Component trading: Why procuring government IT & services will never be the

same again

Dr Mark ThompsonLecturer in Information Systems, Cambridge Judge Business School

ICT Futures Advisor, Cabinet Office

Strategy Director, Methods

The future of procurement in government

SmallerLess bundledService- & Outcome-orientedStandardisedBusiness case increasingly aligned to TOM concernsUtility-awareArchitecturally exposedTechnical-commercial hybrid

‘Transformational’ government?

‘Joined up’ public servicesDisaggregation & outsourcing‘Agencification’ private sector commercial practicesTop-down, managerialist conceptsBusiness people appointed to senior public sector rolesEmphasis on ‘customers’, ‘contracts’, and ‘projects’

…actually, this is not really what happened!

• Public sector aggregated supply, not demand

…sounds innovative, but…

…also:• No reference model across government; widespread “we’re special”• Government ‘outsourced’ strategy & architecture• Contracts priced for risk, which was never outsourced• ‘Intelligent Customer’ skills leeched away from public sector• Track record of “stupendous incompetence” and bungling

Bespoke, complex, siloed, duplicatory, risky, and constrained - but why would anyone want to do anything differently?

…sounds innovative, but…

“Government expects its outsourcing service provider to maintain the complexity rather than to simplify and standardise the work processes”– Senior Dell executive

An array of high cost programmes have run late, under-performed or failed (terminated) over the last 20 years:• Inadequate information, resulting in the Government being

unable to manage its needs successfully• Over-reliance on a small number of large suppliers and the

virtual exclusion of small and medium sized (SME) suppliers, which tend to be less risk adverse and more innovative

• Failure to integrate IT into the wider policy and business change programmes

• A tendency to commission large, complex projects which struggle to adapt to changing circumstances

• Over-specifying security requirements• Lack of sufficient leadership and skills to manage IT within the

Civil Service, and in particular the absence of an “intelligent customer” function in Departments

Baked-in failure: IT is a good place to start

How much does this matter?

105 outsourced public sector ICT projects with significant cost overruns, delays and terminations: • Average % cost overrun 30.5%• Total value of contracts: £29.5 billion• Cost overruns totalled: £9.0 billion• 57% of contracts experienced cost overruns• Average percentage cost overrun: 30.5%• 33% of contracts suffered major delays• 30% of contracts were terminated• 12.5% of Strategic Service Delivery Partnership

contracts terminated or substantially reducedAnalysis (2007) of 105 projects outsourced by CCG, NHS, LAs, public bodies & agencies with significant cost overruns, delays and terminations. Cost increases are often underestimated as numbers reported usually only include payments to contractors, and not costs born by the client such as additional client staff engaged.

An Intelligent Customer?The Government’s inability to act as an intelligent customer seems to be a consequence of its decision to outsource a large amount of its IT operations to the private sector.

The NAO noted that many IT contracts: Are for a government body’s whole ICT service, meaning that Civil Service Staff, knowledge skills, networks, and infrastructure have been transferred to a supplier. This has effectively locked government into specific contracts for the long-term.

Further issues to deal with

Lack of real understanding in governmentDisjointed, ‘initiative’ approachNo real mechanism for holding govt to accountNo concrete plans for cascading into depts‘Commercial confidentiality’ as barrier to transparencyIgnored recommendation to commission independent investigation into suppliersInsufficient attention to developing intelligent customer capability within govtNeed to engage in honest debate with question of public service redesign

However:Cabinet Office is starting with IT procurement…

Progressive recognition of:• Focus on outcomes, open standards• Commercial implications of emerging open platforms• Ability of ‘utility’ services marketplace to deliver citizen-based services

An emerging reality:• Processes & supporting IT were traditionally integrated & clustered

around supplier/technology• Dis-integration of existing service towers• Re-aggregation into blended services, clustered around citizen

…but the prize is public services itself!

Public service delivery will become unrecogniseable

Government will:• transition from focus on inputs to outcomes• play the emerging utility marketplace• become increasingly fixated on standard ways of doing things• ratchet up focus on TCO• dis-integrate• become a Component Trader• re-aggregate• redefine what ‘projects’ are

An undifferentiated outsourcing contract?

A clear idea of TCO across your business?

An idea of how you will be able to deliver new services, differently, using the utility model?

Confidence that you’re paying bargain-basement rates for bargain-basement commodities?

A Target Operating Model?

A comprehensive plan for exploiting the economics of the Open Innovation revolution?

…a way to transition from focusing on inputs to outcomes?

Do you have…

Certainty

Ubiq

uit

y

Low High

Novel

Common

…with a major impact on government

Common

Novel

Ubiq

uit

y

HighCertaintyLow

IT has become an economic model

Certainty

Ubiq

uit

y

Low High

Novel

Common

When new products, business processes or IT solutions are developed, by definition they will be novel and there will be considerable uncertainty about whether and how they will work

High

Common

Novel

Ubiq

uit

y

HighCertaintyLow

Certainty

Ubiq

uit

y

Low High

Novel

Common

There is likely to be relatively slow development of similar products initially whilst the market is developing and the knowledge about the product, process or solution is growing.

