodology
• Take a partnership approach to supplier engagement
• Follow a time-boxed process
• Maintain competitive tension for as long as possible

Agenda
1. Introductions
4. Q&A
22

Strategic Technology Sourcing in the Public Sector

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