The principles of public procurement explained in under an hour

The principles of public procurement explained in under an hour

I wrote a short e-book that explains the principles of public procurement by using the hiring of a consultant as an example. The book will take less than an hour to read and yet it includes an explanation of the key steps in the process and has links to additional resources to help with writing your specification (get this wrong and the chances of things going wrong increases dramatically) and managing suppliers.

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Why a smile could make a difference to public services

A couple of weeks ago I was teaching 53 police officers about managing public money as part of the national High Potential Development Scheme. At one point I was talking about pricing strategies and I drew a idling curve on the board to illustrate the idea that the production of goods creates a smaller part of the value than the design that proceeds it and the marketing that follows. At the time I couldn't remember the person behind it but it has nagged at me until I found the answer. What I was explain got the class was the Stan Shih smile curve of value.

Stan Shih was the boss of Acer computers and he put forward this idea about value in the early 1990s. He was thinking particularly about IT products and the picture above summarises the theory. It seems to me very likely it applies in IT today. Certainly if I think about myself as a customer of Apple then I know I get value from the design of the hardware and software, the packaging, the customer service, the Apple Store. And I can well believe that the cost of the components and assembly of the MacBook Air that I'm typing with amounts to less than 10% of the price I paid for it.

If this is the case for IT companies, is it true for others? Perhaps not all businesses but there are loads where the cost of manufacturing is a tiny proportion of the retail price and a lot of the value of the product comes from the design, branding, marketing, etc. For instance, clothing (how can All Saints get £40 for a cheap-looking t-shirt with a blurry print or replica football shirts sell for £70?), cola and soft drinks, bottled water, restaurants, cosmetics, champagne, brand name painkillers. I'm sure you can think of others.

What has this got to do with public services? Well, public bodies are provide services to the same people who buy all the things I've mentioned above. These people value more than just the creation of the products they buy so when it comes to public services perhaps public bodies should think about:

  • how they design their services
  • developing their brand and reputation
  • how they distribute (or make available) their services to users
  • how they will look after users after the service has been delivered.

Going back to the police service, whilst I am not an expert it seems to me that one common issue relates to supporting victims of crime. I might suggest that currently the focus of police leaders is in producing the service so that officers respond quickly to a call and deal with the immediate issues. Aside from anything else, this is a measurable output. How many calls have we taken, graded by urgency? How long has it taken to respond to each?

I think there has been work by senior police officers about the police brand and reputation is important to officers and police and crime commissioners alike. On the Stan Shih curve, brand comes before production. One choice a consumer has about any product is which brand to choose. The only choice a person has after an incident is whether to contact the police at all. I live in Derbyshire; I don't have the option to call in Lancashire Police because I prefer their brand of policing.

The police are less focused, I think, at keeping the victim informed about progress afterwards. If the public derive more value by feeling that they are being 'taken care of' after they were burgled (say) than from the officer's initial visit then the police ought to focus more resources on the former than the latter. But the outputs from this are less tangible and difficult to measure. I wonder, though, whether a change in emphasis would improve public satisfaction.

Benchmarking: an incentive to improve, a distraction or a red herring?

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Workbenchdiagram

In the question and answer session of the presentation I gave a couple of weeks ago I was asked how I thought a process of benchmarking should fit into the annual budgeting process. I gave an answer at the time but I don't think I expressed my view as well as I could have so I thought I would have a go in writing.

The question was posed to me in terms of unit costs: if we are preparing our budget for a service how should we take into account the fact that our neighbours or peers deliver the service for a lower (or higher) unit cost? On the face of it this seems like a good idea and I'm sure there must be some sound theories to support it. My answer to the group, though, was sceptical, borne from experience rather than theory.

I think that the "information" a public sector organisation gets from such benchmarking is unhelpful. I think carrying out a benchmarking exercise is "busy work"; it feels like you're doing something positive but in practice you're using up a lot of resources and getting very little in return. They say you don't fatten a pig by measuring it. Well, benchmarking is the equivalent of trying to fatten your pig by measuring someone else's.

I've been involved in numerous benchmarking activities over the years (it was a key feature of the Audit Commission's work in the 90s and 00s) and the first problem is agreeing common definitions so that the information is at all comparable. The development of accounting standards and financial reporting standards has no doubt improved the consistency of treatment by public bodies, but that does nothing for the second, and bigger, problem: that public managers will cling to favourable comparisons and find reasons to criticise unfavourable ones. (I once has a manager who was very quick to claim successes were the result of his management but failures were the result of external factors beyond his control. Sound familiar?) If you want an academic reference for this, Demeere et al (2009), writing about the use of activity-based costing in healthcare, said:

"... healthcare managers might argue about the accuracy of the models estimated costs and pro"tability rather than address how to improve the inef"cient processes, unpro"table products, and considerable excess capacity that the model has revealed."

