Responding to criticisms from their overview and scrutiny committee that their first report in February this year, regarding the lessons learned from the Southwest One (SW1) venture, was not comprehensive enough, Mr Kevin Nacey, Finance Director from Somerset County Council (SCC), has released a follow-up analysis.
Despite the criticisms from various public sector corners, we continue to have respect for SCC in having the courtesy to share some of their key war wounds in public. There are very few organisations, public or private sector, that demonstrate the maturity SCC have shown in revealing some of the challenges they experienced in this shared services partnership.
This new report from SCC attempts to delve a little deeper to provide more clarity over the Southwest One (SW1) relationship. It seems its overall objective is to help SCC and other public bodies to make better decisions in future when it comes to such large-scale, complex project relationships.
When it was released, the original report was criticised by SCC’s audit committee for being ‘too brief’ and failing to present enough practical advice that could be applied to the council’s future outsourcing and/or commissioning relationships. We wrote about the original SW1 relationship at length here.
Hot off the press this new article explores the further lessons that can be learnt from SCC’s updated report and provides a better insight into the challenges that Southwest One faced.
Two material issues stand out for us:
- The apparent lack of pre-contractual due diligence by IBM on some key aspects of the deliverables
- That an appropriately funded and resourced Intelligent Client Function (ICF) was not implemented on the client side.
While Kevin Nacey’s extension of the original report does expand upon the February edition, with several points having further clarity, the cautionary tone of the revisions hint at the restricted disclosure that SCC is able to reveal as a result of the settlement agreement they reached with their private sector partner, IBM.
Southwest One – 6 further lessons learned
From Nacey’s second report, we have gleaned the following 6 additional lessons. Italicised sections are direct comments from the report, followed by our own perspective on these extracts:
1. The importance of internal audits
“Since the renegotiation SCC has had an internal audit conducted by SWAP on the performance of the Client function and SCC has also commissioned some advice from a SAP consultant on how to make best use of the system, including a review of what SCC needs to do in the future to gain maximum value before and after the end of the contract.”
Nacey’s new report tells us that, as a result of the renegotiation of the SW1 contract in March 2013, which was costly for all involved, SCC decided to call in SWAP and undergo an internal audit, specifically of their client function. This was a very positive move on SCC’s part and shows that they are keen to learn from their experiences, particularly with regard to their ICF team. Nacey identified them in the first report as being underprepared and lacking the crucial skills to deal with the consequences of this huge partnership.
SCC also called in an independent SAP consultant at this point, which, after the multiple and costly issues that they have had since the implementation of the software, was a step in the right direction, particularly as they are going to continue to use this software after the contract is terminated. There is also an important legacy issue here, as it is crucial that in-house teams have a clear understanding of how and why the systems have been configured in the manner they have to avoid unnecessary future reworking of the systems.
The internal audit was a very positive step. From the perspective of the report, it would have been helpful to organisations on the outside to understand more about how the knowledge gathered could be practically implemented to achieve better results next time.
Learning from both success and challenges in these relationships, and then having a clear process and method to implement the lessons learned, rather than expending energy on witch-hunts, is crucial if you want to move your organisation forward and begin to innovate again.
2. Identifying the cause
“Southwest One had to manage competing priorities from its clients and the partners also had varying opinions on the level of performance provided. Remedy for such circumstances differed depending upon initial views of the scale of the performance issue and what each client required for its service.”
The second sentence of the above extract is new. It seems SCC experienced a lack of alignment between the three public sector partners (Somerset County Council, Avon and Somerset Police Authority and Taunton Deane Borough Council). They all had different ideas about the severity and impact of the contractual problems on their own organisations. This appears to have resulted in different perceptions about how to escalate the issues that had arisen.
In order to avoid the ensuing debate on how to objectively identify the cause of the issues, it can often be useful to have an independent critical ‘friend’ with extensive experience to help guide the thinking of the respective partners. The fact that SCC had already instructed an independent SAP expert and had their SWAP audit, goes some way in helping to provide an independent view to sanity check their thinking.
Further assistance in the holistic sense, whereby the technical, operational and contractual issues could have been aligned early in the relationship, may have given advance warning to head off the types of challenges SCC have reported on. The report doesn’t provide any indication that this holistic support was sought or provided at the outset of the relationship.
3. Aligning expectations
“It has been particularly challenging to achieve effective audit of the contract, both by internal and external auditors. Access for auditors has been a prime issue with clearance of those auditors often being slow as [the] process involved all clients being satisfied that audit scope, coverage and findings were appropriate.”
