UK Government Roundtable Discussion Regarding Procurement


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As reported in a post last week, I participated in what turned out to be a very interesting and informative Roundtable discussion on Sir Philip Green’s review of the UK Government’s purchasing policies and practices.

(NOTE: for those who may have missed the live broadcast, here is the link to the on-demand audio portion of the discussion;

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UK Government Roundtable Discussion Regarding Procurement

  1. 1. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) An SSON Exclusive Roundtable: UK Government's 'crazy' services expenditure - time to scrap and rethink? Chair Mark Kobayashi-Hillary Author, Blogger Participants Mo Ali Previously Head of Procurement & Project Procurement Specialist at the E-Delivery Team, The Cabinet Office -------------------------------------- Guy Strafford Client Director, buyingTeam -------------------------------------- Tim Cummins President and Chief Executive Officer, IACCM -------------------------------------- Lee Parry Programme Manager at Fife Council, Previously Procurement Scotland Project Lead, The Scottish Government -------------------------------------- Jon Hansen Procurement Insights Founder -------------------------------------- Lynda Atherton-Miles Shared Services Professional Overview Earlier in October, British Prime Minister David Cameron gave a speech attacking the previous administration’s “crazy services expenditures.“ A recent review by Sir Philip Green highlighted some of the decisions on IT spending and other procurement by the Labour government of which the present administration has been critical. In the Prime Minister’s words, the previous government made crazy decisions about property, about IT, about shared services. Sir Philip’s recommendation is that there should be a mandate for central procurement that is the centralization of the entire procurement function. Roundtable participants echoed this sentiment, underscoring their positions with evidence of effective shared services models from the private sector. Mo Ali stated that the supply community is just as much at fault in the procurement process as they have resisted change. Tim Cummins commented that where collaboration has occurred, it tended to lead to greater overall successes and that adversarial attitudes lead to failure. Lynda Atherton-Miles observed that for government, there’s such a lack of collaboration between different public bodies, different government departments, different local authorities, etc. and that they’re all looking for their own solutions in response to budget cuts. The lively debate also touched upon how the government is not taking the lead in setting forth a clear direction. In fact, roundtable participants bemoaned how the government is allowing major suppliers to tell them how to save money rather than to establish the best practices and shared services models that will improve service delivery while reducing costs.
  2. 2. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) Written Transcript of the Roundtable (Click here if you prefer to listen to the session) Speaker key CH Chair (Mark Kobayashi-Hillary) MA Mo Ali JH Jon Hansen TC Tim Cummins LAM Lynda Atherton Miles LP Lee Parry GS Guy Stafford Guests RH Russell Holmes CH: Today we're talking at this roundtable about the focus of the speech David Cameron the British Prime Minister gave last Monday attacking the previous administration's crazy services expenditure. The recent review by Sir Philip Green has actually highlighted some decisions on IT spending and other procurement by the Labour government that the present government has been very critical of. To actually quote the Prime Minister he said, "The previous government has made crazy decisions about property, about IT, about shared services", and Sir Philip's key recommendation is really there should be a mandate for central procurement, so he's talking about centralising the entire procurement function. So we've gather procurement and outsourcing experts to provide their opinions. There's Mo Ali, who worked with the e-Delivery Team from 2000 until 2008 at the British government Cabinet office, Guy Stafford who's the client director of Buying Team, Tim Cummins who's the president and chief executive of the International Association for Contract and Commercial Management, Lee Parry is the programme manager at Fife Council, and Jon Hansen is the Procurement Insights founder. And we also have Lynda Atherton Miles, a shared services professional who most recently was the director of shared services for Cummins. So we have a good group of people with a lot of experience around shared services. 00:01:52 My first question is: why does it take Sir Philip Green to point out that working practices have really changed, and have they really changed that much? MA: There's nothing new in Philip Green's findings, they've been there and they've been known for a long time and in fact a lot of the way it's been presented appears to be very tabloid. That's not to say that savings can't be made, there's been numerous efforts to actually get various cost saving initiatives underway, but cost saving as we all know isn't just about pounds, shillings and pence it is about sweating assets, securing the best deal and a variety of other things. The other thing that didn't quite come across in the report is that despite very strong initiatives over the years by different areas of government and committees, the supplier community is just as much at fault because they have resisted change and not helped government to consolidate a lot of this spending. Now, going back to centralised procurement, they've done that and it works for certain things, but it doesn't work for a variety of things, but that's not to say that centralised procurement for a wide range of commodities is not a sensible thing, it would be certainly something that should be revisited. JH: What's interesting about Sir Phil Green's review is that, it falls into the NPM track, the new public management mantra which really has been chanted in the public sector since the late '90s, which assumes that
  3. 3. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) the private sector somehow figured it all out, got it right, and has thereby created an all encompassing model that the public sector should follow - and that's not the truth. The reality is 85% of all initiatives worldwide (public and private sector) fail to achieve the expected results. So just as an anecdotal reference, I remember a senior VP coming up to me after I spoke from Colgate Palmolive saying the only difference when a program fails between the private and public sector is when it goes off the rails in the private sector, as it did with Colgate's Arriva initiative, we're not going to end up on the front page of the newspaper. The fact remains is that there are things that you can learn and I agree with Mo, nothing new there, but what is problematic is that there are things you can learn from the private sector; Colin Cramp's Towards Cash Flow Improving Public Sector paper I though was a good step, but that came through the view of the public sector or somebody with 30 years plus experience, so you have to have that filter in place. And there are, of course, successes in the public sector referred to, e-procurement Scotland, the Commonwealth of Virginia is another one which is consistent - and it has its detractors - delivered results. But they've had an expansion of the supply base from 26,000 to 34,000 between 2001 - 2007 when the programmes tracked, they've seen distribution of contracts over that supply base go from 23% to more than 46% and the programmes operating at a surplus of £10 million which means it's self funding - they don't have to go to the government budgetary office cap in hand asking for money to improve the programme or implement some of the initiatives the Jay Lark review