Demeere et al actually touch on the potential negative consequence of benchmarking: complacency. If a public manager's unit costs (or whatever) are good they do not need to try harder; if they are poor, they might try hard to make a defence but they can avoid the need to improve their service.

Many aspects of public management these days are informed by or developed from private sector practice. Do private sector organisations benchmark with each other? Perhaps, but it seems unlikely that an organisation could benchmark with competitors directly so they are more likely to use competitors' prices as the benchmark. They may ask themselves, Can we sell our product for the same price as the competition and still make an adequate return? If the answer is no then they either have to find a way to make their product more cheaply, charge a higher price and compete on the basis of quality/design or cease to produce the product. If the answer is yes then that's great, but it would not stop them from seeking efficiency improvements in order to improve their gross profit margin.

How does that compare with a public service? Well, there are some services where charges are made but generally there is not a market because public bodies usually have a monopoly on the service in some geographic area. But there are some areas where there are comparable private sector providers whose prices could be used as a signal. Except, how many local authorities would compare the unit costs of their schools with fee-paying private schools, or compare their access-for-all leisure centres with members-only private gyms? "They're not offering the same things as us," would be the cry so of course our unit costs are different from theirs.

So, based on my experience, what would I recommend? In my view the answer is much easier to find than carrying out benchmarking exercises because the organisation already has it. The answer is to compare our own unit costs over time. This avoids all the problems of alternative accounting treatments, geogrpahical differences in prices, etc. and it builds on the idea that however good a service is the managers should strive to improve it. I'm sure that if all the time and energy spent carrying out benchmarking work and then defending or criticising the results was spent on improving services the benefit for the public would be significantly improved.

 

Reference

Demeere, N., Stouthuysen, K., & Roodhooft, F. (2009). Time-driven activity-based costing in an outpatient clinic environment: Development, relevance and managerial impact. Health Policy, 92(2-3), 296–304. doi:10.1016/j.healthpol.2009.05.003

Will a strategic partnership save money for a police force

Last week I gave a short presentation to the joing national conference of the Police Authority Treasurers Society and the Directors of Finance of police forces. I have helped the police in Lincolnshire and West Midlands with the procurement of strategic partnerships but this talk was not about those projects. Instead I was commissioned to talk about the pros and cons of having a strategic partnership. I hope I achieved that. One treasurer said to me afterwards that is was "as balanced an exposition of the issues of outsourcing" as he'd heard. I guess that means I did what was asked of me.

I've posted the slide presentation on Slideshare.net and they are embedded below. They give a flavour of what I spoke about but I like to think that you get more from a presentation when I'm presenting it than from looking at the slides in isolation. So if you want to know more about this subject please feel free to get in touch with me.

 

 

Collaborate to improve value for money

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Many of us would intuitively agree with the truism that two heads are better than one but that doesn't mean that we work that way. In the public sector there are often tens or even hundreds of organisations that carry out similar functions to each other but in different localities. Despite 20 or 30 years of talking about sharing services, in one way or another, little happens. Whilst most public bodies have the power to work with others they are not obliged to do so. That is not always the case, though.

Over the last year I have been working with Lincolnshire Police. In the UK police forces are expected to collaborate with each other in order to save money. This is not so relevant for routine policing but neighbouring forces can share in the savings made when specialist services are combined into a single team. There are examples of this all over the country.

I recently discovered that the Welsh Assembly has passed an act (acts are called measures, though, in Wales) that requires Welsh local authorities to collaborate with each other with a view to improving the overall efficiency and effectiveness of local government services. The measure is not prescriptive about which services to collaborate on or the form of the collaboration: these decisions are left to the local authorities to work out together.

One aspect of any collaborative arrangement that has to be resolved is what form the collaboration should take. In legal terms this could range from informal arrangements through delegation from one authority to another, a formal contractual arrangement to a joint venture company or joint committee. Recently the Welsh Local Government Association commissioned Trowers and Hamlins to give general legal advice on the pros and cons of the various collaborative arrangements that are available to local authorities. This guidance has just been published on the WLGA's website.

I mention this partly because I contributed to the document in terms of the financial implications of each of the possible arrangements. I also mention it, though, because it might be useful to managers in local authorities outside of Wales. The exact nuances of the law might be different—and any local authority, in Wales or elsewhere, should get specific legal advice on their specific proposals and not rely on the contents of a general report—but in broad terms the report can help decide which forms of collaboration might be suitable and which are not.

Audit Commission replies to Pickles's plan.

David Walker, journalist and former communication director of the Audit Commission tweeted today (@exauditor77): "Polite language, but Audit Comm is now saying Pickles' plan will ADD expense, leave public finances unguarded http://t.co/Bpk6fVs". I'm sure it will, too, in the longer term. Let's face it, it would be a remarkable fluke if an off the cuff policy decision was actually a good decision.