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What is commercialism?

March 14, 2013

Yesterday I was invited to give evidence to the UK’s Public Administration Parliamentary Select Committee. The topic to be examined was Procurement skills, but the focus was in fact around the question of ‘commercialism’ and to what extent it is lacking in Public Procurement.

It is possible to try to define commercialism as a list of demonstrated skills or the application of specific knowledge – and IACCM has of course done that as part of its skill assessment program. But perhaps it is more important to try to describe the way that commercialism manifests itself – what are the key deliverables?

For most people, it seems to boil down to the simple matter of whether there was good business judgment. The select committee cited numerous examples in which that judgment – in hindsight – appears to have been lacking. In my mind, there are three core phases of commercialism:

  1. Possibility. At an overall level, and given known constraints, does it appear possible that whatever is being proposed can be achieved?
  2. Probability. As we examine the proposal more closely, what are the probable issues and opportunities and how will alternative approaches affect those probabilities? In this phase, we are exploring both macro issues – for example, the likely reaction of major stakeholders and how that can be managed, or the probability that we can access adequate resources with the right skills – and micro issues, such as whether a particular contract term might have an adverse or beneficial impact on the outcome. Obviously this probability analysis is a phased activity based on relative importance of the item under review.
  3. Affordability. Within the various options available to us, can we demonstrate that this initiative will generate economic benefit for all significant stakeholders (in the case of the public sector, benefit may of course be measured by some non-economic indicator, but affordability will remain a critical issue).

Of course, another significant question is where responsibility for commercialism should reside. Is it primarily within the remit of a specific function, or is it a more generic organizational capability? My opinion on this question is that it must be intrinsic to the organization, but ultimately management has the responsibility for framing the underlying commercial capabilities for the organization and a ‘commercial function’ should have the job of implementing and overseeing those management policies.  This function should be responsible for delivering required knowledge and capabilities to the wider business as well as alerting management when commercial policies are misaligned with business strategies or market needs.

If such a framework had existed, I believe many of the high cost and high profile failures in public procurement would have been avoided. But it is perhaps unfair to level all the blame at Government employees because it was also the responsibility of the major suppliers to apply good commercial judgment – and they also appear to have failed to make those assessments of possibility, probability and affordability.

Finally, how realistic is it to link ‘commercialism’ with the Procurement function? It seems to me that at present it is largely unrealistic. There is little to suggest that most Procurement groups have the skills, knowledge, systems or motivations that are consistent with the holistic view that commercialism demands. Certainly, at this point, it seems important that we distinguish the role of the Procurement function from the bigger question of the procurement process – and work out how those should interact and become better aligned. And that view seems to be reflected in the attitudes of the average CPO, most of whom seem reluctant to take on such a massive expansion in their role and accountability.

3 Comments
  1. Veronica Daly permalink

    Dear Tim

    This article is very interesting but as Director of a procurement function in the public sector it does not reflect the practices of me or my team. Rather, the 3 core phases of commercialism you set out above are intrinsic to any procurement process. The first step is to justify the need for the good or service and then to research the market and identify whether it offers a solution to the outcomes you desire. You then assess the different options available and the risks and benefits attached to each. Affordability will be one of the factors that will influence the option you recommend. All of these steps are intrinsic to a public procurement process based on ensuring you achieve the outcomes you desire and value for public money. The members of my team consider themselves to be commercail advisers who lead the procurement process in addition to recommending the most commercailly desirable outcomes. I am sure there are lots of other procurement teams out there who behave in the same way.

    Best

    Veronica

  2. Commercialism, as you describe it so well here, is the logical extension of category management executed well. Getting there will require some investment in developing people in procurement both in terms of recruiting the best, training, tools, etc, but I believe it can be done.

    The key to getting this additional investment is procurement becoming demonstrably effective, then selling itself better in terms of the value that it brings to the table. To me, a key ingredient missing from current procurement governance is a more explicit, rigorous approach to opportunity analysis and return on investment.

  3. Colin Davies permalink

    Procurement at a macro level, do have the opportunity to provide commercial leadership with respect to Third Party spend. At a micro or organisational level it does depend on the Vision, ambition and capabilities of the Procurement Team. What should be clear is that if the opportunity can be seized, the return on investment is significant. Robust and effective Category Management processes are similar to, and aligned with, robust best Commercial practices. The challenge for Procurement is to implement them well and ensure the Business, and not just the Procurement Function, both understands and supports the best commercially inspired category management business process and programmes.

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