Commercial Strategy and Capability Best Practices from NAO Report

By Allan Watton on

Commercial strategyThe NAO released a report a while ago on the state of best practice in the public sector titled ‘Commercial and contract management: insights and emerging best practice’. It offers good insights into the way commercial strategy and capability can positively influence complex service delivery relationships, regardless of an organisation being in the public or private sector.

As these are such fundamental elements of any project’s procurement and development process, we felt that a strategic summary of the commercial strategy and capability influences would be helpful and have detailed this below.

Commercial Strategy Influences

  1. Make time to develop your strategy

Action without direction will provide very limited benefit. If you commence a formal procurement process without having internally agreed all of the information you need to provide a clear and unambiguous vision of what you are looking to achieve, and why, you will significantly reduce your prospects of adequately directing your prospective supplier(s) towards achieving your objectives.

For your vision to mature into a project solution that is fit for its purpose, you will need to articulate and quantify:

  • A detailed analysis of your current position
  • The future state you wish to achieve
  • The quantified benefits of achieving this future state
  • The quantified consequential impact on your organisation if poor delivery of the project prevents the achievement of your anticipated future state.

This can only be achieved by asking the right people the right questions through gaining buy-in from all relevant stakeholders. The importance of this cannot be overstated, though unfortunately its value often goes unrecognised, because the information you gather here to form your commercial strategy will, or should, become the foundation of the enquiries you make when you reach out into the marketplace for guidance.

Beyond this, your commercial strategy, in as full a form as possible, should eventually be incorporated into the fabric of your contractual agreement.

The NAO report put it like this: “We believe that many, and perhaps most, of the problems we see across commercial and contracting activities result from a failure to plan how best to achieve operational requirements through commercial arrangements.”

Warning Indicators

  • A lack of clarity on what is required (and why). Ambiguity is the slippery slide that often inevitably leads to confusion, misunderstanding and tension between parties who are supposed to be building commercial trust with one another.
  • Insufficient engagement with users and market. This is to gain an understanding of what’s actually wanted, needed or expected so that the right plan can be put in place to develop an appropriate solution.
  • A lack of time built into the governance process. Inadequate amount of time allowed for developing clarity of thought and communication and to conduct the discussions that are so vital to a project’s success.

Emerging Best Practice

  • Take the time you need. A well-articulated commercial strategy takes time to formulate on more complex projects and contracts. However, once you have gathered all the information you need, it’s important to remember that your strategy is not a finite entity. It will likely need to change over time in order to adapt to the realities of your business outcomes as they develop.
  • Engage with the right people. To get the best insights to assist you in the development of an effective commercial strategy it’s important to engage with the right audiences. These include in-house operational and business teams and experts, and suppliers in the wider marketplace who may have more specific experience which could enable them to identify issues, strategy weaknesses and more effective solutions to achieve stated outcomes.
  • Consider your commercial strategy. Carefully consider the options available to you, the direction you’ll take and the viability of the business outcomes that drive the project, based on all the information you’ve gathered before deciding on your commercial strategy.
  • Use data wisely. Intelligence gathered throughout the commercial strategy process can be put to good use, offering clarity in your approach, relationship and contract.
  1. Properly develop your commercial strategy 

Clarity of vision and purpose is one thing, but is what you wish to achieve possible, needed and appropriate?

It is important to take the time to seriously consider the direction you wish to take, the realities of the changes you wish to make and the capacity of your supplier to make them.

Plans vs real world implications. All this knowledge will not only help you to communicate your expectations within the procurement stage, but will also guide you towards a more tailored approach to your agreement rather than settling for a standard supplier contract that risks not being fit for purpose.

Warning Indicators

  • Oversimplification of selection. Inadequate consideration of the available commercial options and associated risks, which often leads to the easiest option being chosen.
  • Poor assessment of capabilities and how they can be best managed.
  • Lack of insight into the trade-offs between different outcomes, such as innovation and efficiencies, and how they can be managed.

Emerging Best Practice

  • Gain a better understanding of the commercial landscape. Going out into the market (Early Market Engagement) to see what suppliers can do and have done, will enable you to gather informed advice and evidence for your project. This will support you in your efforts to reach a better understanding of what is and is not possible from your chosen supplier during and after the procurement stage.
  • Get a better understanding of your business outcomes. Considered commercial strategies should include a fully assessed outcome analysis to determine the relative quantified benefit of the ‘future state’ you wish to achieve compared with your ‘current position’. This, alongside the critical friend analysis noted above from going out to market to verify realistic achievability, will help you to appreciate what can (and cannot) be done.
  • Formulate an understanding of everyone’s capabilities and constraints. Internal and third-party limitations are also important to assess at the outset. Do you have the right individuals in the right positions to manage the relationship and the contract, does your supplier have the capacity to service your needs, and how do any limitations in capacity and capability potentially hinder your and their ability to achieve a successful conclusion?
  • Request a commercial opinions appraisal. Once you are confident that you have a plan of action – a commercial strategy – it may be worth asking a specialist to review your commercial opinion. This offers an extra layer of assessment of realistic potential against project aspirations.
  • Manage trade-offs. Where weaknesses are recognised that could jeopardise the achievability of your considered objectives, an analysis will be required to determine alternative options. Each viable option should be assessed throughout its predictable life cycle to determine where weaknesses could lie within these new roadmaps to success.
  • Manage risks and opportunities. Ensure that when considering your commercial strategy you build in the flexibility needed to deal with issues along the way, risks that could derail your project. It is also important to develop a plan of action on how to create and exploit opportunities to the full.

