On 14 August 2017, after months of uncertainty, plans for a new tourist attraction, a 366m long pedestrian garden bridge over London’s River Thames were formally abandoned. The BBC described the situation as a shambles which was “an embarrassing mess for the capital … already descend[ing] into finger pointing and a blame game over who is culpable for wasting £46.4m of public money.” By the time it’s wobble was corrected, the Millennium Bridge cost £24m for a similar span, so how was £46m spent without actually building anything? The answer is that a peacetime ecosystem has been created in the Public Sector that means it is far easier to do nothing, and as a society, that is our fault.
As with all things that are our fault, there are a number of factors at play in a complex dynamic that occasionally throws up fascinating examples of how the public sector can fail badly. While a Media led blame and shame culture, now turbo-charged via the anonymity of social media may be at the root of the problem, other factors include:
- A tendency to plan and govern in the hopeless expectation of achieving 100% certainty about the outcomes and benefits of any change.
- An aversion to risk that stifles innovation and experimentation.
- Longstanding difficulties in awarding Public Sector contracts to smaller, innovative, suppliers who may be inexperienced in delivering Public Sector outcomes, and who never get the chance to gain that experience.
- The Knowledge Management and cultural change challenge in an organisation as large and diverse as the Public Sector.
Failure, whether associated with action or inaction, is anathema to Public Sector leaders, almost all of whom are incredibly bright and capable; they need to be, in order able to operate in an extremely complex environment with numerous stakeholders, many of whom have diametrically opposed views. Without becoming bogged down in appeasement and uncertainty, they must be able to work collaboratively in the delivery of national growth and prosperity. Due diligence is essential but over the years this has become an industry in its own right. It appears better to fail expensively by enthusiastically doing nothing, than face the Media or the Public Accounts Committee (PAC) for spending money doing something new that did not work. By the definition of Daily Mail headlines (the acid test in Government), any money that has been spent on something that has ‘failed’ has not been spent properly.
In a world of disruptive technology it can be argued that this criticism-addicted approach is counterproductive, actually increasing cost and risk. Why?
While we can all recall examples of expensive failures, when was the last time a Public Sector leader was lauded for making a difficult decision, taking a risk and doing a good job? This does not happen because such behaviour is expected as part of the job and so is not newsworthy. Contrarily, the Media, ever hungry for increased circulation, are well aware of the human trait to prefer reading an article about a misadventure than a success. With castigation for failure and obscurity for success, what incentive is there for Public leaders to take a risk?
Doing nothing is career limiting too (but usually less risky than doing anything that fails). The result is the perpetuation of the dogma that it is better to spend £100 ensuring £10 is spent supposedly wisely, than to spend £15 on something tangible that might not work, but probably will. Every year, on change projects of all sizes, £millions is spent on governance and ever more detailed planning, rather than actual delivery of change, with little evidence that this is improving the chances of success. We believe that a balance needs to be struck between the cost of ensuring that public sector investment will deliver value for money, and the losses and delays caused by over-caution, ever more detailed forecasting with diminishing degrees of accuracy, and an over reliance on old, tried and tested methods. Managing this balance between innovation and certainty is a critical public sector skill, particularly when UK PLC is going through a period of economic re-design. In recent years the balance appears to have become over cautious, due in part to the cynical manipulation of the approach occasionally taken by some of the largest suppliers.
Some of the largest suppliers to Government have enthusiastically embraced and benefited from the overly cautious approach, knowing how difficult it is to argue against it. For example, in Government IT, a minor change that should be a business as usual activity for the small team running the service can easily be converted into a project that requires scoping meetings, high level design by specialist ‘experts’ (who each charge for several days activity while spending 30 minutes tweaking their standard templates), low level designs from more experts, detailed costing, commercial negotiation, cost engineering changes to the designs (at additional cost) and finally a few days of actual delivery work by the technical team who often ignore the design documentation and are probably fully funded by the account anyway. If the change fails, the solution is always more documentation and design next time; and ever more resilient (expensive, complex and difficult to change) IT systems. Continuous and expensive project management by the supplier is, of course, required throughout this process. The result is that a minor change that might cost the supplier next to nothing to deliver, costs the taxpayer at least £100k – so much that in times of austerity, it is difficult to make any changes, except in extremis. The large suppliers benefit from this stagnant environment through lucrative long term contracts that deliver ‘tried and trusted’, or is it ‘tired and dusted’ services. Unable to afford change, the Public Sector continue to pay for the inefficiencies, while internal rationalisation enables the suppliers to reuse the delivery team members to help win and deliver new business.
