Why scrap shipbuilding strategy? Improved outcomes starts with open communications and transparency

“That project was awarded to the Seaspan’s Vancouver Shipyard. The briefing assigned no blame but suggested there were improvements the B.C.-based shipbuilder could make . . . “Vancouver Shipyards needed to find skilled staff, establish capability to increase design work and learn how to use new facilities,” the briefing material said.” – CBC News, November 25th, 2015

As I read the above excerpt from a recent newspaper article in which it was reported that costs related to the national shipbuilding procurement strategy (NSPS) had “ballooned” by the billions of dollars, it would be reasonable to wonder what happened?

Was there a breakdown in communication, or a lack of understanding relating to what was and was not actually possible, that led to the project coming in at 181 percent over budget?

Simply put, in formulating its “procurement strategy” through which partners such as Seaspan were engaged, were the government and its industry partners too eager to make a move in a particular direction? Did they make key decisions before they had a true handle on either the scope of the project, or its eventual cost?

Once again, and coming in at 181 percent over expected budget, one could be excused for thinking that this was the case. To a certain degree – at least in relation to the last paragraph, this would be a fair conclusion.

But does it bring us any closer to a real understanding of why it happened, and more importantly, how we can prevent it from happening again in the future?

In this regard, I would like to refer to an Ottawa Citizen article by former ADM MAT Alan Williams.

According to Williams, the government should scrap its plan – in fact the entire NSPS strategy, in favor of a return to the way things had been done in the past. Specifically, utilize DND personnel to write the statements of requirements that will achieve the needed balance between effectively describing the military’s needs while, enabling the private sector to bid a fixed or certain price.

While Williams’ approach may at first glance, seem reasonable, there are some problematic gaps in terms of what he is recommending.

To start – and this should come as no surprise to anyone who has read my blog or, attended my seminars, it is virtually impossible to reliably establish a set requirement without taking into account that both our needs and/or the product or service offering of the vendor will inevitably evolve over time.

Beta Versus VHS

Think about what I am saying from the standpoint of an everyday situation.

Many of you will likely remember when both Beta and VHS first came out.

They were clearly different formats that were not interchangeable. This meant that when you chose one over the other, you were in reality locked in to that choice.

However, and before making your final decision of which technology to buy, you likely did some research into the differences between the two, in an effort to determine which format would best suit your needs both now and in the future. In short, you made your decision based upon the best information that was available at that time.

Shipbuilding Options

What happened to everyone who chose Beta?

In choosing Beta, did you make a bad decision? Did you make a mistake?

Perhaps you can take solace in the fact that even VHS was eventually replaced by newer and more advanced technology.

The point is this; wouldn’t it have made sense to pursue a certain course of action today, while keeping your options open for the future relative to any unforeseen changes in the market?

For example, what if you purchased your Beta system from the vendor, with the understanding that you could trade in the unit and exchange your library of movies at a future date, and do so at a preferred price?

I realize that this is an overly simplistic example, but it does effectively illustrate my point regarding the problems with locking in both the buyer and vendor into a set course of action. Particularly when it involves complex technologies and long term contracts that can span years and even decades.

Now I do not want you to misinterpret by position regarding the Williams suggestion as an indication that I am fully supportive of the NSPS approach. It clearly has its shortcomings. This being said, I do believe that the NSPS strategy has its strong points, and is therefore good for Canada.

For example, it does facilitate government intervention with regard to creating a sustainable supply chain. The NSPS strategy also stimulates economic activity and opportunities, that would otherwise have been missed under the transactional model that Williams is proposing.

What this means is that rather than trying to tighten specifications and hold vendor feet to the proverbial flame, we need to work towards creating a more consultative and collaborative engagement mechanism between government and private industry.

Once again, this is something that is not possible under the ever elusive certainty model that Williams is proposing.

