The Failure of Southwest One: What Can We Learn?

By Allan Watton on April 9, 2013

SouthWest One Logo.In 2007, Somerset County Council struck a deal to outsource various services to a joint venture company. That company — Southwest One (SW1) — was intended to serve as a trailblazer that demonstrated how public and private organisations could work together to benefit the communities of the South West and further afield.

However, at the end of March the death knell of the relationship was marked by news that Somerset County Council had settled out of court with SW1. That news followed a string of high-profile stories of poor performance and unwillingness from other public sector organisations to buy into the service delivery model.

The key question that emerges out of the ashes of what has been a disappointing failure for Somerset County Council and its public sector partners is quite simple: Why did it fail? The partnership was set up to work in the interests of all parties and provide an outsourcing model that could be adopted nationwide. Where did it all go wrong?

The History of Southwest One

In October 2007 it was announced that Somerset County Council and Taunton Deane Borough Council had formed a joint venture with IBM in a £400m deal to deliver shared services to the councils. The model was innovative — a company backed by both public and private organisations with the involvement of a county council, a borough council and a police force (Avon and Somerset).

The makeup of the SW1 was intended to provide a “cultural overlap” of sorts between the parties involved. If IBM (through Southwest One) could deliver savings for the public sector partners and make a profit, the public sector stakeholders would get a double whammy of benefits. Not only would the cost of services be reduced and service levels improved, they would put a proportion of the profits generated from efficiency savings back into public sector pockets so that other services could be provided and developed for the benefit of the respective communities.

It seemed like a winning formula in principle, but it wasn’t long before cracks started to form in the relationship. The leading issue was a reported belief amongst certain councillors that IBM were primarily interested in turning a profit, not improving services. This belief was only strengthened by initial reports that SW1 was not delivering the contractually agreed savings.

The situation was worsened by an apparent unwillingness from other councils to buy into the scheme. At the time, the Chief Executive of Somerset County Council and the man who was responsible for SW1’s inception, Alan Jones, remained bullish:

[If public authorities want to join SW1] we will welcome them — but if they don’t, that is their business. We think — I think — they would be looking a gift horse in the mouth, but that’s my opinion, and not necessarily theirs. (Computer Weekly)

Unfortunately, Jones’ rhetoric did not result in a positive outcome for what was quickly becoming a failed partnership. In fact, “failing” was the word the Somerset County Council Leader, Ken Maddocks, used to describe the SW1 joint venture to a council meeting in 2012. This was soon followed by news of potential legal action from SW1 against Somerset County Council due to a dispute over procurement savings.

Contained within this unfortunate story is a key lesson to be learned and applied in any form outsourcing between public and private sector. It is an oft-overlooked issue but should in fact be a primary concern in both the procurement and governance of strategic commissioning contracts.

Perceptions of SW1’s Failure

There are likely to be a myriad of reasons as to why SW1 failed (in the wider sense of community benefit) and only those who were intimately involved in the process will perhaps have a full understanding. However, from an external perspective, it is clear that one of the causes was that there was a fatal cultural misalignment between IBM and its public sector partners.

The agreement was formed under a cloud of controversy, with disagreement as to the potential success of the venture at the highest level of authority within Somerset County Council. It was reported that some councillors were uncomfortable with the clash between a services-driven culture and what they perceived to be an entirely profit-driven culture.

These issues were exacerbated by a lack of buy-in from other councils — it seemed that the political ramifications and concerns regarding a loss of control over service delivery from public authorities further afield had been grossly underestimated. Quite simply, whilst it seems logical that the sharing of services would be a good thing, Southwest One was unable to encourage other public sector organisations to join its merry band of troops. Undoubtedly, this must have undermined the wider business case and led SW1 to bear a much higher cost per transaction.

From the press reports, it seems service levels began to drop and the relationship began to deteriorate. While an outsourcing agreement can typically be rescued and turned around at this point, the existing animosity amongst certain councillors, the austerity measures being imposed upon the public sector from central government, coupled with IBM’s reported unwillingness to renegotiate terms to help alleviate the unexpected financial predicament the public sector partners were experiencing, served only to deepen the mire into which SW1 was quickly becoming unable to extricate itself from.

At that point, someone somewhere within both IBM and the public sector partners must have deemed there was seemingly no other option than to fight. IBM claimed they were meeting targets but Somerset County Council disagreed and withheld payments in lieu of claimed poor performance by SW1. With the history of the involved parties and behaviour up to that point, no outcome other than an irreparable and broken relationship was likely.

What Can We Take Away from SW1’s Failure?

As I mentioned above, one of the the key issues in SW1’s failure was a fatal cultural misalignment. This is an issue that almost always raises its head to an extent when it comes to public sector outsourcing. Public authorities are driven by a need to lower costs and improve services for the community, while private organisations are driven by profit. These two outlooks can be compatible but only if they are recognised and addressed from the outset.

The public authority must acknowledge their partner’s profit and cashflow priorities but trust that they intend to deliver a mutually beneficial outcome. You have to ask whether this trust ever existed between Somerset County Council and IBM, despite the joint venture model aiming to incentivise both parties to benefit in their own respective terms.

Furthermore, that trust must be sustained and boosted by performance. It would appear from press comments, that in the case of SW1, IBM were not delivering on their promises and performing to Somerset County Council’s expectations. That in itself made failure almost inevitable, due to what would have become a growing lack of trust within the relationship.

At the end of the day, a private company that seeks to prioritise profits above all other factors in an outsourcing agreement, and resorts to intransigence to do so, is shooting itself in the foot. After all, profits will only result if the public authority benefits too. Under any other circumstances, the long term viability of a strong, trusted relationship that drives maximum value for all partners, is likely to be extremely weak.

When choosing an outsourcing partner, it is absolutely vital that one considers the potential for cultural alignment. The key is in each party understanding and acknowledging what the other aims to achieve. If you can be open and accepting of cultural differences, you can work towards satisfying both parties in an outsourcing agreement. It seems this was not in place between IBM and its public sector partners within SW1.

Update 18/02/14 – Somerset County Council has released a Lessons Learned Report, click here to read our commentary on the report.

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