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01.10.12

Creating a commercial community

Source: Public Sector Executive Sept/Oct 2012

Procurement expert Andy Heslop discusses the application of commercial pressures in non-commercial organisations.

A senior commercial manager, working in a large county council, proposed a new set of arrangements for managing residential care. He told me that the immediate response of his colleagues in the adult social services team was that ‘people will die’.

This is a specific example of a generalised problem; how to apply commercial pressure in an organisation that does not exist for commercial purposes.

Local authorities are not businesses, yet are often the biggest ‘business’ in town in terms of budget, people employed and many other measures. Some county or unitary authorities spend in excess of £500m each year on boughtin goods and services alone. So how do you run a big business that does not exist to be a big business? It’s an interesting philosophical question and a practical challenge.

The usual practical response is to set up a central commercial team, which may go by the name of ‘procurement department’, the remit of which is to worry about properly managing the £500m or so as commercially as possible.

Having been involved with a number of local authorities, my experience is that the performance of such departments is varied, but the average is not especially high. The better ones have a number of common characteristics based upon ‘hard’ business principles:
• Data is readily available and is pushed and pulled around the organisation (where is the money going, who spends it, how and on what);
• The department is well resourced and has a senior level voice;
• Systems and processes ensure appropriate control without excessive bureaucracy;
• Targets and measures are in place to track performance.

It might be argued that when you have implemented the above, all reasonable steps have been taken to commercialise the organisation, but really this is only the beginning.

To successfully operate commercially you have to do hard things in a soft way – because most commercial improvements are only achieved by changing how things are done. Most procurement departments don’t have the mandate or skill to effect complex operational changes. The current trend for outsourcing also demonstrates the issue, because when things are outsourced often all that changes is who does the activity and not how it is done, with the result that costs often go up and service levels take the contrary direction.

Changing how things are done must be managed in a soft way because people resist change; as J K Galbraith postulated, ‘faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof’. Personally I think the word ‘almost’ in the quotation is superfluous.

Many organisations have pondered the ‘hard things in a soft way’ dilemma. I recently uncovered a number of helpful ideas whilst completing post-graduate research into the theme of ‘community’. I have learnt that thinking about an organisation as a community (rather than as a business or an authority) changes the emphasis and throws up different insights. What follows is just one example.

A community can be thought of as a group that has shared boundaries (separating those in the group from others); governance (rules by which they function); activities and goals; and values.

The final two points are the most noteworthy and challenging, and it’s interesting to consider that when ‘values’ are not shared, the end result can be civil war by other means.

Civil war is what happens when communities divide; when the commercial department wants to change things and the director for adult social care shouts that people will die. More generally, this kind of result occurs when you simply try and bolt-on a hard-commercial approach to an organisational community that has its roots in public service.

Part of the solution is to ensure that the activities and goals of the community are built bottom-up, with a primary focus on achieving consensus. Ultimately someone or some small group has to assume the authority of finalising goals, but proper consultation is the key to ensuring that goals are truly shared.

Taking the approach provides the best chance of instilling commercial values into an organisation that doesn’t exist for commercial reasons. Achieving consensus requires an enlightened senior management team operating on what the writer David Runcorn calls a ‘non-heroic’ model of leadership.

Runcorn argues that many CEOs are selected for their heroic leadership qualities (big people with big ideas) and compares them to biblical kings. Heroic leadership requires everyone else in the organisation to be dependent and even helpless, which causes resistance at best and sabotage at worst.

Non-heroic leaders are, by contrast, communal and collaborative, yet manage to lead nonetheless. Non-heroic leaders understand that their primary task is to be present and to serve others – recognising that the real work gets done through the energy and commitment of people ‘out there’ and not in the boardroom.

A communal approach to goal setting, coupled with an avoidance of heroic leadership, will go a long way to defining and cementing the values of the community, a core component of which should be a strong commercial ethic. Without this cultural underpinning, there is a high risk of inter-organisational stalemate.

Commercial values and public service values can successfully co-exist within an organization if they are absorbed and not imposed. Maybe people don’t have to die.

Andy Heslop’s career spans 20 years of commercial roles in private sector businesses including Asda and PwC. Two years as trading director in the newly outsourced NHS Supply Chain business led to an interest in commercial transformation within the public sector. He has since completed a detailed commercial review for a large local authority.

He is shortly to complete post-grad work on themes of ‘trust’ and ‘community’ which, he argues, are central to transforming commercial results.

Tell us what you think – have your say below, or email us directly at opinion@publicsectorexecutive.com

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