While Williams and perhaps even the Central Agencies want us to think that they operate in a world of absolutes in which there is a high degree of certainty in costs and outcomes, nothing can be further from the truth. The fact is, there is no such thing as absolutes – especially when it comes to building new aircraft, new warships or for that matter any complex acquisitions for which either new supply chains must be established or, an economic activity created.

Now at this point, some might be inclined to point to LCC analysis models as a solution to the problem. While there is no doubt that LCC analysis will enable management to understand the total cost of ownership, it is not a cost prediction tool.

A more reasonable approach to addressing budget overruns is to accept the fact that with complex initiatives, absolutes do not exist until after the fact. It is the immutable 20-20 hindsight rule of the procurement world.

Within this context, it would make far more sense to openly say that we do not know what the exact cost and benefit will be at this time however, it would be reasonable to establish a target of say $30 billion in cost, and $50 billion in potential benefits.

As we progress further through the process we are, at set time intervals, committed to establishing a communication and reporting discipline involving all stakeholders. It is at these points of open engagement that we will be able to gain more certainty regarding costs as well as the related economic and industrial benefits. In short, the present information vacuum that exists between project announcement and the revelation of a 181 percent budget overrun will be eliminated, and with it the shock leading to a futile exercise in finger pointing, and what went wrong lamentations.

What I am really talking about is managing a collaborative process as opposed to executing an adversarial transaction.

If the government really wants to achieve a different outcome, then they have to move beyond the adversarial matrix of a transactional orientation in which the buyer’s role is limited to project monitoring and contract enforcement.

Shipbuilding transparency2

This means that they will have to adopt a radically different yet undeniably proven mindset, that is based on a collaborative approach that drives ongoing alignment with project goals, and open communication.

The real question this raises is whether or not TBS, PSPC, IC and Program owners are ready to become relational in their thinking and approach.

Achieving certainty: How to create a culture for collaboration by Andy Akrouche

The sole purpose for creating a contract is to establish a path of certainty that will guarantee a successful outcome.  In short, if I do “A” and you do “B” we should achieve “C”.

Unfortunately, there is no such thing as absolute certainty in the real world.  As a result, even a well crafted contract with clearly defined terms and conditions will fail if it does not accommodate the need to adapt to the inevitable changes that occur over the life of the agreement.

When I talk about changes and adaptability, I am not referring to compliance relating to the terms of the contract itself.  What I am talking about is the practicality of recognizing and responding to external factors that were not identified in the original contract, and therefore fall outside of the framework of the existing agreement.

Once again, and using my long journey analogy, you may have chosen a particular route to get from one place to another based upon known factors such as distance and time.  In this regard, you anticipate the length of time you will be on the road, and at what points you will have to stop along the way to refuel.

But what happens if during the actual journey you encounter bad weather or discover that the route you had originally planned to take has an unexpected detour or, you experience car trouble.  What do you do?

You adapt.

For example, with bad weather, you will likely delay your journey and spend time at a rest stop along the way until it blows over.  This may mean that you will take longer than expected to arrive at your destination but, you will ultimately arrive safe and sound.

Seems simple enough.  Even though you did not expect to encounter bad weather when it hit, rather than pushing through with potentially dire consequences in an effort to adhere to the “original” plan, you adapted to a new reality or set of circumstances.

This demonstrates both experience and maturity.

Within the context of a contract, there is usually little if any room for such flexibility.  This is because we are locked into its terms, even if said terms do not reflect the unexpected events of the real world.  In those instances where one party is late on a deliverable due to unforeseen circumstances, they are more likely to be penalized, even if said delay benefits the entire project in the long run.

As a result, using contracts to manage relationships does not reflect relational maturity.

What Is Relational Maturity?

Relational maturity in its most basic form is present when there is a desire on the part of all stakeholders to participate as productive and useful partners in a long term arrangement.  However, this desire needs to be accompanied by the establishment of a solid management structure created within a truly collaborative organizational culture.

