Is Strategically Outsourcing Public Sector Procurement a Viable Option? What About Blended Competency?

Posted on November 25, 2010

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Like the old axiom that advises (perhaps cautions would be a better word) one to eat an elephant a single bite at a time, strategically outsourcing procurement – particularly in the public sector where there is no end in terms of anecdotal references to egregiously high costs and diminished taxpayer value – can seem like the ideal exit strategy in that it transfers non-core competencies to a capable and experienced third-party provider.

That said I have always been of the mind that if you give a man a fish, you feed him for a day but . . . well you know the rest re if you teach him to fish, he feeds himself for a lifetime.  Wow, two old sayings in the first two paragraphs!  I better get to the point before this turns into a name that quote post.

The point is simply this, doesn’t it make more sense to engage, encourage and empower an indigenous purchasing capability or competency versus relying upon and surrendering to a third-party who it should be noted will ultimately gain control of this critical area of your enterprise?

I can’t help but think back to my front line experience heading up an external team that was brought in by a major PC integrator service group to rescue a floundering contract with the Department of National Defence or “DND.”

About halfway into a 4 year contract, the service organization had a performance rating of 51% on a Service Level Agreement “SLA” contract that called for a 90% next day delivery capability.

Besides falling short in this key service obligation, the contract was also plagued by inferior product quality, escalating component costs (the DND was on average paying approximately 157% above the going market prices for spare IT parts), and a bloated staff of 23 buyers and delivery facilitators.  In short, they were ripe for an outsourcing bail-out.

Jumping ahead 4 months after we were brought in, the SLA performance topped 97% and, within 18 months the staff of 23 had been reduced to 3 company people and 5 of our people (total of 8).  In terms of cost of goods, the DND also realized a steady decline in pricing averaging an annual savings of 23% each year for 7 consecutive years.  Here’s the thing (and I often thought about this), why didn’t the client show more interest and initiative to learn from us and implement a knowledge transfer program?  In essence why didn’t they seek to establish a go forward or blended competency that would have ultimately created many new revenue opportunities within the framework of their existing model?

They had generally speaking good quality people, the long-standing relationship with the end-user client and certainly could have leveraged the transferred capability as a competitive advantage to pursue other contracts.  It would have made a good deal of sense, especially given the fact that their key people driving our relationship were both knowledgeable and accomplished beyond our externally acquired skill sets in their area of service delivery.

In hindsight of course, the problem did not rest at these various levels within the day-to-day operating hierarchy but instead was tied to the most senior echelons of a company that unfortunately changed ownership hands in both the public and private arenas several times over a 5 year period.  Despite being the largest player in its sector, the company eventually failed because the private ownership that took the helm lacked a true understanding of how the business operated at the grass roots level.  In short, they did not truly understand how to capitalize on their indigenous dormant strengths and it cost them.

Now to be fair, during the great dot.com boom that enveloped the business world in the late 1990s and early 2000s the success of many of these intrepid high tech entrepreneurs was tied more to the timing re being in the right place at the right time era-wise, than actual skill sets and industry knowledge.  This meant that their focus was narrowly if not myopically concentrated on 10,000 foot level deal-making, as well as driving share value which made the option of farming out what at the time was considered secondary and tertiary areas of operation to a third party provider both expeditious and seemingly attractive.  Unfortunately, and in the process, many irretrievably lost touch with those areas of their operations that might have actually enabled them to ride out the dot.com implosion.

The point I am trying to make is simply this, outsourcing even on a strategic basis, does not have to mean a permanent forfeiture of functional capabilities in important areas.  For example, if I am ill I see a doctor whose training provides the expertise to prescribe the right course of treatment and/or medication.  Once the doctor has done his or her part, it is up to me as the patient to follow the directions and take ownership for my own path to wellness . . . a return to good health without having the doctor take up permanent residence in my home.

I am not suggesting that outsourcing doesn’t have an important role to play in many situations.  What I am saying is that a blended competency approach provides the end-user client with far greater flexibility and options to respond to a changing market.  Think of it as being similar to a shadow cabinet in politics in which only linchpin portfolios are mirrored.

Now you might consider this to be an impractical approach but tell me, how many out there thought that an SAP would be according to some analysts on purported life support and, that the non-consultancy model in which revenues would be limited to months or even weeks would become a reality?

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Posted in: Commentary