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

1. Component trading: Why procuring government IT & services will never be the same again Dr Mark Thompson Lecturer in Information Systems, Cambridge Judge Business School ICT Futures Advisor, Cabinet Office Strategy Director, Methods

2. The future of procurement in government Smaller Less bundled Service- & Outcome-oriented Standardised Business case increasingly aligned to TOM concerns Utility-aware Architecturally exposed Technical-commercial hybrid

3. ‘Transformational’ government? ‘Joined up’ public services Disaggregation & outsourcing ‘Agencification’ private sector commercial practices Top-down, managerialistconcepts Business people appointed to senior public sector roles Emphasis on ‘customers’, ‘contracts’, and ‘projects’

4. …sounds innovative, but… …actually, this is not really what happened! Public sector aggregated supply, not demand

5. …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 …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?

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

7. 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 reduced Analysis (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.

8. 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.

9. Further issues to deal with Lack of real understanding in government Disjointed, ‘initiative’ approach No real mechanism for holding govt to account No concrete plans for cascading into depts ‘Commercial confidentiality’ as barrier to transparency Ignored recommendation to commission independent investigation into suppliers Insufficient attention to developing intelligent customer capability within govt Need to engage in honest debate with question of public service redesign

10. However: Cabinet Office is starting with IT procurement… …but the prize is public services itself! • 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-aggregationinto blended services, clustered around citizen

11. 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

12. Do you have… 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?

15. …with a major impact on government Common Common Ubiquity Ubiquity Novel Novel Low High Certainty Low High Certainty

16. IThasbecomeaneconomic model Common Common Ubiquity Ubiquity 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 Novel Novel Low High Certainty Low High High Certainty

17. Bespoke products/services are expensive Common Common Ubiquity Ubiquity 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. Novel Novel Low High Certainty Low High Certainty

18. Moving from innovation to commodity… Common As the market becomes more mature and the product/service better understood, more suppliers will enter the market with similar or enhanced versions Ubiquity Novel Low High Certainty

19. Innovation to commodity… Common Over time the product or service will become commonplace, with widespread knowledge about how to deliver it Ubiquity Novel Low High Certainty

20. Supporting the innovation-commodity process Common Dedicated Shared Utility Ubiquity Novel Low High Certainty

21. Supporting the commoditisation process Common Common Dedicated Shared Utility • Dedicated • services 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 Ubiquity Ubiquity Novel Novel Low High Certainty Low High Certainty

22. Different skillsets to manage these… Common Dedicated Shared Utility • People who can manage transition to commodity services • People who can identify best matches to your needs • People who can manage multiple suppliers and negotiate best pricing Ubiquity • Innovative thinkers and visionaries • People who understand the market direction Novel Low High Certainty

23. …and different activities Common Enhance intelligent customer function Dedicated Shared Utility Helping transition to “commodity services” Managing multi-supplier commodity services Ubiquity Supporting innovation Identifying which services are innovative and which are commodity, and enhancing intelligent customer function to manage appropriately Novel Low High Certainty

24. A new way of looking at IT-driven services

25. Skilling up

27. Uphill battle: how things get watered down

28. New types of projects Strategy, Reviews, Business cases, Architecture Change Management & Communication New HR Models New Ways of Working TUPE & other Transitioning issues Service Delivery Transformation Commissioning-based organisations Intelligent Customer function Market ‘radar’ Co-creation, revenue sharing Shared services & JVs Cross-charging models Cloud/utility-based delivery models Standardisation (process, platforms, data, MI) Reselling opportunities TCO & driving usage transparency Benchmarking Communication tools Information Assurance & Governance Data standards Information Architecture Information Security CESG accreditation Role-based identity

29. The de-departmentalising of government

30. …an unprecedentedly radical agenda Standardise Suppliers Supporting technology Commercial delivery vehicle Business processes Service outcomes Enduring NPM model PBG model Suppliers Supporting technology Commercial delivery vehicle Business processes Service outcomes Agnostic & plural

31. Services Integration

32. Dis-integration of services

33. Service re-aggregation

34. The need for a ‘roadmap’…

35. Service dis-integration, profiling & differentiation • Process • People Shared Utility Dedicated • ICT Services

36. Example: Assessment of social care needs

37. Government as ‘component trader’

38. Nature of projects in local government

39. Building a component-based reference model + “service C” + “service B” “service A” + “service D” Opportunity • Document Management Infrastructure services Training provision • L&T Resources (on-line content) • Payments On-line resources (e-learning) • Third party payments • Mail / messaging • Payments (utility-based) Payments • Processing • Video conferencing (media services) • Cash receipting • Workflow • Output • Mail (collaboration) • Data Input Market Maturity

40. The future of procurement in government Smaller Less bundled Service- & Outcome-oriented Standardised Business case increasingly aligned to TOM concerns Utility-aware Architecturally exposed Technical-commercial hybrid

41. Thank you for attending Contact details: Mark.thompson@methods.co.uk @markthompson1 Zoe.lewis@methods.co.uk 0207 240 1121 www.methods.co.uk