In other words, and rather than employing a top down command and control model of management in which there are thick layers of oversight centered around compliance management in relation to contract enforcement, the relationally mature organization takes a different approach.  This includes recognizing and responding to change from the standpoint of achieving the best outcome, even if said change means expanding upon the original engagement parameters.

With the relationally mature organization, such expansions or adjustments are not undertaken through an onerous change management process.  Nor are there risks of a partner being penalized for acknowledging unanticipated issues.

Instead, a relationally mature organization having established the necessary systems and processes to facilitate the collaborative approach to problem solving, are able to proactively manage change while keeping the desired outcome clearly in site.  Similar to Jim Collins’ autopsies with blame approach, which he identified as being one of the key differentiators with the companies who have made the transition from good to great, the relationally mature organization seeks solutions as opposed to either assigning blame or enforcing adherence to terms and conditions that are no longer relevant.

To get to this point of productive partnering or relational maturity, a new model of engagement is needed.

Maturity

The New Model For Achieving Certainty

The relational model to which I have referred throughout this series is centered around a core concept of establishing a charter that becomes the strategic and operational framework for the relationship.

It represents a departure from how we have traditionally viewed relationship sourcing and management, which in the past has been based primarily upon a contract compliance or enforcement mechanism .

While changing a company’s culture is not an easy task, it is nonetheless essential for success.  This means that the internal organization (Program Owner), as well as the partner or partners service capabilities need to be properly aligned and enabled for the joint relationship structure to work.  By this I mean that on one hand, a mechanism is needed to translate business objectives and priorities into performance goals for the relationship.  On the other hand, there is the need to support and process relationship requirements and take the necessary measures to enable them.

The basic internal organizational framework needed for effective relationship delivery management involves establishing and operationalizing the following management structures:

  • Relationship Approval and Review Board – (RARB) – An executive committee representing lines of business, procurement, delivery, finance and legal responsible for achieving corporate objectives through strategic relationships.
  • Relationship and Delivery Management function (RDM)– an organization reporting to the RARB responsible for the administration of the relational approach including, but not limited to, standards, coaching, joint governance secretariat, change management, relationships budgeting process, operational reviews and relationships portfolio management.

 

Even though complex business arrangements are by definition intricate and diverse, beyond this basic management structure, success is ultimately based on people.  More to the point, people working together to achieve a mutually beneficial goal within an operational framework of shared values and open dialogue.  As such, becoming relationally mature is a journey that requires the presence of the following key elements:

Leadership – recognition at the executive table that delivery models of today rely on partner capabilities, which include a high degree of agility and responsiveness that can only be achieved through adaptive relationships as opposed to transactions or deals.

Business operations – proactive implementation of the model, which includes the institution of the RARB, RDM and the Relational Governance structures referenced in both this as well as previous posts.

Education – continuous education programs for individuals involved both directly and indirectly with the initiative to ensure that the structures and processes to facilitate the creation of high performing relationships are understood.

Incentives – establishing incentive based HR programs to promote collaborative behavior within the organization and across all participating organizations.

Communication – relentless communication program supported by strong and continuous messaging from the top.

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Are You Ready To Become Relational by Andy Akrouche

Over the past couple of years there has been a notable shift in the area of complex business arrangements including outsourcing,  public-public and public-private partnerships centered around the importance of relationships.  Specifically the recognition that effectively managing the “relationship” between all stakeholders is the single most critical element of a successful initiative.

Even industry associations and practitioners of transformational and vested outsourcing are now talking about “relational importance” as they transition their models towards what I call a relationship first approach.

So what does it mean to be truly relational?

Before I answer that question, let’s quickly identify what it isn’t?

To start, terms such as win-win and the mere acknowledgement that relationships are important is not enough.  The reason is that recognition without meaningful action is nothing more than wrapping the old adversarial model in shiny paper and putting a bow on it.

Unfortunately, this repackaging exercise has been repeated far too often because it is much easier to add a new label to an existing model, than it is to actually make the necessary changes to being relational – especially within the public sector.   The reason is that becoming relational means that you will almost always have to facilitate a cultural change within the organization from the top down. 

