The Public Procurement Briefing 2012: ‘Driving a Culture of Innovation and Enterprise with SMEs’ is where senior decision makers in central and local government and leading thinkers in the procurement space convened to examine the case for proactively opening up procurement to SMEs.
Dr Mark Thompson, Strategy Director Methods and from Judge Business School, Cambridge enunciated the following speech to an audience of 150 senior procurement professionals hosted in association with Number 10 and the Cabinet Office:
We’ve awoken from 20 years of mutual enchantment between government and its top suppliers not seen anywhere else on the planet. Government wanted to believe it could continue to ‘be special’ and do things differently; and key suppliers were only too happy to oblige. A deadly embrace; a ‘closed’ business model for public services, involving a ‘black boxing’ of entire departmental functions, handed to a top tier comprising those few organisations large enough to run an entire black box.
Although often called ‘outsourcing’, actually this wasn’t outsourcing, which is aggregation of demand. Instead government aggregated supply. Aggregating supply is much easier than aggregating demand. You’ve only got a handful of people to deal with, for a start, and they’re very obliging.
Awaking from a long enchantment is a jarring experience; you find the world has moved on. Examples abound from within financial services, hi-tech, automotive industry, upstream utilities, IT – that spell the slow death of traditional, vertically ‘integrated’ business models. Quite simply, the market punishes idiosyncrasy – and those lazy or deluded enough to believe in their own, special blueprint for everything they do.
Instead, the market rewards people that understand their business models, and pragmatism. Within your business model, it’s understanding where it’s worth paying premium prices to be special, and, conversely, where there can be no possible excuse for paying premium prices for standard commodities. The pragmatism part comes in a willingness to dis-integrate the comforting vertical silos within government into standard building blocks based on common processes and standards – even if this threatens traditionally in-house ways of doing things.
There is a lot of catching up to do, and some serious debates to be had about the future architecture of public services. Here are four of the most important.
First: we need to build understanding that real SME involvement needs to be systemic, rather than a response to a target. This involves open standards, progressive transparency, price sensitivity, and vigorous market-making by government around open platforms. Government must no longer be allowed to hide rotten decisions under the bushel of commercial confidentiality. The government’s response to the PASC committee on IT, for example, doesn’t yet demonstrate anything like to level of joined-up commitment to make this happen.
Second: an open marketplace with fairer representation of SMEs threatens ‘closed’, integrated business models across both public and private sectors. Public sector will need to tackle restrictive practices, and large private sector companies will need increasingly to choose between volume or margin, since they will no longer be able to have both. Dis-integrating these ‘black box’ business models will impact employment within each – and we require real political leadership for the debate that will ensue.
Third: re-aggregating smaller components of public services, delivered by a broader mix of suppliers, will require a range of new skills within both government and the market: componentization, market radar, supply chain assembly, service aggregation, utility & outcome-based pricing. We need lots of these skills, and we need them now.
Finally, and perhaps most controversially, public servants of the future will increasingly be component traders. They will be accountable ‘outwards’, to ministers, for assembling & delivering responsive, innovative, quality services to the public, using a plural marketplace. Internally, however, they will be accountable for ensuring that public funds are spent so as to take best advantage of current market opportunity. They will buy and sell some components in the utility marketplace; some components in the shared services marketplace; and only those components with a clear business case to be ‘special’, will remain in-house. Public servants will be rewarded for their understanding of their business model, and its optimal positioning within a constantly evolving, broader ecosystem.
‘Being special’, however, is a challenge. Open platforms and SMEs threaten a continuing desire to remain special among many within both government and its top-tier suppliers. Leaning and outsourcing does not constitute transformation; it merely tightens a discredited business model, and prolongs the enchantment. We all – politicians, public sector, and private sector – need to wake up.
Click here to access the Cabinet Office media announcement