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									                                           Department
Commercial Strategy
                                                              Date: 18 August 2011




                                    < DEPARTMENT> COMMERCIAL STRATEGY




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                                                                    Date: 19 Nov 08



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7251cc4b-4dae-43aa-afd2-9f0dbf467fa3.doc                                      Page 1
                                           Department
Commercial Strategy
                                                                  Date: 18 August 2011
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7251cc4b-4dae-43aa-afd2-9f0dbf467fa3.doc                                           Page 2
                                                        Department
Commercial Strategy
                                                                                                  Date: 18 August 2011

                                   Commercial Strategy Template
Background & Purpose: OGC‟s PCR reviews have shown that there is a good deal of
variation in the extent to which departments have a comprehensive, properly resourced
and embedded commercial strategy, recognised by the Board. The development of such
a strategy enables the Board to focus on setting the strategic direction and commercial
objectives for the department, and for the commercial function.

Drawing up an effective commercial strategy, in most departments, could amount to a
matter of drawing together strands of work already in hand, clearly articulating the vision,
and bringing it to the Board for discussion and ratification. The key challenge then is to
embed the strategy effectively. Working with departments, OGC has drawn up this
template to provide a solution for practitioners and to enable the sharing of knowledge
and good practice.

Using this template: This document has been developed by reviewing a number of
current existing strategy documents – it consists of headings, guidance notes and, in
some instances, examples of particular wording. It should be tailored for your own
department‟s use and scaleable to the size and spend of the department. It must be
treated as a „living document‟ with formal change control to review and update it in line
with the business planning process or other key events that impact on the department‟s
plans.

The strategy should focus on the high level overview of commercial activities for the
department. Where other relevant departmental information needs to be referred to,
these references should be kept concise to ensure the document does not become too
lengthy or excessively detailed.

Contents

1.     Background and purpose ........................................................................................ 4
2.     Vision ...................................................................................................................... 4
3.     The Commercial Environment (current position) ..................................................... 5
4.     Commercial Principles ............................................................................................. 5
5.     Commercial Objectives (future position) .................................................................. 7
6.     High level indicators of success .............................................................................. 7
7.     Ownership of the strategy........................................................................................ 8
8.     Commercial Governance ......................................................................................... 8
9.     Collaboration ........................................................................................................... 9
10.    Skills and Capability ................................................................................................ 9
11.    Innovation Procurement Plan .................................................................................. 9
12.    Environmental Sustainability ................................................................................. 10
13.    Other Policy Issues ............................................................................................... 10
14.    Implementation of the Commercial Strategy ......................................................... 11
15.    Procurement Policy and Procedures ..................................................................... 11
16.    Commissioning ...................................................................................................... 12
17.    Commercial and procurement risks ....................................................................... 12
18.    External Reviews................................................................................................... 12



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                                                    Department
Commercial Strategy
                                                                                         Date: 18 August 2011
1.       Background and purpose
This is a high level overview that demonstrates how the commercial1 strategy is designed
to support the wider business needs. It may include particular delivery challenges and
reference to how the strategy relates to reliance on third party suppliers, including the
need to influence delivery outcomes without having managerial control. It may also make
reference to the audience for the strategy and the responsibilities of certain key players.

For example:

The purpose of this strategy is to communicate:

        How commercial activity plays an integral part in the support and delivery of the
         department‟s objectives, including the proposed extent of the use of third party
         suppliers and whether this will increase or decrease over the short to long term.
        Why a commercial approach is a necessary response to the challenges faced by
         the department. The provision of services may fall to third party providers but the
         department retains overall responsibility for the quality of services provided.
        How commercial activities can drive innovation, sustainability, value for money and
         quality in the delivery of the department‟s strategic objectives.
        How policy and operational objectives drive procurement and how procurement
         issues are integrated at an early stage into defining outcomes.
        The commercial vision, timeframe and objectives for success.
        The relationship between business, commissioning2 and procurement3 activities.
        The relationship between the central department and its “wider network”4
        Roles and responsibilities of the Commercial team.