For many the prospects of a cultural change is a daunting, even fearful exercise.  This is because it forces us to shift from a familiar performance-based model that is structured around an adherence to the inflexible terms and conditions associated with a static outcome.

The main problem is that the real-world does not operate within the narrowly defined conditions of a contract – no matter how well it is structured.

Initiative goals can and do change, and with it the capabilities of key stakeholders to fulfill their established role.  This means that rather than attempting to enforce compliance to a rigid set of performance requirements based on a single point in time objective, one must be able to adapt to the reality of inevitable change.

The recognition and subsequent ability to adapt to changing goals and stakeholder capabilities, is the true definition of a relational arrangement.

new-business-model

To reach this point of relational readiness, it is important to build awareness and capacity within the buying organization.  This “education process” as I will call it, must target all levels of the organization from senior executives to those who are managing the day to day activities. Therefore, the focus of this program should include:

  1. A general understanding of the relationship based model from the standpoint of not only its differences from transactional or performance-based models, but the benefits that can be derived from it in terms of improved outcomes. This includes an understanding of the needed organizational structure, process and behavioural changes associated with being a participant in high performing relationship.
  2. A guideline for how to plan and source a relationship, as opposed to a transaction or one-time negotiated deal including; i) How to define the attributes of the required relationship, ii) How to objectively select vendor(s) based on those attributes in a manner that satisfies the tendering process, and iii) How to build a Relationship Charter during the procurement process.
  3. A process to “operationalize” the Relationship Charter so that it is transformed from a well-intentioned paper model, to one in which it defines the way that stakeholders actually work together towards achieving a mutually beneficial improved outcome.
  4. The mechanism to organize, tool and manage the partner relationships management function within the organisation.

In subsequent posts, I will examine more closely each of the above elements in greater detail.

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The Groundswell Effect and the Emergence of the Public-Private Partnership Relational Model by Jon Hansen

News of the Joint Venture Agreement between SRS and the Commonwealth Association for Infrastructure Development has not gone unnoticed . . .

Procurement Insights

Andy Microtrends

In his book Microtrends: The Small Forces Behind Tomorrow’s Big Changes, Mark Penn argues that the biggest trends in America are the Microtrends, the smaller trends that go unnoticed or ignored.

If you think about it for a moment, you will see that Penn is right on the money.  After all, how many of us thought that from its somewhat humble bulletin board beginnings, that the Internet would become the catalyst for global social and economic change?

This is perhaps one of the main reasons why I started this blog back in May 2007.  At the time, I wanted to provide a lens on the silent, groundswell shifts that would ultimately envelop the industry and redefine the way we do business.  Generally speaking, and based on the growth we have seen in readership, it would appear that we have been successful in identifying emerging trends and players.

Within…

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The truth about Public Private Partnerships by Colin Cram (Part 1 of 3)

NOTE: This article was originally published in the Procurement Insights European Union Edition.

In Part 2 I will provide a detailed commentary centered around Colin’s post as well as the recent news that States such as Florida have just signed into law Public-Private Partnership legislation, including what it means on a go forward basis – Andy Akrouche

There was much debate when the current UK government came to power in 2010 about whether PPPs provided value for money. PPPs are a means whereby the public sector can get facilities built, such as hospitals, roads or prisons, without upfront investment. That means that infrastructure projects, that might otherwise have to wait many years, can be built quickly. The private sector provides the funds and is then paid to run the facility for a period of, say, 25 years. At the end of the contract period, it hands back the facility to the contracting authority.

PI EU P3

Click to access Seminar Information

The contractor recovers the costs of building the facility over 25 years. So, contractors are usually part of a consortium – a finance provider, construction company and facilities management company. Negotiating the contracts is complex and many public sector organisations do not possess the skills. They therefore rely on private sector consultants, who also often fail to possess the skills that they claim to have.

