by Richard Sykes

Procurement is no dry topic

Jun 18, 20094 mins
CareersEnergy IndustryGovernment

One reason that I so enjoyed my years with the then blue-chip ICIis that it developed its business recruits across a spectrum of practical, challenging commercial roles. I was tested and matured marketing a product called ethylene glycol, which is the raw material for polyester fibre and anti-freeze. Then I was tested further as export sales manager for commodity petrochemicals into the Americas and then spent a full month on the road five times a year for three years all over North and South America. And then I became the procurer of ICI’s energy (natural gas, fuel oils and coal) in Europe. Ten magic years. Of all the jobs I filled in 27 years at ICI, that procurement role was the one I enjoyed the most. On the one hand I was working the commodity fuel oil market with competitive tenders and eyeball-to-eyeball quarterly negotiations with the likes of BP and Shell; on the other, delivering a creative strategic investment initiative that converted one of ICI’s largest power stations onto coal – and without touching the ICI balance sheet. At the core of that success was no competitive tender, but a carefully crafted business partnership with the National Coal Board. So I came to respect and value procurement as a key strategic discipline. What then shook me when I moved into ICT in the early 1990s was its commercial culture. Best described as aggressive deal-making, it exploded towards its peak as a business phenomenon during the decade. I spent most of my time and business experience as ICI’s group VP of IT doing my best to counter it with equal aggression. The legacy of this is a sour one: adversarial ICT procurement processes in the public and private sectors in which the name of the game is to place all the risk on the opponents’ shoulders. So I note with real interest that the UK Office of Government Commerce (OGC) has now published ‘A Formula for Success’, mapping significant elements of a potentially transformational journey towards a higher quality of procurement effectiveness for major project delivery.

Its first proposition is that “senior stakeholders will find considerable advantage in developing their policy and strategic thinking through business-to-business engagement with their potential suppliers”. Here is recognition that contemporary technology-enabled projects are inevitably complex and that a successful outcome requires what will be a well crafted business partnership. In developing the proposition, the report says that “procurement should be seen as an opportunity to agree clear, joint objectives in a commercial arrangement aligned with a supplier’s capability to drive successful delivery”. A range of client-side factors can conspire to make achieving that opportunity a real challenge: “customer choice makes demand unpredictable, there may be an inability to define requirements fully, and (at the outset) there may be difficulty in determining the best model for delivery”. Suppliers, faced with such uncertainties, will “judge the potential impact of these risks on cost” and price accordingly. In the face of competition, “suppliers may simply ignore the potential impact (of these risks) to win the business”. This leads to the second proposition in the OGC report, that “delivery and risk should be addressed much earlier in the procurement process”. The key observation is that “any approach to engage suppliers to support the delivery of complex projects should be based on a clear understanding of the risks involved, as well as how and by whom they might be [best] managed and owned”. Intellect (the UK association of the IT, telecoms and electronics industries – I sit on its main board) has worked with the OGC and the Government’s CIO Council to develop three practical tools that are very relevant to the delivery of these two propositions: the Pre-Qualification Tool; the Concept Viability Workshop; and the Joint Statement of Intent, which is an overarching view of the intended voyage and destination from the two boardrooms. But I must take issue with the report’s authors on one crucial aspect of their tightly argued analysis. They posit that, once their two propositions have been implemented, the procurement process must revert to the classic adversarial model. They recognise that “where there is a high level of uncertainty, it may be better to agree a set of assumptions, against which suppliers then bid”. To me, it is clear that neither aggressive deal-making nor adversarial bidding processes can deliver sound foundations for effective business partnerships. Source the generic back-office stuff and the underlying infrastructural stuff as commoditised services because competitive tendering belongs there. Then focus your applied technology agenda on the better exploitation of those key core competencies of your business. Finally, negotiate focused and crafted business partnerships, but now with deep foundations, that will sustainably delight both your shareholders and your stakeholders over time.