2.       Vision
This is a statement of intent and aspirations of the departmental commercial strategy and
may include new commercial capabilities, such as e-procurement. For example:

         „Demonstrating commercial excellence in order to underpin the successful delivery
         of business objectives and achieve best value for money and continuous
         improvement.‟

         Or
1
  Commercial activity encompasses business, revenue generating activity, commissioning, contract management and
procurement activity. „Commercial‟ may also encompass areas of policy, legal and financial responsibilities and
particularly relates to the increasing reliance on third party suppliers by central Government and the need to influence
outcomes without having direct managerial control.
2
 OGC is developing a policy definition of commissioning and section 15 of the template refers to commissioning in
more detail. Commissioning includes identification of needs, acquisition and management of benefits.
3
  Procurement is the business management function that ensures identification, sourcing, access and management of
the external resources and assets that an organisation needs or may need to fulfil its strategic objectives. Achieving
value for money through the acquisition of goods, services, assets and works over the lifetime of a contract is key.
4
 The department‟s “wider network” consists of associated agencies and executive agencies, non-departmental public
bodies (NDPBs) and other arms‟ length organisations.


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                                           Department
Commercial Strategy
                                                                       Date: 18 August 2011

         „To deliver value for money and excellence in commercial procurement and
         contract management through becoming a world class department.‟

         Or

         „We will obtain the maximum benefit from the money the Department spends via
         third parties (suppliers) on the goods and services needed to meet our objectives,
         constantly seeking value for money, reliability, responsiveness and innovation. We
         will listen, guide, share, and develop skills and confidence in all commercial and
         procurement matters.‟

3.       The Commercial Environment (current position)
May include a definition of Commercial in the context of the business, for example:

              Commercial is defined as the full range of activities undertaken through the
              purchasing life cycle, including market analysis, setting commercial strategy,
              tendering, deal negotiation, contract management and supplier
              management”…(source: Treasury GPS).

The context within which the department works should be set out including any recent or
future changes that will impact the way it operates. For example changes in government
priorities, policy constraints and European legislation. A brief overall picture of spend,
including a spend map, and identification of key relationships with other areas of the
business, including the wider network, should be included. Ideally a spend map would be
attached as an appendix to the strategy.

A brief outline of the department‟s Public Service Agreement (PSA) targets and business
deliverables should be included and a statement of how the commercial activity links to
these as these departmental drivers and obligations form the backdrop to the commercial
strategy.

4.       Commercial Principles
These should be an attempt to set out some overarching principles that influence the
strategy.

Below are some examples. This list is not definitive nor is there an implied hierarchy:

        Value for Money outcomes - value for money and added value is achieved
         through competitive and effective commercial procedures, including value
         design/engineering, output/outcome specifications, objective evaluations, use of
         frameworks, clarification, negotiation and contract award.


        Capability – commercial skills and resources are available through timely
         recruitment, training, retention and succession planning to maintain a strong core
         commercial capability.



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                                                  Department
Commercial Strategy
                                                                  Date: 18 August 2011
       Collaboration and category management – better collaboration, leverage and
        consolidation of spend and resources will be implemented to achieve value for
        money efficiencies.


       Process and governance – commercial policies and processes are efficient,
        effective and provide appropriate control, ensuring compliance with legislation,
        regulation and EU directives. Public money5 must be managed appropriately.


       Probity and propriety – commercial policies, processes and procedures are
        enforced and monitored to deter fraud, theft, corruption or mismanagement. All
        staff with contractual authority (CA) must act with the highest standards of honesty,
        integrity, impartiality, and objectivity.


       Tools and systems – commercial performance is underpinned by use of
        appropriate tools, technologies and systems, both to improve commercial delivery
        (e.g. eSourcing) and to provide the necessary data and information for successful
        decision-making.


       Environmental sustainability, equality, social issues and approach to Small
        and Medium Sized Enterprises (SMEs) and the third sector – commercial
        activities should link to the sustainability policy and other key policy goals through
        procurement (see paragraphs 12 and 13).


       Innovation – the commercial strategy should set out how the department aims to
        promote innovation, for example as an early user/major user of innovations or to
        directly stimulate delivery arms to adopt examples of innovative practice from other
        departments. An innovation procurement plan (see paragraph 11) should be
        developed outlining the detailed approach.


