Are agencies the baddies of NHS procurement

My ears pricked up this morning when I heard the NHS CX, Simon Stevens, explain to Andrew Marr that they were "going to clamp down on some of the staffing agencies ripping off the NHS".  Is this some sort of role reversal taking place - the Conservatives are in power but the market are the baddies!

In the past many public sector organisations believed that their traditional approach of having a 'bank' which they managed and could call on was flawed - outsourcing was the new best practice. Exploring the option of outsourcing did make sense but in parallel there needed to be a proactive approach to managing both the agencies and the internal demand. I observed agencies providing an easier option than the hurdles of sourcing internally through HR. Justifying the need for 'temps' was relaxed and while staff previously covered for short-term absences, that became the exception. The agencies made it easy to just pick up the phone and have a temp sitting at a desk two hours later. Then, months later, like a version of Parkinson's Law, the temp had become indispensable and the temp had become a necessity.

To me what went wrong was that public sector bodies relaxed their control mechanisms - they devolved control. Worse they gave it away. The agencies weren't the baddies, they were 'partners'. But as the clients raised their expectations of demand there was a parallel need to manage risks through prices by the agencies.

Now "some" of the agencies are perceived to be "ripping off the NHS". What happened to the 'intelligent client'? What happened to the belief in competition? What happened to managing contract prices?

Those who believe the market is ripping the NHS off would do well to review the robustness of their demand management. Agencies provide a solution which the public sector has come to rely on. Power has perhaps shifted to the market as opposed to the client. Before assuming the NHS is being ripped off why not consider a ,make/buy options appraisal. Before clamping down they better have a risk management strategy which addresses how they will respond if some of the critical providers just  say "okay, we'll not bid anymore!"

Is Procurement reputational risk mis-sold?

For many years I have heard about the risk of poor procurement performance damaging reputation - I'm sure you have too, I'm also sure you would have heard it from me too.

Have you ever thought though how adverse impact would be manifested?

The assumption on impact may well have been a share price decline  - bad media coverage about a procurement issue correlating with a decline in share price. At first glance that sounds logical enough but there's a major problem if the firm or organisation in question does not have shares publicly quoted. For example, public sector organisations, third sector organisations and private companies would not be quoted on the stock exchange!

Okay, so setting that aside, and only considering the share price performance of organisations like, Tesco, Premier Foods, Primark, and H&M - yes all these have had adverse national media coverage linked to procurement - could we see adverse impact on share price linked with the horsemeat scandal, wrong use of the Red Tractor QA logo, supplier late payments and profit mis-statement, supplier coercion (e.g. pay-to-stay), the Rana Plaza disaster, poor SCM conditions?

I looked at the quoted share prices, the day before the news story broke, the day after, two weeks before and two weeks after, and even considered the trends over a longer period of two years.

Now what do you think I found? Well it appears to me, without an major statistical analysis, that where you could see an adverse impact, it was short-lived (a blip) and the firm in question was already in a long-term state of a declining share price anyway - the procurement issue is unlikely to have helped but was probably indicative of wider strategic management weakness anyway.

Then bizarrely, in a few of the situations the share price increased. Yes, major adverse press coverage of a procurement related issue and the share price rose and continued to rise - the firm was on a steady long-term upwards trajectory of its share price and the adverse media coverage of the procurement issue appeared to have no detrimental long-term impact whatsoever - perhaps it was how the firm was perceived to have responded to the issue?

Also interesting was when I considered firms which were perceived to have come out well in media coverage, for example, those food retailers who were praised at the time of the horsemen scandal. I couldn't find a tracker which demonstrated a benefit - they were not publicly quoted on the stock market!

What does this tell us? Well the whole threat of potential repetitional damage used in selling procurement strategy may well be mis-selling. Perhaps procurement issues are not as big an issue as we see them? Perhaps nobody really cares? Perhaps the whole notion of measuring adverse impact through share price is flawed?

What do you think?

First published on 28 April 2015 as a Spendmatters guest post