talked about. So we can't lose sight of the fact that this is not a messianic document that the public sector should just blindly embrace or abdicate. And one final note, I don't want to occupy too much of this but I think this is important, Sir Phil comes from a retail background, I think he has something like 2,000 locations, well he did a paper called Public Sector Procurement and the Walmart Effect and what was interesting, and these are some of the problems that the public sector does have as well especially if they move towards a full embracement, is that it was discovered statistically that the greater percentage of business that a vendor does with Walmart the sharper their decline in overall profitability. So an example, Cart Cool or Cart Beverages relied heavily at the time of the report on Walmart and ended up with a little bit more than 10% profit margin compared to a Coca Cola or Pepsi who aren't dependent on Walmart but had profit that was more in line with the 30%- 32% sector. So we can't embrace the private sector mantra, and I got the impression from the Sir Phil Green report that it's very adversarial and centralisation was beating down the suppliers, well public sector has a much different mandate and platform that they have to adhere to and I think that you can take those suggestions but you do not just blindly follow the lead of the private sector - that's my two cents. TC: If I may supplement that and come in there, I think that certainly Mo's point about resistance to change is obviously a very key one here, we are looking at aspects of the typical centralised versus decentralised argument. And, of course, ministerial fiefdoms clinging on desperately to their power, so there is a little bit of that in the background, there is no doubt about it but, of course, the politicians generally are also in large part perhaps accountable for some of that, if indeed politicians can ever be held fully accountable. And, of course, one of the factors here I think is that ministerial tenure has been steadily reducing and I think in the last administration, of course, came down to typically, I believe, less than two years. But, of course, that didn't really give any consistency to implementation of what would have been sensible policies. Going beyond that, however, I think that we're also looking at, to an extent, the challenge that government has steadily become more ambitious. When you look at the nature of the schemes that people are trying to undertake now and when you look at a lot of those that have engendered substantial, arguably waste, because of their failure to deliver against expected results - or in some cases failure to deliver against any real results - that is in part because we have been embarking on increasingly complex, long term projects without any consistency of structure or approach.
  4. 4. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) And I fully agree, of course, with John Hansen's comments about if we simply try and apply a retail mind-set to the behaviour of central government with its supply base we are going to finish up, I would suggest, with more failures rather than less. Certainly we need rigour and discipline but we also need, in many cases, greater cooperation and collaboration with key suppliers in many of these major projects. And, in fact, we did a study about two years ago now in partnership with Rand Corporation which was very clear in its findings, that a significant component of failure was in fact because of the adversarial attitudes that much of the procurement organisations had been taught; where collaboration occurred it tended to lead to greater successes. But also the risk adverse attitude or risk adverse standards of EU public procurement policy - to which, of course, the UK is subject - were leading to a pricing premium of around 28%. So I think there are some pretty easy targets also to be gone after, but in principle I think this idea of greater consolidation and centralisation is quite clearly a logical way to go, as long as it's about building up skills, building up methods, which again was mentioned at the beginning very closely involved with, has already come up with many of the excellent thought leadership models - the problem has been they haven't been implemented. LAM: I think the issue really for government is that there's such a lack of collaboration between different public bodies, different government departments, different local authorities, different police authorities, they're all looking for their own solutions in response to the budget cuts. And I think the challenge for government has got to be coordinating that change so that otherwise all these different public bodies/ local authorities, will all create their own little shared service centres, they'll all implement completely different systems, they'll all design and configure them a slightly different way of doing the same things, and that puts barriers in place for the consolidation down the line which will bring greater savings. In my view the government should be looking at best practice, mandating systems, mandating process within a public sector and really setting out a strategy and a vision and a direction for sharing services. You've got police authorities now looking at doing shared services just with their local authority, you've got people like the NHS who have different models depending on which NHS trust it is, some have outsourced, some are doing internal, some are doing partnerships. And I just think that there's an opportunity now for the government to say, down the line we could do a much greater consolidation, a vision has to be one centre for each sector, and if we're not careful then that will just disappear and we'll just have a multiple businesses all doing something completely different when they're all really doing the same thing. 00:11:46 CH: Lee you are at Fife council so responsible for procurement in a local authority, do you think that we really just can't see the wood for the trees? Philip Green pointed out that the government spent nearly £40 million just on London hotel rooms, so how do some of these decisions get through the net? LP: I think Lynda raised a good point there that what we don't have is a central edict. I don't actually look after Procurement for Fife Council, I previously worked as Project Lead for Procurement Scotland creating national commodity contracts, I still provide guidance to that organisation, the purpose of which is to basically drive out the cost within the supply chain, but what we did not have is the ability to force organisations to take part in this. So we set up contracts which are commercially very, very competitive but there is no central driver to be able to push organisations to utilize them. LAM: Exactly, if you're in the private sector, if you're in a private company, you've got purchasing professionals, they set up catalogues you have to use to purchase from, you can't buy outside of a catalogue, and you can do that for one local authority but there's no mandate to say you're all going to use this. LP: Absolutely, the primary purpose of Procurement Scotland was to be able to act on behalf of all public bodies within Scotland to set up collaborative contracts. I think the important thing is what we shouldn't look to do is set up contracts, for complex, solution orientated areas [deliverables], we need to focus on the commodities in the simple areas where we can drive out cost. I do think that within the report itself Philip Green