       Commissioning and procurement activities – commercial policies cover the
        whole delivery life cycle, including commissioning, procurement, approach to
        market6, sourcing, strategic supplier management and contract management.


       Project, Programme and Portfolio Management (PPPM) – particular focus on
        projects and programmes that are vital to the delivery of the Department‟s strategic
        plan and objectives.




5
  Reference to HM Treasury Guidance on how to handle public funds may be relevant. http://www.hm-
treasury.gov.uk/documents/public_spending_reporting/governance_risk/psr_managingpublicmoney_index.cfm
6
 Considering the competitive environment and long-term capacity planning may be appropriate as per the „Kelly
Report‟ http://www.ogc.gov.uk/procurement_initiatives_the_kelly_programme.asp



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                                            Department
Commercial Strategy
                                                                Date: 18 August 2011
For information, it should be noted that the different models of delivery, i.e. „make
or buy‟ decisions, need to be made on a case by case basis as part of the procurement
route options evaluation at business case stage.


5.          Commercial Objectives (future position)
These objectives must be absolutely aligned with the business outcomes, such as PSA or
other targets, and agreed with the departmental Board.

The objectives may be presented in a number of different ways, for example:

           As a list of strategic themes or areas that need to change in order to improve
            delivery of the department‟s business outcomes
           As new commercial capabilities
           By focusing on largest spend areas with associated liabilities
           By focusing on key suppliers and improving supplier relationship management
           By focusing on the largest contracts via introducing a contracts database and
            improved contracts management processes
           By drawing up a table showing the commercial objectives against the wider
            business objectives of the department.

An appendix could be attached that shows target activities and deliverables.

             Three examples of commercial objectives are:

     i.       „Maximise the benefit the Department obtains from its supply base, by adding
              value through the utilisation of purchasing power, challenging the “status quo”,
              considering all potential commercial options, and driving innovation and
              creativity amongst our staff and suppliers.

     ii.      Implement and embed best procurement/commercial principles across the
              Department, as described in the Corporate or Agency procurement manuals and
              associated documents.

     iii.     Demonstrate procurement and commercial professionalism across the
              Department, including sound and transparent governance principles.‟
                                                (Source: DfT Commercial Strategy)

6.          High level indicators of success
The commercial strategy should outline performance measures and reporting lines within
a given timeframe. There should be a clear link to the department‟s delivery targets and
consideration given to the development of metrics, possibly top-level key performance
indicators (KPIs), for example average transaction cost, ratio of savings to cost of
commercial function etc.

More detailed indicators of success will need to be linked to specific business cases and
an implementation plan, as well as individuals‟ objectives.


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                                           Department
Commercial Strategy
                                                                      Date: 18 August 2011

7.       Ownership of the strategy
This may consist of a number of elements, for example:

        The Departmental commercial strategy should be owned and sponsored by the
         Board
        There should be a particular role that is responsible for taking the lead to ensure
         the strategy is communicated and embedded across the department
        There should be clear reporting lines
        There should be supporting resources in place


8.       Commercial Governance
There are a number of principles that should be articulated, for example:

        The most senior commercial person is at or near the Department‟s board,
         governance structures should be clear, understandable, proportionate and
         integrated
        Board ownership and formal review
        The Board should set strategic objectives for commercial outcomes set out in the
         strategy.
        There should be clear reporting lines, risk management, change control and
         escalation procedures
        A certain amount of governance, influence, support and advice around the “wider
         network” should be covered by the Department centre
        There should be a clear owner and leader of the commercial strategy and effective
         relationship management to ensure it is implemented across the organisation
        The procurement teams within the department should engage with policy and
         operational delivery directorates, agencies and other bodies to ensure
         procurement supports organisational and operational business plans.
        The commercial strategy has an impact on the organisation‟s risk management
        Governance includes cross-functional collaboration and the effective prioritisation,
         deployment, control and monitoring of spend across the procurement and PPPM
         spectrum
        Governance structures provide complete clarity on the decision making process
         and the relationship between all relevant stakeholders including the ultimate point
         of responsibility and final decision making
        The role of the wider network and delineation of responsibility with the „central‟
         commercial team must be clear
        The commercial organisation chart could be published, naming the key senior
         commercial people and their responsibilities




