Failure and a lack of preparation pose the greatest risk to public sector shared services success

Recently the House of Commons Public Accounts Committee’s 2009 report, Central Government’s Management of Service Contracts, found there were no documented plans for managing 28% of contracts. A further 56% of contracts did not have a contingency plan in case of supplier failure.

from the overview of the late David Kaye’s Briefing Paper – Public sector supply chain: risks, myths and opportunities sponsored by Zurich Financial Services

As I reviewed the overview of the briefing paper regarding the late David Kaye’s incredible work on supply chain risk within the public sector, I was at once amazed that the inevitable collision between the irresistible force associated with risk and the immovable object reality of the high rate of supplier failure in key areas such as outsourcing continues to go unchecked.

Given the serious consequences of such failures in the public sector one cannot help but wonder why this issue does not take on a greater sense of urgency, especially as industry experts like Colin Cram are as outlined in one of my posts yesterday, advocating a shared services strategy.

While there is no doubt that economies of scale can be achieved and thus drive significant savings, centralizing Agency and/or Departmental service responsibilities with a core group whether internally managed or outsourced in whole or in part means that key elements of their organizational deliverables as the Briefing Paper points out, will be placed entirely into the hands of third parties. The question is simply this . . . are these third parties up to the task and are they prepared to assume this linchpin role?

If they are not, the consequences as Kaye was quoted as saying are diverse, serious and wide-ranging based on the fact that authorities not only have contractual and legal responsibilities in tort, but critical statutory and political responsibilities as well.

This is one of the reasons why the PI Window on Business’ coverage of Executive Director, NASA Shared Services Center (NSSC) Richard Arbuthnot’s presentation at the 3rd Annual Business of Government Summit in Washington in April 2010 continues to carry so much weight in terms of relevant insight.

Arbuthnot,who managed the largest A-76 public-private procurement competition in NASA’s history, as well as leading the Agency Transition Team that was tasked with executing the minute details associated with consolidating Agency-wide administrative activities across ten geographically dispersed centers in the areas of Human Resources (HR), Procurement, Financial Management and Information Technology, has the distinguishable advantage of having been there, done that relative to successfully implementing and managing a shared services initiative.

With this in mind, I would like to invite you to tune in to our coverage of the Rick Arbuthnot presentation titled Defining Business Viability with Advanced Service Portfolio Management (Click to Access), which originally aired on the Blog Talk Radio Network on April 28th, 2010 from the Ronald Reagan Building and International Trade Center in Washington, DC.

Richard Arbuthnot, NASA

Session Overview:

Wednesday, April 28th (Session 1, 9:00 to 10:30 AM EST)

Session 1 Title: Defining Business Viability with Advanced Service Portfolio Management (Click to Access)

Appointed to the Federal Senior Executive Service in 1999, Rick Arbuthnot is recognized for his executive leadership and credited with introducing significant initiatives across the Agency, such as the Competency Management System, Executive Succession Planning, and Manage to Budget. He is also recognized for his expertise in organizational structure and design. Most recently, he managed all aspects of NASA’s Shared Services effort and has served as the Executive Director, NASA Shared Services Center (NSSC), since March, 2004.

As Executive Director, Rick managed the largest A-76 public-private procurement competition in the Agency’s history, as well as leading the Agency Transition Team, tasked with executing the minute details associated with consolidating Agency-wide administrative activities across ten geographically dispersed centers in the areas of Human Resources (HR), Procurement, Financial Management and Information Technology.

In addition to leading the competition and Agency transition activities, Rick now manages all aspects of activating NASA’s newest field Center, including defining the organization structure and staffing the nearly 500-person organization, ensuring all facility, IT and business systems, including charge-back mechanisms, are in place to operate the organization.

Richard E. Arbuthnot, Executive Director, NASA Shared Services Center, NASA

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Managing Supply Chain Risk: The Nokia and Ericsson Case Study

Everywhere you look whether in the blogs, or social networking groups or for that matter even the more traditional media streams, the term supply chain risk pops up with increasing frequency.

Of course catastrophic events such as the recent earthquake in Japan have a way of igniting widespread interest if only for the time that the media keeps it in the forefront of our collective awareness or consciousness. Beyond these flashpoint events however, the subject of risk continues to be overlooked by most executives, the vast majority of whom have acknowledged some form of supply chain interruption in the previous 12 month period.

A kind of when everything is said and done (and there is a great deal being said about supply risk) . . . there is more said than done!

Here is the question . . . why?

Is supply chain risk and its effects not entirely understood by those who possess the decision-making capabilities to take action? Does risk, and its myriad of interconnecting or overlapping areas of organizational impact cause a no you take it paralysis that ultimately results in an after the fact “I thought you had it” deflective response? Or, is identifying and managing the risks associated with an organization’s supply chain too daunting a task with questionable rewards so as not to warrant the allocation of limited resources?

A 2009 report from the Economist Intelligence Unit titled “Managing supply-chain risk for reward” certainly goes a long ways towards establishing why it is important to address the variables and complexities of this important subject in the paper’s opening paragraph.

In a kind of comparison that is reminiscent of Dr. John Tantillo’s famous Winners and Losers brand, The Economist report relates the following story:

Nearly a decade ago, lighting struck a Philips microchip plant in New Mexico, causing a fire that contaminated millions of mobile phone chips. Among Philips’ biggest customers were Nokia and Ericsson, the mobile phone manufacturers, but each reacted differently to the disaster. Nokia’s supply-chain management strategy allowed it to switch suppliers quickly; it even re-engineered some of its phones to accept both American and Japanese chips, which meant its production line was relatively unaffected. Ericsson, however, accepted Philips’ word that production at the plant would be back on track in a week and it took no action. That decision cost Ericsson more than US $400 m in annual earnings and, perhaps more significantly, the company lost market share. By contrast, Nokia’s profits rose by 42% that year.

So here is the question . . . where did this risk originate (and don’t say when the lighting struck the Philips plant in New Mexico), and at which touch points within the organization should it have been addressed? Was it during the contract negotiations? How about at the point of hand-off between proof of concept product development and production environment output? Perhaps it was an issue that should have been considered in terms of supplier relationship management?

While Nokia stayed connected . . .

Similar to when a major airline’s jet crashes, there are countless interconnecting events that if only one had not occurred the crash would have been avoided. In essence, an unforeseen chain of events and unintended consequences that collectively came together in an unavoidable disaster for Ericsson.

Ericsson's line was off the hook . . .

Why did it happen?

Of even greater importance, what should you do to prevent a situational outcome such as the one experienced by Ericsson from happening within your organization’s supply chain?

Over the next week to ten days we will be posting this case reference to our various social media outlets asking industry experts to weigh in with their opinion as to what happened at Ericsson and why, and what they believe should take place to address the obvious shortfalls on a go forward basis.

You can of course offer your two-cents directly through this blog post’s comment stream as well, so don’t be shy dear reader as this is your turn to shine as well.

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