  5. 5. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) really was focusing on the simple things, mobile contracts, fixed line telephony, it is just the commodities rather than the solutions. 00:13:50 CH: Guy, I wanted to ask you, we used to have the Crown suppliers, we used to have the government property services, the Property Services Agency, so we used to have things like centralised purchasing of furniture, offices, and we moved away from that model I would assume for some reason. So why is Philip Green now saying we need to move back to centralisation? GS: I suspect Green, I think the point has been put very eloquently earlier in the conversation, that he's got a retail background and he's built a business where he is at the centre of what Arcadia does and he, I understand, is critical to the buying decisions that go on in that retail environment. There is an inference that the government can learn a lot of lessons from the way that he operates and I think that certainly to the point that can be made before, there are opportunities to rationalise a lot of government spend. I suspect, as someone who deals with both public and private sector, I think a lot of the issue is that the central and local government haven't consistently put enough high quality procurement professionals into their organisations, because it's not just a case of getting suppliers to change behaviours you've got to look at who's actually making most of the procurement decisions. And it's not procurement functions it's going to be IT directors or the social services director, or whoever it might be, we've got to figure out both a way of mobilising procurement but then mobilising the organisation more generally. And in that context I think partly the answer's going to be visibility, there's going to be one route that we need to take, and so we've seen in the non-procurement arena the role of people like the Tax Payer's Alliance making use of freedom of information requests to get a lot of information into the public domain, I think as there's greater transparency of where the public sector spends its money that's going to provide some impetus for improvement. And I think, on top of that, you are going to see one or two more organisations empowered, whether it's an OGC on steroids or a replacement to the Property Services Agency, who knows, but I think you are going to see a lot greater centralising impetus around this view facilitated by the data. I think one of the things that has got to be considered is, however, from my perspective, the private sector doesn't have to juggle so many competing demands, so often public sector procurement is trying to juggle between CSR the environment, local suppliers, SMEs, as well as value for money. And I'm sure it is possible in certain instances to make all of those compatible, but I think public sector does find it very hard. The procurement talent that is there is spread so thinly trying to cover all of these issues in this instance I think there's going to have to be some decisions made about focusing on - if they really want to take the money out - value for money, and some of those other issues, whether it's the deployment of local suppliers, local communities or otherwise, is going to have to be compromised. LAM: Don't you think the danger is that all of the public bodies are going to start putting purchasing people in, so multiple purchasing people all over the country, why not have a centralised, purchasing procurement centre of excellence function for the government split by category spend. Because whatever you buy for a local authority all local authorities buy that stuff, the police all buy the same kinds of stuff, why not have one central expertise procurement function for government? GS: I think you're going to get it, but I think the point that Jon made - somebody made the point earlier - in a lot of industries there are dis-economies of scale, so if you take accountancy and the law the bigger the law firm or the bigger the accounting firm the more expensive they get, so that's one thing. The second question is actually if you really want - in our experience - to save a lot of money, so instead of saving 5% if you want to save 30 or 40%, it's not just about determining a better price with the supplier it's about determining what specification you want, what products you want to buy, what is the internal process that you want to use to deploy this resource. As we've seen in the last couple of years, big issues about whether local authorities should have one collection per week or whether a collection every fortnight of their waste; now, that decision and working the way through
  6. 6. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) that decision actually is going to have a much greater impact than potentially trying to squeeze all the local authority waste collection contracts into one bucket. So I think we need a balance of both central skills and some local delivery capability to turn it into a reality. JH: That’s a good point. If I could just interject I think that’s a good point. In centralisation, forced to buy through centralised initiatives have not worked. In the US, the GSA, for example, is considered a mechanism by which you measure the high point of pricing. And what was interesting and a compelling case was back in 2004 the state of North Carolina entered into a memorandum of understanding with their higher education institutions and as you know higher education institutions have this belief of a birth rate being theirs to control all things relative to their own purchasing. So what the State did is they had Acer Service which was run by Nvidia platform it doesn’t matter the technology. But they entered an agreement with the higher education institutions giving them practical autonomy on the frontline with the caveat that whatever they did they would have to co- ordinate it through the central system. So that if the local buyers or the regional buyers through their relationships in expertise were able to get a better deal, for lack of a better word, and I’m not just talking about price, but get a better deal for describing this, they would then share that information instantly and centrally with the State and they would, of course, have the flexibility to buy it. Meanwhile the State would be using this as a means to gather intelligence to improve the main programme. Now, if the higher educational institutional buyers went out and they didn’t find a better deal than what was being offered in the centrally negotiated contract then, of course, they could buy through the State. And through this collaborative process it was really effective in terms of producing a result because it removed the requirement of this arbitrary artificial compliance with a centralised standard which seems easy on the surface but in practicality rarely if ever delivers the best value. And it allows the local, in this case the higher education groups to develop their and leverage their experience and expertises over the year to make it work. And I thought that was a very creative approach because it led to collaboration, communication that ultimately would naturally cause the central programme, the Acer Service programme to become a vital, vibrant, reliable mechanism. On the other side of the coin the Veterans Health Administration over seven years attempted centralisation after so many years but was decentralised with the visit. And over seven years wrote off $650 million US on two failed initiatives. Oracle and JD Edwards led to a congressional hearing and they tried to enforce compliance on that basis and it just doesn’t work. I think the North Carolina example is perfect in saying we’re more interested in getting it right than being right, so let’s find a way to empower and collaborate on the frontline rather than to enforce an artificial standard which usually and historically hasn’t proven itself to work very well. 00:22:08 MA: John, I think what’s interesting on top of this is one of the challenges that Government is going to have, certainly the UK is going to be conscious of, is that in certain spheres it is going to become such an enormous buyer that the volume of, let’s make it up, stationery that it will be buying, I don’t think you’re in a monopoly type of situation but you are in a situation the number of suppliers that can actually service its total requirements potentially becomes so minimal that actually you lose some of the competitive dynamic as a result. 00:22:44 TC: I think that’s absolutely right. I think we are obviously looking at a number of conflicting issues in many respects. I think as we look at, obviously, the opportunity of consolidation, the creation of catalogues and the like there is clearly a lot of benefit to be achieved. At the same time, of course, we’ve got a Government that’s also saying that it wants to actually devolve budgets further. So a lot of its pressure at the moment is actually completely the opposite of what at least in principle this report seems to be projecting with trying to create greater autonomy in the education service, having doctors as individual budget holders, etc. So if we’re going to make sense of all of that we’ve also then got public sector agencies that are beginning to take various initiatives around incremental outsourcing even to the extent, some of you may have noticed the report by and decision by Suffolk County Council recently to actually outsource all service activity, and making the statement