The above extract highlights the challenges arising from the different perceptions of the respective partners. As all three public sector parties had different confidentiality and security compliances to abide by, particularly Avon and Somerset Police Authority, it appears to have proven challenging to successfully audit the partnership as a whole.
It’s surprising this lack of alignment came to light so late in the process. IBM have a lot of experience of operating shared service type partnerships. The challenges in aligning the perceptions of stakeholders would have been a key piece of advice IBM should have told the shared service partners about during the pre-contractual bidding process. This obligation on IBM to warn their client about these issues pre-contractually is part of their ‘expert responsibilities’. It may be that IBM did discharge this responsibility, but the report doesn’t indicate that they had received this advice.
4. Commercial confidentiality
“The most recent SWAP audit of the contract client function found that there has been effective monitoring of SW1 performance. The problem is that reporting of that performance has been hampered by arguments over commercial confidentiality and sensitivities about the validity of reporting. It is fair to say that the three clients do not always agree on the quality of service provided.”
A number of points can be inferred from this comment. It suggests that, as per the point above, SCC and its public sector partners either hadn’t received much guidance from IBM as to how best to manage stakeholder perceptions across the partners, or the partners did not operate their stakeholder management as per guidance from IBM. It also seems to suggest that SCC were keen to take an assertive stance with IBM and hold them to account for their actions, while the other two parties were much more hesitant and did not wish to be seen to compromise relations for fear of disrupting the partnership. The key lessons here are:
- To agree at the outset how the relationships will be managed
- Why they will be managed in that way
- That the formal escalation process agreed will be executed
- How any lessons learned at the end of each month will be implemented and measured as to their effectiveness for the following month. Whether learning from success or challenge, fast and consistent implementation of lessons learned is key.
It is, therefore, very important to align your expectations with those of any potential partners (public or private sector) before you enter into a contract with them. You also need to come to an agreement about commercial confidentiality and determine which party is going to take the lead if action needs to be taken against a vendor. In such cases it is crucial that you trust the ICF team of your partners if it is they who are going to take control, and that if you do not have complete confidence in them, you are able to negotiate replacing them with a team that everybody is happy with.
5. Data ownership
“A further issue is that of data ownership and responsibility. SCC must make available data, if indeed it has that data. On a number of occasions SCC did not and SW1 held data that contained references to other authorities.”
This is another example of something that should have had clarity pre-contractually. By taking ‘use cases’ at the outset to explore different scenarios, all material possibilities could have been explored and understood. As it was, all of the partners had different security levels and attitudes regarding data release and by failing to align them, the question of how to deal with requests for the data became a major issue for Southwest One. This tug of war between the different authorities also meant that staff loyalties were stretched and team members were unable to decide whether to align themselves with Southwest One or their ‘home’ organisation.
6. Data segregation
“The introduction of SAP so early in the contract life and the system issues experienced meant that SW1 performance became synonymous with SAP performance. There were many other benefits provided by SW1 in the first few years of the contract related to other improvements in the network and associated applications, but this was overshadowed by the SAP technology issue.”
The reason for IBM implementing SAP so early in the contract is debatable, but it is here that blogger Tony Collins’ recent discussion of the report could prove fruitful. Tony makes the valid point that:
“The Somerset report says each side in an outsourcing relationship needs to be motivated by similar incentives. But can that ever happen? Councils exist to provide good public services as cheaply as possible. Suppliers exist to make as much money as possible.”
The suggestion is that the SAP system, sold and implemented by IBM, was implemented too early, perhaps driven by IBM’s need to recognise early profit from the SW1 relationship. It seems there were many issues with the software, due to a lack of early due diligence in how it would be practically operated, and a lack of visibility from the partners as to the ensuing issues that were likely to arise by data sharing. If IBM did in fact provide these warnings to the partners as part of their ‘expert responsibilities’, then it’s difficult to reconcile how the issues over data confidentiality arose in the first instance.
SAP is a very functionally rich system. But it can be a costly system to maintain. It is critical, therefore, that adequate due diligence is undertaken by the selling/implementation partner to provide appropriate visibility to the end-users of the issues regarding data sharing and implementation. As stated earlier, clear documentation and communication as to the whys and wherefores of how the system has been configured is an implied duty on ‘expert providers’. Ensuring that the vendor’s expert responsibilities are being met is, therefore, crucial if you wish to make the most of your resources, both now and in the future.
It is admirable of SCC to provide key insights into the issues they had with the shared service. It was a new and innovative basis for shared services across public sector partners with different needs. It is more important that these points are used as a foundation to help other readers learn from the experiences of SW1.