How to open up public sector delivery to SMEs

So the Government would like 25% of its business to go to small and medium enterprises and have been trying to encourage this for over 2 years, yet the vast majority of the latter still don’t think it is any easier than before.

The message put forward by SMES, according to recent research published by Fujitsu:

– is that there are a number of reasons but paramount is, a perception that contract opportunities favour the big firms because of their size/complexity, and the cost of bidding.

Efforts by Government to date (simplifying prequalification procedures, publishing sub-contracting opportunities) have been welcome, and in the ICT sphere for example there have been commitments made by the likes of Fujitsu and others to encourage collaboration but nonetheless all of the approaches to date seem to us of limited value in aligning customer requirements and the propositions offered by smaller firms, which is the only way that the process becomes value-adding.

Should we really care? After all SMEs aren’t going to build an aircraft carrier. Neither are they able to effectively absorb the risks of guaranteeing service delivery following large scale TUPE transfers/outsourcings, invest in major assets and infrastructure, or run complex technology implementation projects.

We should, but not simply because they are deemed to be engines of growth. The real value of SMEs is that in certain circumstances they offer a proposition to the public sector that the big boys can’t match. This might be price, or local knowledge, or nimbleness, for example. In which case SMEs should not have to rely on the charity of the buying organisation or the large contractors but simply have the platform

During our recent work advising on procurement of a strategic service delivery partnership for a London borough council we considered the issue of how to use the power of large BPO service integrators to further the ability of SMEs (and for that matter arms length organisations, mutuals and the voluntary sector) to take ownership of delivering some of the Council’s required outcomes. The view we formed through extensive dialoguing with bidders was that in this particular case:

1 – the larger organisations might be better directed to create an ecosystem of collaboration by offering customer and transactional support infrastructure for local organisations to transact consistently and efficiently with the end customer (in this case the residents of the borough) than through general commitments to offering them sub-contracts;

2 – inviting a managing agent approach, where the supply chain of SME/third sector/mutuals etc. is subject to the same supply chain management techniques as the Council’s larger partners and indeed its internal delivery units. We identified savings of £2m+ a year from such an approach, which is not to be sniffed at in this economic environment.

What this means in practice is that organisations in the ecosystem are able to access the Council’s CRM platform, customer insight and a similar support services offer that provided by its strategic partner. On the flipside they agree to abide by the ecosystem rules of collaboration and commitment to searching jointly for efficiencies and service improvement opportunities. Thus the Council’s strategic partner is not providing a ‘charitable’ service to smaller organisations, but a platform for growth and efficiency, which leads to financial benefit for the Council and a consistent front end for service users.

So can this concept be extended to all parts of the public sector? Well SMEs are never going to be prime contractors for building an aircraft carrier, but there will be always sub-contracting roles for specialists who offer something that the lead shipbuilder cannot. For most service areas though we believe that it is possible to separate out the aspects which will benefit from a scale approach from those which might be better commissioned from an ecosystem of smaller organisations and then incentivise your strategic partners contractually to facilitate the ecosystem approach through a combination of specification and incentivisation. In this way there are rewards on offer for all parties to collaborate.

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