  7. 7. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) that within three to four years they expected the only council employees to be some 300 to 400 Contract Managers. Now, you can argue for and against many of those initiatives and I think really the key point is the one that’s been made on this conversation which is at the moment there doesn’t seem to be any real central policy addressing what is a very fast moving and very dynamic environment. I think there is little question that trying to think through at least for a core set of services the creation of much more integrated catalogues, whether that’s regional or countrywide, I guess you could go with various arguments. But then really having the discretion at a local level as to what it is they want to call off. So for example, if I’m a budget holder in Lancashire I may take a different view of social priorities than if I’m a budget holder in Cornwall or in Hampshire. The ability, obviously, to have some flexibility in terms of do I want four rubbish collections a week or once a month is exactly the type of stuff that people should be able to do but under the umbrella perhaps of catalogues which might include catalogues of outsourced services. 00:25:01 MA: Are we seeing that kind of centralised management process that you’re talking about coming from the Cabinet Office though because it was within about six weeks of the election Francis Maude asked 19 of the top suppliers to the Government to come in and suggest how they could help and that was specifically around dropping rates, de-scoping processes. Basically, asking the suppliers to work on the problem and they’ve asked another 30 or so to go through that process as well. So is the Cabinet Office taking a strategic lead or is there still really a major procurement issue? I mean is it more to do with the Government side of the procurement than the suppliers? LAM: The Government is definitely not taking the lead in strategy and direction. What they’re doing is getting the major suppliers in to tell them how to save money. So it’s getting your suppliers to tell you how to run your business rather than saying this is the direction that we really need to go and I suspect because they don’t have experts within Government and within the public sector. So they do need some, you know, Philip Green we talk about his retail background but he’s not doing anything that major global companies that I’ve worked for don’t do. Do exactly the same thing, look at your major areas of spend and look at being consistent with regional variations. So do I think the Government’s taking the lead? No. 00:26:37 TC: I think the encouraging this is that at least they’ve open to discussion and they’re open to debate. I mean I think that’s why, obviously, we’re having the conversation today, there is an opportunity and I think that the Cabinet are certainly still to influence. Are they representing that they as politicians are expert, well, fortunately actually in this instance, no, they’re not. They do seem to be open to getting other view points. But I think as is rightly being said is that going to be the right combination and have they started off with some perhaps rather fixed ideas. I think personally, observing what’s going on in the Coalition Government one of the things I find most encouraging about it is it does seem to have created a greater openness to alternative viewpoints rather than a party that’s been elected with a whole series of sacred cows. So perhaps we shouldn’t be too pessimistic but I think there’s no doubt that the good ideas need to keep flowing and it needs to make sure that it’s coming from a diverse set of sources. 00:27:41 RH: I’d just like to comment on that. I work with a Government supplier and the comment just made a moment ago about foresight and positive thinking. How we worked with the local Government authority in Scotland recently, I’ll try and keep this as distinct as possible, where we listened to potential requirements around a savings and creating savings around purchase of payment in particular accounts payable area. And we worked with that and produced our finding of potential savings and return on investments. That was then taken by the local authority and then they looked into it in great detail and extended that so much so to actually warrant a decision to automate certain processes. And subsequently, the savings that were produced in the short term and the long term they are quite happy to discuss with other peers within the Scottish Government and in the local Government area. That was very much well received. Now, my point is, they were very open to those
  8. 8. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) discussions. They took on board what was found and then invested their own time to see how accurate that was and where that took them. So I saw that as a great positive and that’s in a very small Scottish Government local authority. So people are willing to invest that time and as long as you’re talking to people that have expertise in that, then, I think people are willing to give their time and vice versa. JH: You know I’m inclined to agree with that as well as, Tim, remember at the Washington Round Table we talked about the fact and I think Karen Evans, the former CIO of the Federal US Government, and she managed $70 billion in IT spend and it was part of that discussion indicating that this is the key point. Technology does not replace skill sets and I think one of the key things that you’d had mentioned when we talked the previously, Tim, is that the talent gap or the skills set to make the initiatives work may be wanting in certain areas and that’s an area that we have to deliver because this isn’t a technology issue. This isn’t even a centralisation issue. It starts with the talent capabilities and I think we have to assess what is the talent or skill sets within the Government and how do those have to be forwarded before we can even start looking at implementing some strategies? 