With the Carillion collapse serving as a lesson to us all, Nigel Forbes, Managing Partner at the Litmus Partnership, discusses cautiousness amongst NHS Trusts and outsourced service providers alike, and a new, and rather revolutionary, approach to enabling successful partnerships in the future.
This year has arguably seen one of the biggest company collapses in the past five years, with Carillion, one of the largest construction and facilities management companies, going into compulsory liquidation in January. With around 43,000 employees, 19,000 of those in the UK, and services delivered across multiple hospital Trusts, the demise of the company has served as a stark reminder to providers around the importance of contract terms and the financial risks they are willing to take. It has led to some service providers choosing to take a more cautious and circumspect approach.
The Litmus Partnership specialises in catering and facilities management consultancy, and one of the sectors we focus on is healthcare. Over the years, we’ve navigated various partnerships between third party providers and NHS Trusts and a report I conducted earlier this year into the NHS market shows the Carillion collapse has undoubtedly introduced uncertainty.
This more cautious approach isn’t necessarily new; concerns have been bubbling over the past 12 months but the Carillion news certainly compounded it. This approach was highlighted across various factors found within the report:
- • A number of providers declined tender opportunities due to client expectation on costs; the potential financial penalties just weren’t worth the risk. These weren’t new providers in their infancy, who you may expect to be more cautious - they were highly credible providers with significant experience
- • The Carillion downfall has caused some NHS Trusts to put tender exercises on hold, while they assess the impact
- • One of the leading service providers has decided to protect its existing profitable business rather than bid for new contracts in a volatile market.
At the Hospital Caterers Association 2018 Forum, Jonathan Ashworth, Labour’s Shadow Health Secretary, discussed how Labour would favour outsourcing to be taken back in-house; which for some NHS Trusts would be the right decision. Many do this now.
However, for those Trusts where outsourcing is the more suitable model, let’s look at how the relationship between the service provider and Trust is currently set up - and, given the changing landscape, how it could potentially adapt to reflect these changing times.
Money is power
Currently, a typical contract is set up to focus more on penalising the service provider. If KPIs aren’t met the consequence is usually in the form of a financial penalty. This set-up gives the client (in this case the NHS Trust) an element of power - and reassurance that if an outsourced service provider falls short they have some leverage.
Clearly, clients need a level of protection to ensure the contractual agreement is met. However, if we’re penalising ‘bad work’, why aren’t we rewarding ‘good work’? This approach - one which is mutually beneficial to both parties - isn’t currently common practice in the UK. It’s this more collaborative style of working which is gaining traction in the US, and is helping to develop high-performing strategic relationships.
A new approach
I was introduced to the concept of the ‘Vested’ outsourcing approach by an American colleague when I was working on a project with Jones Lang Lasalle. This was the first time I had heard of Vested, which is a rather progressive approach to business relationships.
If you’re to take the description found on Wikipedia, Vested is ‘a hybrid business model in which both parties (the company and the service provider) in an outsourcing or business relationship focus on shared values and goals to create an arrangement that is mutually beneficial to each’.
More traditional business relationships are focused on win-lose arrangements, where one party benefits at the other's expense. Like I’ve said, this is currently the usual contract we see in the UK. In contrast, a Vested agreement creates a win-win relationship in which both parties are equally invested in one another's success. As The University of Tennessee College of Business Administration says, it essentially doesn’t look at ‘what’s in it for me’, it looks at ‘what’s in it for we?’
It’s gained such momentum in the US, that The University has conducted award-winning research into this concept and runs courses, specifically based on the Vested business model. Kate Vitasek, faculty at the University and author, researcher and innovator of the Vested business model, speaks at conferences and events, to help inspire and motivate business audiences.
One area she discusses is how outsourcing deals can be structured better by buying in a neutral environment. An environment where everyone is on a level playing field. An environment where the deal can be discussed openly.
We're prepared to 'put our money where are mouth is' over this new approach. One of our team visited the University to take part in the course earlier this year and I am also going out later in the year, so we will be in a strong position to share learning. I believe elements of this Vested approach could revolutionise the way that clients and outsourced providers in the healthcare sector work together. It could bring benefits to both parties; benefits that include:
- • Mutual success for both: more than simply focusing on the success of the contractual relationship, Vested commits both the client and the service provider to the success of each other's overall business
- • Stronger partnerships: a more lasting relationship is developed between the client and the third party provider, through a strengthened sense of partnership
- • Aligning on goals: by sharing their expertise and aligning their goals, both parties are able to drive innovation, adapt to changing needs and mitigate risk while working towards mutual success.
Vested challenges the usual way of working. It creates an environment where new thinking is welcomed. Moreover, it paves the way for both businesses to be striving towards mutually aligned success. Instead of having 10 people working for the provider and 10 people working for the client, you suddenly find yourself with 20 people all working towards the same end-goals. You’ve doubled your team. You’ve doubled your brainpower. You’ve doubled the outputs.
What could this look like in action?
As each contract is unique and has various factors to take into consideration, it’s difficult to give one example to show how Vested could look. It’s so much more than a simple ‘tick box’ exercise. It’s a mindset change. It’s not ‘them’ and ‘us’; it’s everyone.
It’s been reported that one of the major factors in Carillion’s demise was a big acquisition it took on in 2011, which reflects the importance of the contractual set-up between a FM provider and client. The consequences of any acquisition taken can have a significant impact on the provider and equally the client (if the provider then can’t deliver); whether it’s a large, established provider or one who is relatively new to the sector. This is why we believe a mindset change is more important than ever.
This approach is about encouraging innovation. Innovation that means the service provider can achieve the client’s desired outcomes. Innovation doesn’t come for free - particularly when it’s client specific. It usually requires up-front investment. However, this innovation can pay dividends if the contract allows for the service provider to be suitably rewarded when successful new ideas are introduced.
Any change to how business relationships operate will take time. There are individual nuances, synergies and ways of working that are bespoke to each relationship. This isn’t a change that can happen overnight. However, I believe aspects of the Vested approach could greatly benefit the business relationships between the NHS and the private sector. It offers a much more promising future for all parties. If we combine forces, and work together towards common goals, just imagine what could be achieved.