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                                            Department
Commercial Strategy
                                                                           Date: 18 August 2011

9.       Collaboration
The strategy should set out the department‟s approach to collaboration, including for
example:

        The department‟s policy on collaborative sourcing
        Use of Framework agreements
        Participation in the OGC led collaborative deals (e.g. Wave 1 and 2)
        The use and management of spend and contracts data – including response to the
         Public Sector Procurement Expenditure Survey (PSPES), the management of
         contracts databases etc.
        The use of e-commerce solutions, e.g. Bravo, Ariba, Oracle etc. and the use of
         collaborative marketplaces such as Zanzibar and IDeA
        The department‟s role in supporting collaboration across government e.g.
         membership of and contribution to governance structures, special interest groups

OGC‟s policy on collaboration can be viewed at:
http://www.ogc.gov.uk/documents/Collaboration.pdf


10. Skills and Capability
Strategies should exist to address the sourcing, development and retention of
procurement professionals7, staff with appropriate broader commercial skills and
appropriate legal support. The strategy should set out the department‟s approach to skills
and capability, including for example:

        Resource management and capacity
        Succession planning
        Professionalism and Continuous Professional Development (CPD)
        Job rotation and use of secondments
        Talent management
        Recruitment and retention

11. Innovation Procurement Plan
As set out in the Innovation Nation White Paper8 (March 2008) each Government
Department must include an „Innovation Procurement Plan‟ (IPP) as part of its
commercial strategy. The Plan should set out how the Department and its subsidiary
bodies will embed the procurement of innovation in their procurement practices and make
use of innovative procurement mechanisms.

7
  OGC‟s Government Procurement service has developed a definition for a procurement professional that
provides clarity for this role. This is due to be published in the future.
8
  Department for Innovation, Universities and Skills (DIUS) Innovation Nation, March 2008
http://dius.dialoguebydesign.net/bgo/Innovation%20Nation%20White%20paper%20download%20page.asp



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                                            Department
Commercial Strategy
                                                                          Date: 18 August 2011

The Department for Innovation, Universities and Skills (DIUS) has published guidance to
departments on the structure and content of departmental IPPs, this can be found at: -
http://www.dius.gov.uk/policy/documents/Innovation%20Procurement%20Plans.pdf
Practical advice in the form of a toolkit is also being developed. More information on
innovative procurement mechanisms and evidence based practical case studies can be
found in the DIUS/OGC guidance Finding and Procuring Innovative Solutions9.


12. Environmental Sustainability
There should be a high-level outline about the department‟s approach to sustainability,
possibly pointing to a separate sustainability policy document. The following extract may
be a useful guide for content:

       The Government‟s policy on environmental issues in procurement requires central
       Government departments and their agencies to seek to promote sustainable
       development objectives through procurement. This is consistent with Government
       policy on value for money, as environmental and other sustainability costs and
       benefits are an important part of the value for money obtained by the buyer.

       Sustainable development encompasses environmental, social and economic
       issues. It is often defined as ‟development which meets the needs of the present
       without compromising the ability of future generations to meet their own needs.‟
       (From „Our Common Future (The Brundtland Report)‟ – Report of the 1987 World
       Commission on Environment and Development.)

       Generally, the most effective way to incorporate environmental issues in
       procurement is to consider them at the earliest stage of the procurement process,
       in defining the user requirement.
                             (Source: OGC‟s Policy and Standards Framework 2008)


13. Other Policy Issues
Reference to the department‟s strategic approach to other key policy areas should also
be considered for inclusion. This is not an exhaustive list, examples include social issues,
equality, and Small and Medium Enterprises (SMEs) and the third sector:

       The Government‟s policy on social issues in procurement is that central
       Government departments and their agencies should consider and incorporate
       social issues in their procurements where they are relevant and proportionate to
       the subject matter of the contract. A range of social issues can be addressed in
       procurement, including community benefits, employment, equality and workforce
       skills. Social issues need to be addressed in a way that is consistent with value for
       money policy, the UK procurement regulations, and the EU Treaty principles and
       procurement directives.