In extremis, sometimes a big change programme is funded. Considerable effort is expended trying to ensure the procurement is aligned to the many complex, and sometimes conflicting policy drivers, especially if the contract is long and the drivers could change. During procurements this can lead to ‘loose’ requirements and collaborative intent but which struggle to establish the organisational relationships necessary for this to succeed; personnel change, and specific clauses designed to cover any eventuality may not be relevant once the works start, yet are costly to deliver.
Sadly, some of the largest suppliers, who know how to win this business, have realised where they can make five times more profit by failing than by delivering what is needed. Their management of these situations is exceptional, not least because they are adept at covering their tracks and ensuring any blame lies with the public leaders, usually by off loading the risk in unsubstantiated assumptions and caveats hidden deep within their bids. Fundamental flaws are hidden and moved to the end of the project so they are discovered too late, placing the public leader in an impossible position. The leader is left with the option of admitting failure, packing their desk and explaining the waste of huge amounts of capital to the PAC, or to keep the programme running and pass the buck to a successor, incorporating the losses into another project so they can remain hidden. The latter approach actually compounds the problem by reducing the chance that the next project will succeed and the cycle is repeated at an even greater cost…
Innovative new suppliers who might break this impasse can find it difficult to enter for several reasons.
- The incumbent suppliers ensure there is insufficient information available to enable new suppliers to understand and cost the service or transition.
- Governance becomes ineffective either because it is poorly led, too large, or there is insufficient trusted data to enable sufficient scrutiny of the key factors.
- Competitions are often started late and the timescales for transition are too aggressive – making them too risky for smaller organisations to bid.
- Open competitions can offer limited opportunity for suppliers to be truly creative in their responses and need to be properly structured to allow for innovation.
- Large suppliers, familiar with the public sector and with teams dedicated to responding to tenders, know what a successful response looks like even if they have no intention of delivering it.
- Public Sector contracts can be full of risks for new suppliers, requiring them to add a risk premium that may be overstated in the reality of delivery. The large incumbent suppliers are adept at understanding reality and mitigating those risks. As a result they can offer a lower risk premium.
- Despite years of SME friendly policies, there remains a tendency for the risk averse public sector to feel more comfortable buying from large companies or consortia of large companies. In many cases they simply do not understand smaller suppliers and procurement policies tend to lean towards ‘tried and tested’ solutions. If the solutions always have to be tried and tested, where is this trying and testing taking place and where can the innovation be implemented?
- Large suppliers can buy the business, leverage underutilised capacity and make up any profit shortfall in the change events they know will arrive, eventually.
- Personnel in some commercial departments take a ‘penny wise and pound’ foolish approach to procurements, often moving on and never experiencing the long-term effects of the ‘least cost’ service they have bought.
- Changing suppliers to escape this cycle is extremely difficult to fund and departmental finance and commercial chiefs can be extremely creative at proving the business case for such change does not exist. Their reticence is understandable since incumbent suppliers are adept at ensuring transitions to new suppliers are as painful as possible to reduce the likelihood that such events become commonplace. This is a pity, because if smaller suppliers can be engaged, there would be other benefits in addition to the increase in innovation. Smaller suppliers are more likely to be British owned, retaining public expenditure in the British economy, developing innovative commercial capacity and with success creating new export opportunities.
Occasionally a senior Public Sector leader emerges to challenge this dogma. Mike Stone, a retired Army officer and the recently departed CDIO at MOD is one visionary prepared to use an agile approach, experiment, accept limited risks and change the language. “We did not fail, we successfully proved that X did not work, but Y will” became an acceptable approach in MOD IT. While he may not have taken the next step to allocate a percentage of the annual capital budget for experimental ‘learning/implementing innovation through failure’, he was certainly forward thinking enough to think about it. This agile approach also answers the “how do we innovate?” and “how do we use more SMEs?” problems. Like all Army officers Mike would no doubt have studied history and the lessons of the past. This shows that society progresses more during time of war because there is a greater pressure to experiment in order to win; more risks are taken, and the Media has an obligation to print positive news. Winston Churchill famously said, “Success is the ability to go from failure to failure without losing your enthusiasm”. He failed on numerous occasions yet is widely regarded as one of the greatest leaders in history. So, in peace, how can we empower public sector leaders to take more risks?
- The Public Sector needs to become passionate about understanding the services they are consuming. They need detailed asset inventories and service catalogues and to hold their suppliers to account when such information is inaccurate. Contracts need to be designed with exit and transition in mind and should recognise the uncertainty of reality.
