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Strategic sourcing underlies transformation and savings
1st September 2007
Does you current IT sourcing strategy support a complex multi-supplier programme? Alsbridge, the sourcing specialists, explore the challenge and possible solutions
Public sector IT programmes and their expenditure have faced a lot of criticism this year. In the spring, the Public Accounts Committee lambasted the NHS NPfIT programme and the fact that three suppliers have exited from the programme believing it to be commercially unsustainable.
The Information Tribunal has forced OGC’s hand and stated that Gateway Reviews results should be made public following the national identity card scheme furore and the Rural Payment Agency going through successive Gateways at red.
Costs on HM Revenue and Custom’s Aspire programme have spiralled to £8bn with HMRC re-employing Accenture to complete the NIRSpart of the project – having already spent £14m to terminate the NIRS contract early.
Despite these problems, major multiagency programmes with complex supply chains such as Every Child Matters and the £500m plus National Identity Scheme Strategic Supplier framework announced in August still underpin many government priorities.
In parallel, we’ve seen the Chief Information Officer programme and HM Treasury emphasise that standardisation and rationalisation of supply should reduce public sector ICT expenditure by 20% - 40% for desktop provision. This is a reduction in operating costs that will be strongly needed when CSR 2007 kicks in.
So the question is how will these complex programmes be sourced and cost reductions be achieved?
Recent OGC initiatives to standardise supplier assessment, review departmental procurement capability and give Gateway Reviews more teeth provide some answers to this question. These national initiatives emphasise the importance of sourcing, but what else can individual departments, agencies, trusts and authorities do?
As sourcing specialists, Alsbridge sees many public and private organisations choosing their sourcing approach on the basis of cost or expediency. However, this ignores that an organisation’s sourcing strategy is as critical as its IT strategy in delivering departmental objectives and project success.
As with Alsbr idge’s work on the Department of Health’s review of how pathology services should be provided UK-wide, there should be an alignment of sourcing and business strategy at the start of major programme. The sourcing strategy should be programme or portfolio-based, recognising that there is no one-size-fitsall sourcing approach.
Alsbridge’s MRA tool provides an independent review of IT outsourcing contracts enabling organisations to take appropriate action
The need to meet complex requirements, drive costs down and provide value for money through appropriate sourcing is an ongoing challenge
Alsbridge’s opportunity and readiness assessment tools enable our clients to rapidly define their sourcing strategy by having an understanding of the: current cost and supply-base; market capacity to undertake the work given other opportunities and bid costs; advantages, disadvantages and risks of different sourcing approaches; impact on business as usual and other projects of using a particular approach; risks and costs of transition to a new supplier or supply chain; the capacity an organisation needs to undertake the sourcing exercise.
Where there are complex and initially uncertain requirements, Competitive Dialogue (CD) is supposed to increase understanding of likely solutions by allowing open debate with more than one supplier. Ideally, CD should also clarify risk sharing and allocation – but in Alsbridge’s experience both the dialogue process and client expectation need to be well managed.
Sometimes, one-off procurement exercises will need CD to explore potential solutions; other projects may be specified sufficiently tightly to use a restricted or open procedure procurement instead. Where this is the case, joint or collaborative procurement – if agreement can be made – will drive cost reductions.
Instead of competition, you may utilise cross-departmental, multi-supplier frameworks like Catalist. These may reduce the cost of procurement, but sometimes these frameworks are too generic, the rates may not be sufficiently competitive and your own framework may be more appropriate. Flexible single supplier framework agreements such as Cabinet Office’s FLEX and Somerset’s ISIS programme – which provide a service menu and allow other agencies to participate at a later stage – also have the potential to drive down price through aggregated demand.
This may be achieved without having up-front customer commitment or revenue guarantees. However, initial pricing structures for this type of single-supplier framework approach are likely to reflect the inherent demand risk.
On the other hand, should take-up of these frameworks go as planned, this approach may eventually create a monopoly or oligopoly of supply across government. And we don’t need Adam Smith (economist) to tell us how an oligopoly may impact price and the customer’s ability to change requirements or terminate contractual arrangements.
Sometimes competition may not be effective or possible. Sourcing decisions may be constrained by contractual arrangements with incumbent suppliers or it may be more appropriate to re-negotiate current contracts. This assumes there is supplier appetite for flexibility and increased scope can be achieved within the affordability constraints.
For this type of scenario, Alsbridge has developed a Market Reality Assessment (MRA) tool. Based on our global IT Outsourcing market intelligence and industry benchmarks, MRA allows our clients to confirm the validity of going to market and suggests the focus of their renegotiation.
Alternatively, sometimes a co-sourced or multiple-supplier resourced team may be the best way of developing an IT enabled solution. Where this is the case, you or a managed service provider may be best placed to put this team together.
Alsbridge’s approach when working with our clients, such as Research Councils and Surrey County Council, is to help them and potential suppliers have an open discussion and understanding of these issues as well as their market and technical capacity.
The need to meet complex requirements, drive costs down and provide value for money through appropriate sourcing is an ongoing challenge. Finding the additional capacity and sourcing expertise is not always easy.
Where there are complex supply chains and incumbent suppliers involved this will require deal shaping and negotiation skills as well as more traditional procurement ones.
However, OGC has established a specific Catalist category to help you supplement your in-house sourcing team with specialist independent advisors such as Alsbridge who can help you select the right sourcing approach to deliver transformation and savings.
To find out how Alsbridge may be able to help you, please call Helen Ricardo on +44 (0) 20 7242 0666 or email helen.ricardo@alsbridge.eu.
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