Opinions
Linda Tuck Chapman
CEO, OECM - a Canada-based strategic sourcing initiative. Linda has been a senior strategic sourcing leader at Fifth Third Bank, ScotiaBank Group, BMO Financial Group and other companies.
There are two schools of thought about major outsourcing arrangements. One approach is to create a kind of “deal of the century,” holistic outsourcing that includes anything and everything related to the underlying service. At the extreme opposite end of the spectrum is a more conservative, sequential outsourcing plan that takes place over time. Neither approach is right or wrong, but each has unique opportunities and challenges.
In any outsourcing project, the first step is to undertake a detailed analysis. Needs analysis, market analysis and spend analysis are three critical components. In this case, this means the needs of all stakeholder groups including citizens, health care providers, administrators, bureaucrats, and funders. An analysis of the marketplace is really an assessment of the potential supplier community including their capabilities, track record and limitations. The spend analysis is an important step that results in a solid baseline of current costs. On the basis of the findings from these important three steps, the high-level strategy, objectives, key deliverables, and scope are defined.
The next important step in outsourcing is gaining senior stakeholder agreement, support and sponsorship. In public sector, there are many arm-chair quarterbacks who have nothing to lose by criticizing the process. The role of members of the opposition is to bring an opposition point of view to government. Bureaucrats, particularly workers in the trenches are long term players accustomed to incremental change. Wholesale change is difficult for anyone, but rarely encountered in public sector. Taxpayers believe that they have a right to demand services according to their personal needs, without regard to costs. And, unlike in private sector, decision making in public sector is by consensus. Rarely is there an ultimate decision maker, which makes for a lengthy consultation process. The government and Granger did a heroic job of getting decision makers to agree to move forward. What is less clear is whether all stakeholders were on the same page regarding scope, deliverables and metrics. If you can get those things right, expectation management is usually more achievable.
Program design and project management are quite different concepts. Program design is the responsibility of senior leadership. It is all about simplifying complex deliverables and messages into a program that will deliver the promise. Sound programs include effective communication, change leadership and processes. Project management is a set of technical skills that align resources with deliverables, ensuring that the project delivers on time and on budget.
Scope creep comes about due to ineffective program design and management. As you can see from the NHS project, scope creep is rarely a good idea. In any successful outsourcing project, developing laser-sharp clarity and obtaining approval for objectives, deliverables, scope, timing, deliverables and metrics are the only predictable path to successfully deflecting all the “good ideas” that inevitably arise during the course of the project. Another tactic that public procurement professionals can rely on are the rules governing public procurement. Changes to contracted scope and services can be curtailed by falling back on the rules that all contracts must be awarded on the basis of open and competitive public bids.
The good news about scope creep for NHS is that over half of new services outsourced were delivered on time and with few issues. The bad news is that over half of the services were not delivered on time and/or had extensive issues. Worse, delivering these new services consumed capacity and resources that were to be invested in the original plan. This in turn negatively affected the public image of the project, giving politicians and the media ample opportunity to heap criticism on the project.
The mantra for large scale outsourcing projects is “people, process, technology.” On the people front, communication is the foundation of change management. One common mistake in any project is to under communicate. Project leaders often assume that stakeholders are either too busy to know what is going on or that information is a precious commodity that should only be shared in small doses. In the absence of frequent, comprehensive communications, meetings, presentations and other updates, people will develop their own expectations, or even worse, lose interest.
Changing behavior is another key component to successful change management. When “trouble shooting” outsourcing contracts that are not working as expected, it still surprises me that there is minimal investment in educating users. NHS patients have long been accustomed to making appointments by phone, and changing their behavior to use online booking tools is no easy task. Changing behavior starts and ends with a combination of process re-engineering and effective communication, which must include training. Incentives and disincentives can also be quite effective, if used appropriately.
Risk Assessments often focus on pre-implementation activities such as stakeholder involvement, political climate, and the terms and conditions in the outsourcing contracts. For projects with a long duration, a longer-term view should include mid-to-late project and steady-state risks, such as succession planning, transaction volume risk, multicontract outsourcing governance issues, etc.
During pursuit, deal teams and their management can be temporarily blinded by the size of these mega-contracts, putting their companies at risk by over-promising, or accepting terms that create financial or reputation risk. This in turn generates high risks for the organization initiating the outsourcing. Although the procurement process and contractual terms with the key outsourcers are touted as being exceptional, and NHS has a fiduciary duty to ensure that the outsourcers can perform on time, and on budget, or faces consequences for failure to perform. The NHS outsourcing contracts are reported to be somewhat one-sided, with severe financial penalties. But this is a long-term relationship all parties should negotiate balanced, fair contracts. Outsourcers are not commodity suppliers, they are running intrinsic operations for you and their success is your success.
A complex but sound practice is to implement a shared risk-and-reward program that includes all key parties to the multioutsourcer arrangement, one that incents all parties to help each other achieve the goals, objectives, milestones and deliverables — and to receive financial rewards for success.
Although there is much that can be said about the NHS deal, it is always easy to look in the rearview mirror and second-guess decisions that were made on the basis of the best information available at the time. The decision was made early on to structure the “deal of the century,” and many, many successes have been achieved. Hats off to the team — very few people could have done as well, particularly in light of the additional constraints in the public sector.