Bespoke products/services are expensive

Common

Novel

Ubiq

uit

y

HighCertaintyLow

Moving from innovation to commodity…

Certainty

Ubiq

uit

y

Low High

Novel

Common

As the market becomes more mature and the product/service better understood, more suppliers will enter the market with similar or enhanced versions

Innovation to commodity…

Certainty

Ubiq

uit

y

Low High

Novel

Common

Over time the product or service will become commonplace, with widespread knowledge about how to deliver it

Supporting the innovation-commodity process

Certainty

Ubiq

uit

y

Low High

Novel

Common Dedicated Shared Utility

Certainty

Ubiq

uit

y

Low High

Novel

Common Dedicated Shared Utility

Dedicatedservices are:- non-standard- higher risk- more

expensive- available from

few (or one) supplier

Commodity services

are:- standard- lower risk- less expensive- available from

multiple suppliers

Supporting the commoditisation process

CommonU

biq

uit

y

Novel

Low Certainty High

Different skillsets to manage these…

Certainty

Ubiq

uit

y

Low High

Novel

Common Dedicated Shared Utility

- Innovative thinkers and visionaries

- People who understand the market direction

- People who can identify best matches to your needs

- People who can manage multiple suppliers and negotiate best pricing

- People who can manage transition to commodity services

…and different activities

Certainty

Ubiq

uit

y

Low High

Novel

Common Dedicated Shared Utility

Supporting innovation

Helping transition to “commodity

services” Managing multi-

supplier commodity

services

Identifying which services are innovative and which are

commodity, and enhancing intelligent customer function to

manage appropriately

Enhance

inte

lligent

cust

om

er

funct

ion

A new way of looking at IT-driven services

Skilling up

OpenGovernment

Consumer-driven, standardisedutility service delivery models

Common components

Identity & security

Increasing transparency

Service-driven procurement models & practices

Interoperability & shared data

Culture change from delivery to commissioning

Public servicesStrategy

Public sectorarchitecture

requires

enabled by

driven by

supported with

made possible through

and credible by

Uphill battle: how things get watered down

OpenGovernment

Consumer-driven, standardisedutility service delivery models

Common components

Identity & security

Increasing transparency

Service-driven procurement models & practices

Interoperability & shared data

Culture change from delivery to commissioning

Public servicesStrategy

Public sectorarchitecture

requires

enabled by

driven by

supported with

made possible through

and credible by

Strategy, Reviews, Business cases, Architecture

Change Management & CommunicationNew HR ModelsNew Ways of WorkingTUPE & other Transitioning issuesService Delivery Transformation

Commissioning-based organisationsIntelligent Customer function Market ‘radar’Co-creation, revenue sharingShared services & JVsCross-charging modelsCloud/utility-based delivery models

Information Assurance & GovernanceData standardsInformation Architecture

Information SecurityCESG accreditationRole-based identity

TCO & driving usage transparencyBenchmarkingCommunication tools

Standardisation (process, platforms, data, MI)Reselling opportunities

New types of projects

The de-departmentalising of government

…an unprecedentedly radical agenda

Standardise

Agnostic & plural

Business processesService outcomes

SuppliersSupporting technologyCommercial delivery vehicle

Business processesService outcomes

SuppliersSupporting technologyCommercial delivery vehicle

PBG model EnduringNPM model

Services Integration

Dis-integration of services

Service re-aggregation

The need for a ‘roadmap’…

Complex landscape of technology and business processesRestrictive support and commercial models

Constrained

Standardised technology and business processesRestrictive support and commercial models

Harmonised

Starting the journey to utility / Cloud Services

Embracing

Maximising the usage of utility / cloud services appropriate to your business

Exploiting

Service dis-integration, profiling & differentiation

ICT

People

Process

Services

Dedicated Shared Utility

Example: Assessment of social care needs

In-house

Dedicated Shared Utility

Outsource

Transactional

Social Enterprise

Partnering

Trading Co.

Joint Venture

Government as ‘component trader’

Nature of projects in local government

Dedicated services Shared services Utility services

Nature of Organisation

Bureaucratic, vertically organised, hierarchical, formal, process driven, rule bound, policy and procedure

Matrix, collaborative, horizontally-organised, ambidextrous (exploitation and exploration)

Community-based, organic, self managed, discretionary effort, localism, ecosystem coexistence, emergent, reconciling dualities

Meta-capability Execution Aggregation Innovation

People Performance, compliance, quality

Boundary-spanning, depth & breadth, collaborative behaviour

Self-awareness, entrepreneurial, networked, informed market awareness/engagement

Networks Localised teamwork Knowledge transfer, learning pathways, collaborative networks, relational capital, shared meaning, cognitive awareness

Community activism, tribal connections, identity, values

Structure Routinisation, consistent standards, knowledge capture/objectification, work process prescription, formal processes, e.g. Performance management

Flexible structures, communities of practice, knowledge retention & sharing, shared culture

Community organisation, governance & representation

Technology Workflow, database infrastructure, KM

Collaborative tools Social networking, mobile technologies, market enablers

Building a component-based reference model

Opportunity

Market Maturity

Document Management

Mail / messaging

Payments

Workflow Cash receipting

“service A”

L&T Resources (on-line content)

Infrastructure services

Video conferencing (media services)

Mail (collaboration)

Payments (utility-based)

+ “service B”

Training provision

On-line resources (e-learning)

Payments

+ “service C”

Data Input

Processing

Third party payments

Output

+ “service D”

The future of procurement in government

SmallerLess bundledService- & Outcome-orientedStandardisedBusiness case increasingly aligned to TOM concernsUtility-awareArchitecturally exposedTechnical-commercial hybrid

Thank you for attending

Contact details:

Mark.thompson@methods.co.uk@markthompson1

Zoe.lewis@methods.co.uk

0207 240 1121 www.methods.co.uk