00:30:03 TC: Right, but then I suppose the question though is it procurement reform that’s actually at the heart of this issue because we talked a lot about what the Government needs to do and then also what the suppliers need to do. But it seems that many of the suppliers are coming to the table and are ready to talk about change. So where is the problem? JH: Which suppliers are coming to the table? The young lady mentioned about are they a representation of the existing suppliers? Is it the 20% of suppliers that are getting 80% of the business. I mean in North America, for example, there’s a huge problem with supply base erosion. On average suppliers are very cynical dealing with the public sector. It takes them anywhere between on average 18 to 24 months from when they start dealing with the Government to actually maybe winning their first contract. They deal with lower margins. They deal with cumbersome processes and long term payouts? I mean the supplier aspect is a key component as well. I mean who is coming to the table? Who is talking about this? 00:31:18 TC: Well, the existing suppliers who have been asked to come to the table, the 50 or so companies that Francis Maude has been having meetings with. 00:31:25 MA: Yes, but that doesn’t, just because they’ve been invited to come to the table doesn’t actually mean that there’s been an exchange of mindsets. I think Lynda actually put it quite rightly that there’s been a lot of talking at suppliers here and so that’s not generally moving us forward. I think there are a lot of issues there and I found myself agreeing with quite a lot of what everybody has been saying here. I think going back to what I think it might have been Tim saying that you do actually need to look at that, cultural changes particularly around decision making. It’s not necessarily procurement people in big ICT programmes that actually make the decisions. It is the IT Director, it is the people around them and also they have a different interpretation of VFM compared to commercial people and I think also the other thing that has to change culturally, we’ve talked a lot of consolidation, but consolidation and again, it’s a point that other people have made, it’s got to be appropriate. There are a lot of things that we don’t consolidate in Government that should be consolidated but there’re an awful lot of things still there. If you try and force a square peg through a round hole it will cost you more, it will take you longer and it will cost more frustration. And again, one, it doesn’t actually excuse this but historically where we’ve had consolidation a lot of the frustration of individual departments is because it becomes big and cumbersome and the prices weren’t that great although they should have been and so they found it just faster and quicker and sometimes cheaper to go out and buy locally. So again, we’ve had consolidation before but it does need to be a programme thought through. 00:32:59
  9. 9. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) LAM: I think it’s the same journey that the public, that the private sector have already been down. The Government has to go down the same improvement journey. You have to redo your procurement function as we’ve already talked about. Now, once you’ve done, that then you’ve got a standard purchase to pay process. You can put in technology like the gentleman from ReadSoft was talking about. Instead of going to one little local authority in Scotland and the next local authority is doing something else and the next local authority is doing something else. You’ve got a consistent process where you can pay your suppliers centrally because you’ve then got a standard process for buying and paying your suppliers. And part of that journey is looking at your process to see where it’s bureaucratic, where it’s inefficient and taking those inefficiencies out. It’s just the same journey that the private sector has already done. 00:34:02 MA: Lynda, that’s only partly true because if you take some of the commodities, some of the things that we’ve been talking around commoditising that’s fine. But if you take a big ICT project where you’ve got a lot of bespoke negotiations to take place, my personal experience is that suppliers haven’t been that keen to go down that journey and that and actually being accountable and risk sharing as they claim at the outset don’t transpire during the negotiations. Likewise Government have to be better at locking down what it is that it wants and actually avoid the repetitive problem of scope creep which is another big problem for suppliers. 00:34:40 TC: Connecting into that I think that’s not the point that’s being made. We talk of procurement being mandated but in my experience we did a survey of about 300 procurement professionals who’s average spend was 900 million per head and they averaged, they said the maverick spend averaged 55% and this is in the private sector. And I think one of the reasons why it might be as high as that in a lot of organisations, even in the private sector is in practice procurement actually decides very little. The decision makers are the IT Directors, the Finance Directors. The Social Services Directors, etc. we talked about earlier and procurement’s role is to influence and act as an effective internal consultant to most of those and procurement’s budget that it actually controls is very small. So in this context one of the reasons why I think we’ve got to get outside of just talking about deals done with suppliers and trying to rationalise the supply basis is that we’ve got to find some mechanisms and some tools and I think John was talking, I loved his story about the sharing of pricing and I presume it’s not just pricing in North America. But they sharing approaches and they’re sharing ideas about how to engage with external suppliers. Those types of tools I think are going to be necessary as part of the journey actually helping our CIOs be much more effective and all the other Directors internally within the organisation to be much more effective and procurement’s role is to support that. Procurement is to some extent I suppose struggling though very often both in public and the private sector because again the somewhat adversarial relationships that it’s, that are associated with it and of course, I think that’s where some of the cultural behaviour and change in procurement needs to also occur. I mean this issue of greater teaming etc. I think in the public sector this has been suggested very often procurement, of course, has being relegated as far too much of an administrative task of implementing other people’s decisions. But clearly if it’s going to rise above that and really have significant impact on those spend decisions then I think as John was highlighting the issues of skills and training are pretty fundamental. I think turning to the supply side there’s a little bit of schizophrenic behaviour on the part of suppliers to some extent. I think, obviously, they don’t like it when they’re associated in the headlines with failure or with price gauging or whatever else that’s never very pleasant. But at the same time they are, of course, at least at the individual sales level, very able at the moment to take full advantage of this fragmentation and if you can sell the same project 20 times at £5 million rather than selling it once at £60 million then you’re probably fairly happy with it. But whether or not that is really beneficial to supply margins, however, I’m not sure because I think again this disjointed approach to procurement and then ongoing relationship management is one that does cost quite a premium for the supplier to manage. So one of the interesting questions is what would the impact in fact be on supplier margins if one had better co-ordination? 00:38:14
  10. 10. