Commercial Strategy issues highlighted within NAO’s Insights report on Emerging Best Practices

By Allan Watton on

commercial strategy

In November 2016, when the NAO released their latest report on the state of best practice in the public sector, titled ‘Commercial and contract management: insights and emerging best practice’ they presented one of the most considered documents on the subject created to date.

From all of the research the NAO gathered – from stakeholder, supplier and practitioner discussions, workshops, commercial standards and 140 individual project reports – they determined that there were 20 issues that warranted analysis.

This article and the next six on the subject will focus on these issues, segmented into seven Key Judgements for Commercial Relationships. These include Commercial Strategy, Commercial Capability, Marketing Management and Sourcing, Contract Approach, Contract Management, Contract Lifecycle, Transition and Termination.

This article looks into the two Commercial Strategy issues highlighted.

Commercial Strategy Issues

Issue #1 of 20: Make time to develop strategy

The adage ‘fools rush in’ nicely expresses what the NAO were referring to with this issue. If you hurry to procurement without all the information you need to provide a clear and unambiguous vision of what you are looking to achieve and why, then you have little hope of directing your prospective supplier towards your objectives.

Your vision can then be evolved into a commercial strategy through a detailed analysis of your current position compared with the future state you wish to be in once the project has run its course. This means asking the right people all the right questions, gaining assistance from all relevant stakeholders, and calculating the statistical information you will need to quantify benefits of proceeding with the project. This vision and strategy will become the foundation of your initial enquiries to the marketplace, will contribute to your procurement documents, and should later be incorporated into 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, for example between programme and commercial approaches, about what is wanted, leading to differing interpretations and tension.
  • Insufficient engagement with users and the market to understand what can be delivered and, for example, how contracts should be shaped.
  • Insufficient time allowed to develop thinking based on these discussions.

Emerging Best Practice

  1. Take Time

Commercial strategies take time to formulate (possibly up to a year on more complex contracts) and it’s important not to hold back on planning. It’s equally important to remember that your strategy should not be a finite entity; it needs to be adapted over time throughout the project in order to evolve to handle the realities of the environment in which it’s working.

  1. Engage

To get the best insights to assist you in the development of an effective commercial strategy you must engage with the right audiences. These include in-house operational and business teams and experts and suppliers in the wider marketplace who can have more specific experience that enables them to identify issues, strategy weaknesses and more effective solutions to achieve stated outcomes.

  1. Consider

Taking all the information and opinion that you have gathered in your analysis and engagement stages, consider the options available to you before deciding on your commercial strategy. Also, fully assess the viability of the project as there will be times when information gathered will point to a change of direction or even a rethink about whether the project should be embarked upon in the first place.

  1. Use

Intelligence gathered throughout the strategy process should be put to good use, offering clarity in your approach, relationship and contract.

Issue #2 of 20: Properly develop strategy

Does your commercial strategy answer, with absolute clarity, the questions of ‘why’ and ‘how’ you expect your commercial relationships to achieve your considered objectives? Taking the time to develop a clear and measured strategy gives you the opportunity to compare directional choices, to review expectations against reality, and to garner guidance from the marketplace to tweak your perceptions of what is and is not possible within the boundaries of your and their capacity (budget, time, technology, etc.). 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 is unlikely to be fit for purpose.

Warning Indicators

  • Inadequate consideration of the available commercial options and associated risks, which often leads to the easiest option being chosen.
  • Lack of realistic commercial options that reflect the available capability given resource constraints, and the volume of complex contracts, across government.
  • Lack of realism about capabilities and how these can be managed.
  • Lack of realism about the trade-offs between different outcomes, such as innovation and efficiencies, and how they can be managed.

Emerging Best Practice

  1. Understanding Commercial landscape

Going out to the market to see what suppliers can do and have done, will enable you to gather advice for your project so you will have a better understanding of what is and is not possible from your chosen supplier during and after procurement stage.

  1. Understanding Business Outcomes

Considered commercial strategies will include a fully assessed outcome analysis to determine the relative quantified benefit of ‘future state’ compared with ‘current position’. This, alongside the critical friend analysis that going out to market with your concepts to verify realistic achievability, will help you to appreciate what can be done. Where limitations constrain aspirations, then outcomes will need to be adapted to still contain those elements of most importance to you.

  1. Understanding Capabilities and Constraints

Internal and third party limitations are as important to assess at the outset as anything else. Do you have the right manpower 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 hinder your and their ability to achieve a successful conclusion?

  1. Access 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.

  1. 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 lifecycle to determine where weaknesses could lie within these new roadmaps to success.

  1. 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.

Commercial Strategy Issues – Conclusion

Your commercial strategy is the foundation of your project, the strong and stable base upon which everything else will grow. Get it right and your project/relationship structure will be secure and durable – get it wrong and other issues will inevitably follow.

Our next few articles will cover the remaining 18 issues highlighted by the NAO in their ‘Commercial and contract management: insights and emerging best practice’ report under the other six key judgements for commercial relationships – Commercial Capability, Marketing Management and Sourcing, Contract Approach, Contract Management, Contract Lifecycle, Transition and Termination.

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