- Governance needs to be right sized. By right sizing governance and planning, there will be more money available to spend on the delivery of minimum viable products from which leaders can develop confidence that each incremental investment will deliver additional capability and reduce risk.
- Risk needs to be approached collaboratively, with a recognition that innovation inherently carries risk. If the British economy is to grow through innovation, then the public sector needs to become a vehicle for investing in innovation, not expecting it to be funded from elsewhere. Someone, somewhere, has to invest in innovation.
- ITT’s should focus on ensuring that successful supply chains include real SME’s and not captive eco-systems.
- Risk management mechanisms need to balance the need to ensure that public investment is not wasted with the need to develop new, more effective delivery models that drive economic growth.
- Playing the Compensation Event game needs to stop being the primary commercial relationship between the public and private sectors.
- Concepts of value for money need to look at whole life cost and opportunity investment models.
In short, we need to enable and encourage the Public Sector to take risks and be successful. If they fail, then we need to encourage them to fail fast, fail cheap and move on. With just enough governance and design (the 80:20 rule applies here), we need them to experiment, and if the experiment fails, to celebrate it as successfully proving that overall X did not work (though elements Y and Z did, and are now available for use elsewhere). We need the leaders to feel safe in being completely open about the lessons learned and the essential failures that created that learning. We also need to make it clear that big losses are unacceptable and are always the fault of the suppliers. Suppliers are paid to know better, should identify showstoppers early, provide the necessary warnings, forgo the additional profits and stop work. Knowledge Management and “Agile” need to stop being buzzwords and become real disciplines.
There is a role for a new type of supplier too. Suppliers who can bridge the gap between the public and private sector in order to enable truly collaborative relationships where all parties can win and risks are seen as opportunities to be owned by the party most able to mitigate. These suppliers are not the large consultancies looking to profitably flood the account with large numbers of bright young graduates on a high blended rate, but small teams of highly experienced experts able to deliver “better for less”. They have the experience to understand all sides of the equation, such as how existing contracts could be used to transition to new, more efficient ways of working, and how to enable the Public Sector to regain control. They understand how to operate innovatively, because without it, they are out of business. Some public sector bodies and forward thinking new Tier 1 & 2 suppliers are engaging these small teams of experienced executives to bridge the gap between the customer and supplier. Throughout all phases from procurement design, negotiation and delivery these mediators ensure all sides gain through the Public Sector investment.
We live in a world of disruptive technology that enables experimentation at a much lower cost. For example, in the IT world, scale out cloud architectures mean development and pre-production environments can be consumed only when they are needed. New applications can be built and operated at scale without a long term commitment to expensive hardware. In the engineering world, 80% of a design can be quickly modelled using virtual, re-usable engineering components, leaving only the unique aspects of the construction requiring clarification and consideration. Risk needs to be adjusted accordingly and suppliers incentivised to introduce new commercial models and adopt more productive approaches that radically increase the return from public sector investment. It is no surprise that since 1995 the global value added per hour in the construction industry has grown at a quarter of the rate that manufacturing has achieved, yet around the world, significantly more public sector investment goes into construction than into manufacturing. It’s time to re-think the engagement between the public sector and its supply chain.
We need to embrace the opportunities this creates and create an environment where failure, if not celebrated, is certainly accepted, provided the lessons are published, learned and not repeated. There is a need to focus on outcomes rather than governance and redress the balance between the two. The Media has a key role to play in creating this environment by being more constructive, less inclined to criticise failure and recognise the mechanisms that create innovation. This requires them to be more questioning of negative, impractical extreme views expressed by lobby groups, rather than revel in the conflict they create. Finally, the public needs to become avid consumers of and contributors to, this new, constructive dialogue.
With politicians of all dispositions supported by a positive public and informed by a balanced but broadly positive media, a culture of innovation in the Public Sector can be created that would maximise the opportunities presented by this modern, disruptive and increasingly digital world. Dynamic SMEs using just enough design and governance would deliver “better for less”, ensure more public money is retained in the UK and create a solid export platform.
I4intrinsic believe that Britain deserves the best public sector and infrastructure in the world. It is a performance improvement organisation assisting the public sector deliver complex policy, services and infrastructure. Our approach is to use small teams of highly experienced experts to facilitate the smooth transition to new, innovative and lower cost ways of doing things. We bridge the gap between commercial suppliers and the Public Sector leaders, putting strategy into action.