9
 Finding and Procuring Innovative Solutions, joint publication by DIUS and OGC, 2007
http://www.ogc.gov.uk/delivering_policy_aims_through_public_procurement_innovation.asp



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                                            Department
Commercial Strategy
                                                                       Date: 18 August 2011
                              (Source: OGC‟s Policy and Standards Framework 2008)
         The Government‟s policy on Equality and Procurement requires central
         Government departments and their agencies to ensure they meet their legal
         obligations pertaining to equality legislation and associated public sector duties, in
         a way that is consistent with value for money policy and the UK procurement
         regulations and EU Procurement Directives. Departments should address equality
         issues through the procurement lifecycle in accordance with guidance in Social
         Issues in Purchasing10.
                              (Source: OGC‟s Policy and Standards Framework 2008)


         The Government's policy on creating opportunities for SMEs and third sector
         organisations is to encourage and support these organisations to compete for
         public sector contracts where this is consistent with value for money policy and the
         UK regulations and EU Procurement Directives.
                              (Source: OGC‟s Policy and Standards Framework 2008)


14. Implementation of the Commercial Strategy
There should be an implementation plan, possibly attached as an annex that includes:

        Priorities for how the commercial strategy will support the overall business strategy
        Timescales
        Resource commitments – including staff development, talent management,
         training, recruitment and succession planning
        Communication plan
        Mechanisms for embedding the strategy across the organisation


15. Procurement Policy and Procedures
There should be some reference to the overarching external framework within which the
commercial strategy operates. This may include a statement on procurement policy and
reference to the department‟s procedural documents.

Example wording on the policy statement:

            There is a duty on procurers in central government to apply the key principles
            of public procurement. These require the delivery of value for money (VFM),
            appropriate quality and service to meet business needs, and appropriate
            governance.

            Public sector procurement is governed by the UK regulations that implement
            the EU procurement directives. These apply to the majority of procurements

10
   OGC‟s „Social Issues in Purchasing‟ Guidance:
http://www.ogc.gov.uk/delivering_policy_aims_through_public_procurement_social_issues.asp



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                                            Department
Commercial Strategy
                                                                     Date: 18 August 2011
             with a total value over a specified threshold. Procurements that are below
             threshold are not covered by the UK regulations, but are still subject to EU
             Treaty principles.
                            (Source: OGC‟s Policy and Standards Framework 2008)


16. Commissioning
Department‟s will have a varied approach to commissioning and possibly even apply a
different definition. The following are some words that may be included to ensure
commissioning is captured within the scope of the commercial strategy:

             Commissioning is where the public sector decides the services, service
             outcomes or the products that it needs, acquires them and makes sure that
             they meet requirements. There is much debate about whether commissioning
             is synonymous with procurement or merely includes procurement. What is
             certain is that for procurement to be effective as a business tool, organisations
             need to cover the same activities as commissioning – identification of needs,
             acquisition and management of benefits.
                                    (Source: OGC Policy and Standards Framework 2008)


17. Commercial and procurement risks
There should be clear reporting lines, risk management, change control and escalation
procedures. Where decisions to manage risks are needed, key people must have
relevant powers to address the risks. In developing this section, reference may be made
to OGC‟s Risk management guidance11.

An example of commercial risk management may be:

          To minimise risks to business continuity we will manage procurements, contracts
          and suppliers to ensure security of supply and apply the DWP risk management
          methodology. We will take a risk-based approach to commercial assurance and to
          commercial performance via the CED risk register, linking to higher-level DWP risk
          management products
                                                   (Source DWP Commercial Strategy)

18. External Reviews
It may be useful to include references to potential external reviews such as NAO reviews,
the Cabinet Office Capability Reviews and OGC‟s Procurement Capability Reviews
(PCRs), Major projects Review Group (MPRG) and Gateway reviews. The department
may describe the way in which the commercial strategy will deal with such external
reviews.


11
     OGC‟s Management of Risk Guidance http://www.ogc.gov.uk/guidance_management_of_risk.asp



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