PPP (originally called Private Finance Initiative – PFI) was ’invented’ in the United Kingdom – to get infrastructure built quickly, but with the rationale that private sector contractors would have an incentive to build to higher standards than would happen if the public sector commissioned a building project. This is because the private sector supplier would want to minimise running costs. Perhaps surprisingly to those who advocated the policy on financial grounds that prediction turned out to be correct.

There have been several issues with PPPs. Firstly; it is argued that government’s can borrow more cheaply than the private sector. Therefore, it doesn’t make sense for them to contract with a private sector provider of finance. Secondly; contracts can be fairly inflexible. If the contracting authority starts to run short of funds during the life of the project, oh dear! Also, if demand varies from that which is predicted – up or down, there will be financial consequences. The contractor will still want to recover its upfront investment plus profit. For hospitals where, in the UK, much of the PPP effort has gone, 25 years requires some pretty good crystal ball gazing, particularly given medical advances and attempts to reduce the length of stay in hospitals. Also, will the structure of the building be suitable for new technology in 10 years time?

Another issue is that the specification should be right. Should the facilities management include cleaning or should it focus on infection reduction?

Health authorities in the UK have been criticised over PPP contracts that worked less well than they should. Problems have been partly because each one let its contract independently, whereas had the contracts been let by a single centralised team, the expertise of that team would have been available to all.

Other potential issues are that creating a competitive market is difficult. Inadequate competition or the same bidders each time creates condition ripe for making excessive profits. The uncoordinated approach in the UK to letting such contracts has made this easier. This can render PPPs ideal for corruption. It is difficult to rule out that some may take place in order to provide a commission to someone as who will argue against a new hospital? That is a further reason why one needs an independent procurement team to manage the contract negotiations and be prepared to blow the whistle either if the business case does not stack up or if there appear to be irregularities in the amount of competition.

So what is the verdict on PPPs? From the hospital patient point of view, they are a great success – new facilities instead of out of date and unsatisfactory old ones. They are also great for the medical profession – much better working environments. However, they can be a major financial headache and lack of contracting and specification expertise in the contracting authority – something that many fail to recognise beforehand or where senior people in the hospital believe they have the expertise, but do not – can create a sub-optimal project – or even a near disastrous one.

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Shared Services Canada – Procurement Design Industry Consultations

I have recently been invited to participate in industry consultations on IT procurement and Bench-marking  for Shared Services Canada. The official name of the group is Industry Technology Infrastructure Round-table (ITIR), Procurement Benchmarks Advisory Committee. We have had two meetings so far, and I represent CATA (Canadian Advanced Technology Alliance). SSC is a new organization (10-12 months old) created by the Feds to bring all IT infrastructure together for the purpose of doing two things: the first being Efficiency, which we all understand to be lower costs, and the second is “effectiveness” which we all know is much more elusive to define, tackle and measure.

The purpose of this industry advisory group is to advise SSC management on procurement process and bench-marking  The reason I agreed to participate is to use this SSC procurement design initiative as an opportunity to improve and fix some of the traditional problems inherent in the Feds procurement regime and to also use this opportunity to employ procurement as strategic tool for enabling innovation in small and medium enterprises.

I thought it would be great to have an open discussion on this subject (on this blog) and solicit your opinion and advice on this procurement design initiative as it relates to any of the following:

1)      The concept of shared services and how different it is from outsourcing;

2)      How to effect major consolidations while improving the odds for small and medium business particularly in the area of innovation;

3)      How to make Small Business play more critical role in large government procurement;

4)      How to achieve efficiency in public sector? What is realistic?

5)      How to achieve effectiveness in public sector setting.

I have heard many opinions about the government’s ability to make significant change in this area.  What do you think? I look forward to your comments.

Generation Z Learning and the Impact on Procurement as a Profession

Bill McAneny, acclaimed author of the best-selling book ‘Frankenstein’s Manager’ which outlines why management training does not lead to better-performing managers, has embarked on writing a series on the way different generations learn, and its impact on the make-up of the changing workforce.