Capability Influences

  1. Tailor commercial capability to risks and opportunities 

In an ideal world, all the resources needed to maximise capacity to take advantage of opportunities and to identify and defend against risks would be made available to assure success. However, in the real world, where resources are limited, they must be shared out in consideration of where they are likely to have most impact on the outcomes of the project.

This can be a challenge as there is no ‘one-size-fits-all’ solution for determining all that might be needed in advance. There are, however, a number of core principles to follow to assure the right diligence is taken to assess that all the resources needed are in place. 

Warning Indicators

  • A lack of plans in place which would tailor available resources to mitigate any identified contract risks.
  • Understaffing at key stages as required skills and demands on staff shift throughout the contract.
  • A lack of analysis to identify where the staff you have need to be placed.

Emerging Best Practice

  • Take an organisational perspective. The big picture is an important perspective to take, expanding your view from project level to portfolio level to spread your resources more efficiently. Such planning needs to be done very early on and maintained as projects evolve and their need for resources change.
  • Work on your contract staffing model. People and the skills they possess are your greatest resource. However, unless they are allocated to where they will do most good – with all of the training and authority to swiftly and effectively perform their roles – their impact on the success of your project will be more limited.
  • Take a contract resourcing perspective. Know what you are spending on your resources, manage your budget carefully, appreciate the costs inherent in risks that go unchecked and the lost value in opportunities missed… and resource your contracts accordingly.
  1. Clarify commercial and operational balance 

To have the right people in the right roles is important, but having all the right people in the right roles working together as a cohesive unit is certainly the ideal. The NAO reports that there are too many contracts with “confused responsibilities and poor knowledge transfer”, which clearly will weaken contract management. Different teams working in a disconnected way is a major problem, and though some government departments are making strides in this area, even now none appear to have yet fully cracked this complex issue.

Warning Indicators

  • Lack of clarity when it comes to roles and responsibilities.
  • Operational contract managers without the capacity to fully understand and perform their role, and to get the best from the contract.
  • Ineffective or poorly managed handovers where a transition of knowledge and skills is required across the whole life cycle of a role.
  • High levels of turnover of senior staff create challenges for transferring knowledge and expertise.

Emerging Best Practice

  • Plan your roles and responsibilities. Develop a written plan of action with each person’s roles and responsibilities identified, explained and communicated. If a particular strategy or arrangement is successful on one project, share this with the wider organisation so it can be reused to save time and improve the odds of success on other projects.
  • Resource: Give the right people the right levers. Senior management on a contract must be given the freedom to achieve expected performance levels. However, performance must be monitored to ensure that it is maintained in line with expectations on the project timeline. Resourcing must be adaptive so that where skills are needed, they should be available to be called upon.
  • Manage: handovers and interfaces. The transfer of often hard-won knowledge must be a priority, with processes and wisdom clearly documented and enough time given for the handover process as one department passes responsibility over to another in a way that will ensure a seamless transfer.
  • Plan for continuity. When people in positions of authority, or those with valuable project wisdom leave, there is all too often a hole that’s difficult to fill. Succession planning is a vital part of project consistency and developing effective incentive schemes to encourage staff retention is a part of that. However, loyalty is not something that can be guaranteed, so it is always best to plan for the worst and hope for the best to ensure that key roles are always covered and where issues arise, new talent can quickly pick up where the old left off.
  1. Maintain ‘organisational capability’

It is clearly important to have skilled individuals in the right place. They will need a good structure within which they can thrive – good management, clear processes, systems and communication lines both up and down the hierarchy. Each member of the team must clearly understand their role and its importance in the grand scheme of things while also recognising the impact of their efforts, or lack of.

The NAO report suggests that there are certainly elements of organisational capability that are improving, but there are also areas where the public sector has been found wanting.

Warning Indicators

  • Insufficient data and information available to make informed decisions.
  • Poorly established governance leading to unclear roles and responsibilities and ineffective oversight.
  • Poor-quality information and reporting systems and a lack of standardised approaches to using data.

Emerging Best Practice

  • Quality governance. A decision-making hierarchy with clear responsibilities needs to be established from the outset and monitored throughout a contract. Communication, clear, accurate and unfiltered information conveyed to organisational committees with whole of portfolio oversight, and a good succession plan with well-documented knowledge and processes are required for good governance to be achieved.
  • Optimise your IT systems. Maximise use of technology to automate and record appropriate processes to ensure greater accuracy and analytical capacity for contract management.
  • Reuse good data and processes. If you have an established process for dealing with any aspect of your contract that has proven itself in previous projects, use it again. Learning from the lessons of the past and adapting old processes to your new needs will save the time it would take you to fail and learn that lesson anew.
  • Prioritise wisdom visibility. Share your knowledge of what works and what does not, as the wisdom you acquire along the way may well save others in your organisation a significant amount of time and money.


While commercial strategy is the strong foundation to your plan for project success, commercial capability is the engine that can be tuned to help you achieve it.

Failure in either of these areas can easily lead to the downfall of a project. And while both can suffer from a lack of prioritisation on many projects, the silver lining to that particular cloud is that this can always be turned around.

Both commercial strategy and capability are time-consuming, resource-hungry tasks to get right, but if carried out with all the diligence they deserve, they often pay significant dividends later on.

Finally, remember that while two heads are definitely better than one, a whole organisation sharing the lessons of success and challenges they learn among themselves, is a whole lot better.