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) RH: On that particular question one of the key requirements when we have the conversations, when I mean these conversations that is not just with the finance and IT perspective but also procurement. We engage a lot of people to get their thoughts and opinions and understand their potential requirements. But one of the key things is, is that visibility and liabilities and within that is that particular question regarding if we can operate more efficiently, how easy is it to see where the efficiencies are and whether they’re appearing at the moment. And if we make some better relations with those top ten or 20% of suppliers what impact will that have in monetary value and there are tools and there are solutions that form part of that offering around automation. And they’ve been around for a while but what we see is that with local Government it is very disjointed because you’re operating not just with, there are different areas such as schools and fire departments and often there are different systems. So to have a Nirvana of a fully shared service centre there’s so much to take in and consider it’s a very long journey. But having the ability to draw down and see where savings are being achieved and what if we could increase or decrease payments and create a better supply saving discounts, etc. What impact that will have on the organisation is actually one of the key things we talk about and see a lot of positivity about it. I don’t know if that helps with the question. JH: You know what’s interesting – you raised a very good point but the common concern that I would have is the broad application across the entire spend of government in terms of centralisation. In 2002 the President’s office in the US talked about the ramifications of overarching use of contract bundling, and the negative effect it had on bringing other suppliers to the table, in fact, suffering supply base erosion. There’s an article that I thought was very interesting written by Nerenz in 2006 called Federal Procurement Policy Analysis: Has Extent and Effect of Government Contract Bundling on Small Business Been Overstated? And some of the interesting things within this report estimated that there were 34,221 new bundled contracts that were awarded from 1992 to 2001, which is coinciding with the centralisation, transferring $840 billion of contracts revenue from small to large businesses. The end result that the report came back with was that there was a 56% decline in the number of small businesses contracting with the government. Now, here’s the problem with that – it’s that ultimately, as you look at a centralisation strategy and inherently take the risk of expanding it across all areas of spend, you run into the problems of what happened with Best Buy in Minneapolis, a retailer, which I think Sir Philip should probably take note of. It’s that the more your supply base compresses, the more your data gathering intelligence also becomes narrowly funnelled, for lack of a better word. And so your reality of comparing how effective your spending to the real market disappears gradually over a period of time. And subsequently, what happened with Best Buy is they turned around, did a rationalisation and centralisation for their MRO procurement in supporting their IT infrastructure, down to 100 suppliers. They found that after an assessment in the study that they were paying 23% above the going rate of the market. Now, it’s not just pricing, it’s the quality of relationships. North of the border in Canada the Department of Defence ended up paying 157% above the price of the going rate in the marketplace. So what’s interesting is this contract centralisation, or bundling, had the opposite effect so that in the end people had to come out, and the government explained why are they paying so much. Well, the reality is you have to be able to understand where you’re going to allocate that strategy, and where allocation is best sent to engage a broader supply core. And we’re seeing some reversals in governments moving in that direction because they’re not getting the RFP bid responses, they’re not getting the quality and they’re succumbing to a declining rate of service and what’s known as creeping margin, which happens as you begin to shrink your intelligence pool of what you’re buying. And naturally, the key point – and I think one of the concerns that I would have is there is no one panacea solution to this – centralisation and consolidation works in certain areas, where it won’t work in others, understand where that is and then build your strategy outward on that basis. RH: Jon, that is absolutely, in my opinion, spot on. Our strategy is to work with other competitor suppliers in our field to offer a transition over X period of time because what is the requirement now in the first six months, will be totally different in the next three or five years. So there will be a top echelon of suppliers that may have some
  11. 11. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) centralisation mechanism and commonality that can be used, whether it be small, medium enterprise and lower end down the order, which will be almost impossible to centralise in full capacity. Therefore you need to have different technologies, different solutions, different processes to cater for those, but it’s almost a top down. I think you mentioned the golden 80 to 20 rule, but if your top 20% suppliers are on a general portal that can trade electronically in a simple process, fantastic. But as you try and encourage more of those into that realistically you’re not going to get 100% buy in into that so you need a spread of solutions and technology, in our opinion, to achieve the best optimum performance. So having one particular method or mechanism is very, very difficult, and I can’t see it happening in the short period. 00:44:14 CH: I would like to pick up on some of the questions that have come up on the screen because there’s a couple that are interconnected here. Stephen Bullers has asked about local government not being comfortable working with suppliers that are not on the safe list. The big existing firms like Capita for example, and Rachael Stormonth has actually asked something that’s interconnected about the way the government has been calling in the suppliers and asking them how they can be more innovative. So I think are we looking at a situation where what the government is really looking at? Is it more of the same just at a lower cost, or are we really going to see some suppliers now stepping in with public sector solutions that are much more innovative and different to what we’ve been used to? JH: I think just if I could pose… the gentleman who just spoke before yourself raised, again, a good point in all this. The issue that you’re talking about though is a combination of buyer count – there was a study made in the Province of Ontario where the average buyer honestly indicated that the most suppliers with whom they were dealing with are five, that’s it. And so what’s interesting – this is where the technology comes in, with the advent of SAPs, with the advent of the modularity of technology versus these overarching initiatives through IT or ERP centric approaches – what’s interesting about that is you have a way in which you can equip the buyer with much more what you’d call effective tools to go out to a broader supply base. But you can’t do that unless you, of course, helped elevate the talent level within the buyer itself. So you’ve got buyers who are saying I really deal, on average, with only five suppliers that I know, like and trust, I feel comfortable with – the tools have to give the mobility to get out there and gain more suppliers, but there still has to be a concentration on the backend in terms of elevating the quality and capabilities of the buyers themselves. I think there is a big talent gap. GS: That’s particularly different and critical because there are some lessons that central government has had in terms of the introduction of the commercial director role. So people like John Collington [Home Office’s Group Commercial Director] who has not ultimately got responsibility for all central government procurement, and was the commercial director of the Home Office; you’ve people like David Smith at DWP. Now, these guys are, on the executive team, they have a very high profile and within their own organisation, as a result, have been able to deliver more and drive more impact. Now, that there may well be lessons for our local authorities, the health authorities and some of the other big spending elements of government outside of the central government. Because if we could create equivalent roles where, whether they are high end procurement people, or high end commercial individuals providing some leadership within their organisations, some visibility at the absolute highest level where they are peers of these other board directors rather than subordinates, I think those are critical factors to unlock. Then a different dialogue, a different opportunity, for example, to put the technologies, put the other tools that one of the previous speakers was talking about – put those in.