In terms of procurement and supply management, this has significant consequences in that more graduating students have chosen the profession as a career and are therefore going to redefine the landscape in key areas including the RFP process, contract negotiation and risk management.

Over the next few weeks we will be posting a series of articles in the Contracting Intelligence Blog, and would invite your comments on what is bound to be a timely and controversial topic.

It seems incredible that Generation Z, those born after 1994, will hit the job market in 3-4 years time. So how do they differ from Gen Y, and what does this mean for how we recruit, manage, motivate, reward and develop this next wave?

Gen Z is the first generation born with full mobile technology already in existence which makes them both comfortable with, and indeed dependent on, such technology. On one hand this has made them primarily independent-minded but it also means they tend to see social media as ‘the norm,’ as education and learning are not adapting quickly enough to modern technology. It also means that ‘socializing’ is not necessarily about physically hanging out with friends, shopping, (or indeed even leaving home), but an activity which occurs online as a solitary, yet collaborative, pursuit. However this generation is not locked into one desktop PC in one location, as all the necessary equipment they require to remain perpetually hooked up is with them wherever they go. This is one of the main differences between Generation Y and Generation Z, that Gen Y’ers remember life before the proliferation of mass technology, while Gen Z are often referred to as the ‘digital natives.’

This has made Generation Z impatient and requiring instant gratification, an introverted and aloof generation, with a lower attention span. Such a high dependence on technology has led to some psychologists suggesting that there is evidence of ‘acquired Attention Deficit Disorder.’ Dr Edward Hallowell, Psychiatrist, former Harvard Medical School faculty member and a specialist in attention deficit disorder claims people have “…become so busy attending to so many inputs and outputs that you become increasingly distracted, irritable, impulsive, restless and, over the long term, underachieving…You live at a much more surface level.” A clinical associate professor of psychiatry at Harvard, specializing in neuropsychiatry, Dr. John Ratey, uses the term “acquired attention deficit disorder” to describe the way technology is rewiring the modern brain. Even reliance on is short-circuiting the brain’s ability to process details. “My favourite example is when I type the word ‘tomorrow,’ I know spell-check will get it right. It would take 30 milliseconds for me to make sure in my mind. But we depend on that spell-check. Even when we take the time to write, we don’t have the patience to give that a consideration.” People are becoming accustomed to a constant stream of digital stimulation and feel bored in the absence of it. “Regardless of whether the stimulation is from the Internet, TV or a cellphone, the brain, is hijacked.”

Dr. Elias Aboujaoude, Director of Stanford University’s Impulse Control Disorders Clinic at Stanford University agrees: “If our attention span constricts to the point where we can only take information in 140-character sentences, then that doesn’t bode too well for our future. The more we become used to just sound bites and tweets the less patient we will be with more complex, more meaningful information. And I do think we might lose the ability to analyze things with any depth and nuance. Like any skill, if you don’t use it, you lose it.” This will also have a major impact in how this generation forms views, constructs arguments and also how well they see the wider context of issues. This is very much the ‘here and now’ generation.

It also explains why they are more individualistic, self-absorbed and less team oriented than Gen Y. Many of this generation have parents who are ‘stay-at-home’ or working part time and so are less likely to have attended day-care an activity which encourages socialization in teams and also group-play. As such their verbal communication skills also tend to be less well-developed as the majority of their communication takes place individually, online and in ‘shorthand.’ As this is the Google generation who take for granted that information is ‘there,’ immediate and free, they tend to be impatient and expect instant results. They form huge communities and a constant communication loop with people they have never met, and never will meet on the net; paradoxically this generation are collaborative, chatty and sociable on the net, yet in ‘the real world’ they tend to be less well able to develop personal relationships.

Use the following link to access Bill McAneny’s Blog Comprehensive Intelligence In-Depth.

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