  12. 12. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) But my experience in the private sector – if you don’t have someone who has at least access to the board, if not on the board, driving this consistently – what happens in these types of programmes is they start off quite well and there’s a little bit of renegotiation done with some suppliers, but very quickly people’s attention turns away from this particular crisis to the next issue, and the suppliers claw it all back. And I think some mechanism has got to be put in place to prevent that occurring. RU: Sorry, I didn’t catch your name but it's an excellent point. The local authority in Scotland that we dealt with was actually a dream – the communication, the delivery of the whole project from initial meeting to go live was very swift and easy. Whereas when we did that with a large central government organisation, the project has been very, very difficult because of that interest waning over time, and the length of time it takes for things to be done and the hoops that we’ve gone through. So in essence, bigger projects, bigger organisations can create the problems, whereas if you tackle the small organisations it’s very quick to market and quick to be up and running. I do totally agree, I’ve seen it and we’re in that situation now with a large central government organisation – so I do totally agree. LAM: So the issue is lack of consistency. If you deal with each individual body there’s no direction from the government that says this is the journey we’re going to go on, and these are the tools we’re going to use. 00:49:20 CH: How can that decision be made? I’ll challenge that. I can’t see how it could be done, there are so many suppliers out there and industry experts in different areas pulling that together, and then the government to go through that and say, right, well, we'll assign that, and we’re going to work with that, and that’s going to take however long to do. In that first initial year of that, that might not be the most appropriate way as technology moves on and situations change – so I just don’t know how that can be coordinated and I welcome anybody’s thoughts on that. CH: I’d like to hear something from Lee, actually, about maybe some of the different procurement models or deals being offered by some of the suppliers to him. LP: It’s a good question. There’s different models that we can use to be able to undertake procurement and it actually feeds into one of the questions that was raised by the listeners about the pre-approved bodies. Obviously, there’s a growing movement of authority in utilising the contractual framework set up by the likes of buying solutions, which in themselves do not deliver any major value. What it delivers is a relatively quick and easy way to be able to award a contract, but it doesn’t allow the competition to be generated that you would find if you went through a European directive approach. [European Journal] Obviously, there is the fear of utilising the European directive or the contractual model because it takes so long. I suppose one of the difficulties we’ve got is, and it feeds into it, a comment that was made previously, that procurement is seen inherently as an administrative function rather than a specialist function. These people [procurement specialists] who should be able to go out there and provide the consultations in the different areas within their organisations, or regionally as well, and be able to provide guidance. That’s what we need to be able to move towards – is having a larger number of competent procurement specialists who are able to really drive this forward. We are seeing this changing slowly within Scotland – some of the larger contracts like or the Lagan [centrally created contracts allowing all Local Authorities in Scotland to purchase the same Customer Relationship Management solution] CRM contract which is available to all authorities within Scotland. We’ve seen, I think, 20 of the 32 local authorities buying onto that, but there are still no real drivers to move this forward [ creating centrally led contracts that meet the requirements of the organisations and then ensuring the uptake of the contract.] 00:51:58
  13. 13. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) CH: I think that it would be worth just picking up on that and asking what the big differences? Because we’ve talked a lot about private sector skills being brought into the public sector, but one of the things that nobody has really mentioned is the political sensitivities of strategic tools like outsourcing. So do any of you want to comment on the difficulties in using business tools - hard nosed private sector businessmen might think nothing of this, but if you’re an elected official how do you go about approving some of these projects in the public sector? TC: There is no doubt, you’re right, that there are a key range of incremental sensitivities which, of course, we would be foolish to ignore, and I know that was raised very early on in the conversation. It applies equally, of course, as you get down to the more local level where, clearly today, the spend are with local employers, local businesses, local companies, which of course are going to get massive press coverage if you even move the business to somebody in the next county, let alone somebody in another country. So there is clearly a balancing act that has to be done here and there is always going to be some offset in what you consider to be overall value for money. Yet on the other side I think – of course of the European countries – probably the UK is one, certainly our research suggests is one of the more open ones in terms of taking some of those tough decisions based upon value for money, as opposed to local relationships. I think there is a broader acceptance within the UK that that makes sense, but it’s certainly something that always has to be borne in mind. RU: On the subject of the BPO, what is really interesting is that the BPOs will use the technology, what ultimately the local or central government authorities would be using – they’re offering it as a service. So the question really is whether the local authority or central authority would actually want to have that control themselves, or see it as an asset to hand it over to somebody else to do. However, once that has been handed over there is always an element of them getting that information back into the ERP system, so there is always some connection outside even if you’re outsourcing. But it’s often the discussions that we have is about what control and visibility do you want? And obviously the return on investment is another key aspect. Over a five year period of outsourcing versus keeping it in-house, there is a big difference, but there are plusses and minuses of both. And again, can you legislate and say which way to go? You mentioned, I think, Suffolk county council as one, we’re dealing with two other councils who are doing a shared service centre working together, and that is two working together, and that’s their preference. So different councils and different authorities will prefer different mechanism and processes, but ultimately we’re using technology to achieve certain goals. 00:55:30 CH: We’ve only got about five minutes or so left so I think that what would be a good idea is just if the presenters could maybe summarise how they’ve seen the suppliers that they’re working with reacting to this change in the market, and is there opportunity in the market? And perhaps for new players to enter? So maybe if Mo wants to kick off with that? MA: Yes. You asked about suppliers going in and being asked to be innovative and see how better they can help government. We’ve never stopped, this isn’t a recent thing – in the eight years I was in the Cabinet Office we were always asking suppliers for that and they were willing to do that, but it was going to cost a lot more money for them to actually be more involved and actually be innovative. And so there is a cultural change to be had somewhere along the line. I think Lee put it right, or Jon was absolutely right, the problem that government has is eroding its customer base, eroding it’s supplier base whilst trying to open up to competition, especially to new and smaller suppliers because there are only so many types of suppliers that can actually provide all the services to the financial securities that government needs, so we need to address that as well.
  14. 14. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) Going forward, I think we’ve only just kicked off the dialogue with a different emphasis because these dialogues have been going on for a long time, but they now have an incredibly powerful backdrop and so, hopefully, will actually make progress, but it’s only the first of many dialogues to be had with suppliers. 00:57:14 CH: Okay, thanks. So Jon, how about your summary of the key issues? JH: I think it starts and ends rather with the fact that the government cannot abdicate their responsibility in the process, and I think I mentioned this at the very early stage. Oftentimes it’s a hot potato where they’ll say, okay, I’m going to outsource or I’m going to give it to a supplier or a consultant or someone to drive the business. The best people to drive initiatives and gather this information come from within the government themselves. I guess what we need to see – very much like in Scotland, very much like in the Commonwealth of Virginia with Eva – is key champions who actually have the ability to drive, who are within the government hierarchy now, have to assume the mantle. That’s the only way they’re going to be able to effectively filter this information, implement strategies that are both effective, but also reflect the adaptable nature of what they have to be, not only with internal stakeholders but also the external stakeholders. That’s really the start and finish of it. Who is going to be the champion within the government, who has the government view that can drive this forward? 00:58:23 CH: Okay. So Tim, you’re focused on contracts and commercial management so what’s your summary of what’s changing? TC: I think to your point about innovation one of the key things, of course, is to remove the disincentives that there are today that make the barriers, both in terms of newcomers approaching government and also, of course, of the existing players being more innovative. Without question, for example, when it comes to innovation some of the challenges around public procurement’s open competition rules do tend to operate against them. The difficulty of obviously having private and confidential conversations in areas that are truly innovative is a real challenge. I think the second one that was touched on is the question of lead times. Many I’m sure, on this call, have experience the lengthy lead times. Jon cited a couple of years; my experience it’s often three or four years before you can really build up the necessary relationships to be a viable supplier to government and that’s, of course, a major problem. I think that the other thing that we haven’t touched on but which is very pertinent, is the broader role of third parties and third party consultancies. The tendency to devolve a lot of these decisions in fact to a third party intermediary is something that I know for many suppliers has been a real challenge and real negative – and again, it doesn’t enable that direct commercial interface. One of the encouraging things I see is that certainly the government Cabinet Office is talking about commercial skills as being an absolute key. Whether again that’s achieved through a retraining and redeployment of procurement, or whether it’s just through a broader focus and understanding of what is commercialism and how is good decision making engaged in. I think the fact that they’ve spotted that point, and of course, the National Audit Office has been highlighting this as a challenge now for several years, is an optimistic sign, and I like to believe that this fairly new and fairly vibrant administration is actually going to do something about it. 01:00:33 CH: So Lynda, are you also filled with optimism? LAM: No, not really. I’d like to see the government give a direction, certainly give a strategy. What do I think is changing? I think there will be an increase in the number of outsourcing companies, an expansion of existing outsourcing companies, certainly ones that are domestically based. Because quite often outsourcing is used by
  15. 15. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) an organisation to implement radical change – you don’t have to buy all of the technology and the systems, you use your outsourcer, and they’ve invested heavily in the technology. So you get a massive improvement in your process and in your compliance that you couldn’t really implement yourself quickly if that’s not really something that you’re used to doing. So I think that more and more public bodies will start joint ventures and outsource some of their work, and I think that will opens up the market for outsourcing companies. 01:01:42 CH: Lee, what’s your final points then? LP: I hope that we don’t miss a trick in improving what we already have by cutting staff numbers, which is one of the significant issues we’re faced with. Invariably it’s those staff who have the ability and expertise who are the quickest to move and hopefully that doesn't effect the progress I hope we continue to develop our approach [standardised and commodity based] procurement projects and develop our understanding of what requirements are needed to move forward, and be able to put in place complex contracts that we can actually control. 01:02:35 CH: Okay, thank you. So Guy, finally then? GS: think the centralising agenda, in the short term, I think is going to be a good thing because it is going to shake things up, it’s going to bring a lot of visibility. It’s a long time since we had the front page of the UK national newspapers covered in issues around government procurement. So the visibility, the energy that that will bring I think is going to generate some benefit to the UK as a whole, I think, in terms of government purchasing. To me the question is what do you do after that and how do you then make that more and more sophisticated? I think it’s key themes about getting more resource, more high end resource within the public sector procurement, I think better visibility picking up on the point that Jon made around much better sharing of pricing so that you can start to develop… instead of having to aggregate prices to get to commonality of pricing, you can actually share pricing across lots of different organisations, and share contract structures, share configurations. If you use those types of tools to help the public sector create parallel laboratories of pricing, and laboratories of terms so that they can all then share the best practice. With all these components, together with the technology and the other points that have been raised earlier in the session, I think you’ve got quite an exciting time for public sector procurement. And some of it is going to – to the point that I think Lynda was making – more things are going to get outsourced, there’s only going to be more procurement needing to be done. CH: Sorry, I wasn’t sure if you’d finished or not because of the noise on the line, so thank you very much to all of the presenters – it’s been a good discussion over the past hour. Sorry if I didn’t get all of your questions in – some of the questions obviously didn’t fit the way the discussion was going so if we’ve moved on from a particular point then it didn’t happen – so apologies for that. I know that this topic is going to be discussed all week and certainly, as we just heard just a moment ago in the summaries, it’s actually an exciting time. If you’re involved in outsourcing or procurement then we’ve probably never seen this on the front pages so much. I had a drink last Friday night with the cartoonist from the Telegraph and he said he’s going to be a very busy man this week – so I think that just goes to show that as we come up for the comprehensive spending review on Wednesday we’re certainly going to be able to revisit this discussion with an idea of what’s really going to happen over the next few years. Anybody listening still, we’re about to close; you can get an on demand version of the discussion so that you can skip through and just pull out the sound bytes you’re interested in. So thank you very much to the presenters, and thank you very much to everybody attending – thank you.
  16. 16. © Copyright 2010 - Shared Services & Outsourcing Network (SSON) About the Shared Services & Outsourcing Network (SSON) SSON is the largest and most established community of shared services and outsourcing professionals, with over 35,000 members. SSON provides the roof under which key industry experts and organizations share their experience, knowledge and tools, and practitioner peers connect with other all over the world, both face to face and online. SSON focuses on developing its members through providing training, tools, and networking opportunities. Its staff works from international offices in New York, London, Singapore, Sydney, Berlin and Dubai to research current trends and developments in shared services. More information about the Shared Services & Outsourcing Network (SSON) can be found at Stay up to date with SSON’s latest twitter posts at, connect with global practitioners, providers and advisors on the Shared Services & Outsourcing Network (SSON) LinkedIn group and Sign up to receive SSON's weekly updates today. ### Note to editors: Trademarks and registered trademarks referenced herein remain the property of their respective owners. For more information about this roundtable, please contact: Jeanne Achille The Devon Group New York Metro Office: +1-732-706-0123, ext. 11 London Office: (0)207 917 1832 Chris Gayner London Marketing Manager Shared Services & Outsourcing Network (SSON) Office: +44 (0)207 368 9869