Relationship counselling:

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1 Relationship counselling: Realising public-private partnership growth opportunities March 2012 Public-private partnerships (PPPs) are set to increase dramatically over the next three years. Yet with the public sector lacking confidence in the private sector s ability to deliver services, and with the public sector exploring alternatives, can the private sector prove they are a worthy partner? This viewpoint provides insights into the challenges facing private sector firms in realising PPP growth opportunities, and how to establish a trusted partnership that delivers positive outcomes for both parties. Despite the challenging economic times we are facing, there is some good news on the horizon for private sector firms seeking new business opportunities. As the public sector grapples with dwindling budgets, Hay Group s recent research with public and private sector leaders shows that the number of PPPs are expected to more than double over the next three years. Yet is the private sector positioned to capitalise on the growth in these opportunities? Our research reveals a pessimistic view on the success of future partnerships, as well as deep opposition and resentment felt by public sector leaders towards increased private sector involvement. With this lack of confidence, combined with other partnership options such as social enterprises, the onus is now on the private sector to allay doubts and prove that they can be a valuable partner. The overarching message from the research, and our own experiences of working with organisations from both sides of the fence over the past 60 years, is that while many partnerships spend time focusing on hard governance issues, problematic PPPs usually result from non-technical and non-contractual challenges. Getting the soft aspects right such as compatible people, cultures and objectives will serve your PPP well Hay Group. All rights reserved 1

2 An unsuccessful past 35 per cent of private sector firms rate past PPPs as successful, with only 5 per cent rating them as highly successful. 19 per cent of public sector firms rate past PPPs as successful, with only 3 per cent rating them as highly successful. About the research Over the summer of 2011, Hay Group interviewed 200 UK senior public sector leaders currently involved in private sector collaborations. Their views on why PPPs fail and what s needed to make them a success are reported in our white paper Relationship counselling: Positive partnerships across public and private organisations. But as an equal partner in PPPs, what are the private sector s views? We recently interviewed 20 senior decision-makers in major PPP companies (the major outsourcers) and this viewpoint provides fascinating insights into the challenges and opportunities they face in competing for PPP opportunities. The honeymoon is over Like their public sector counterparts, the vast majority of outsourcers believe that falling government spending will result in a rise in PPPs. Indeed half of outsourcers see this as one of the greatest growth opportunities for their industry and firm in the foreseeable future. Yet both parties are pessimistic over the likely success of future partnerships, given past failures, perceived incompatibilities between partners, and startling evidence of public sector leaders lack of confidence in the private sector s ability to deliver public services. The research also showed a high level of resentment and opposition from the public sector towards the rising trend in private sector involvement and the assumption that the private sector can deliver services more efficiently or effectively. Worryingly, more than a third (37 per cent) of public sector leaders are deeply opposed to collaboration with the private sector, and only one fifth agree that the private sector should be involved in running public services. The challenge that lies ahead Other vehicles such as social enterprises or collaboration with other public sector organisations are now offering real alternatives for the public sector to deliver services effectively, efficiently and with a partner that shares similar social motives. Yet outsourcers aren t entirely convinced of this threat less than a fifth (15 per cent) believe that social enterprises present a major threat to the demand for outsourced public services. Our research also shows that over two thirds of outsourcers (70 per cent) believe that the public sector trusts the private sector s ability to deliver front-line services and that current ways of working don t need to change (70 per cent). A worrying opinion of the private sector Our research unveiled startling evidence of a lack of confidence and trust from public sector leaders in private sector partnerships. More than a third (37 per cent) are opposed to collaboration with the private sector. Only one fifth agree that the private sector should be involved in running public services. Almost half (44 per cent) do not believe that PPPs will deliver value for money. Nearly half do not believe that private firms can, or will, run public services more efficiently (45 per cent) or deliver better quality public services (49 per cent). A high proportion fear that service delivery (44 per cent) and staff morale (60 per cent) will suffer from private sector collaboration Hay Group. All rights reserved 2

3 This reveals a large gap in opinion to the public sector s view of the private sector s ability to deliver public services (see A worrying opinion of the private sector opposite). In the context of there being more options for the public sector, intense competition, and presumably more emphasis placed by public sector buyers on criteria other than price and technical capability, there is a large burden on private sector companies to up their game and prove they are worthy partners if they want to compete for and win PPP opportunities. Why partnerships break down What is clear from the research, and our own insights from working with both sectors, is that while many partnerships spend time working on the hard governance issues, they often neglect focusing on the soft aspects (such as ensuring partners have compatible people, cultures and objectives). This is often what causes partnerships to flounder. Ironically, one area where the sectors agree on is their incompatibilities. In the views of outsourcers, the standout reason for the failure of PPPs is a fundamental incompatibility between motives (profit verses social outcomes) which was identified by 65 per cent. Almost half of public sector leaders (46 per cent) also believe the profit motive is fundamentally incompatible with public service delivery. Though interestingly, few outsourcers (20 per cent) believe the public sector actually mistrusts the profit motive. Other significant barriers to success identified by both sectors focused on differences in underlying objectives, cultures, work processes and organisational structures. Recipe for a successful marriage So what will make private sector firms stand out in this highly competitive market and be seen as a viable partner option? Like a strong marriage, there is as much work to be done before a partnership begins as during the lifetime of the project. It is vital to establish common ground, remove lingering suspicions, understand each other s cultures and behaviours, and identify differences at the outset. For example, pre-ppp feasibility studies or work carried out post-deal to cement the relationship can benefit from having an independent partner advise on the soft wiring aspects of the partnership in order to dispel suspicion and self-interest. Both public and private sector respondents strongly agree that for a partnership to be a success, there needs to be: a mutual understanding of the partners cultures, values and behaviours (55 per cent private sector; 67 per cent public sector) a mutually agreed set of values and principles (50 per cent private sector; 68 per cent public sector). The skills and behaviours of partners are also crucial in ensuring a successful collaboration. Perhaps a sign of past PPP failings, both sectors agree that the ability to manage disagreements is important (40 per cent private sector; 74 per cent public sector). Commercial skills were also deemed to be necessary (45 per cent private sector; 46 per cent public sector). Interestingly though, only a quarter of public sector leaders believe this skill is prevalent across their organisation. At a time when the public sector needs to become more commercially focused, much can be learned from the private sector in this regard. This is one area where the private sector partner could, and should, do more. A contrasting view Outsourcers are more optimistic than their public sector counterparts over their ability to work together. Less than a third (30 per cent) of outsourcers feel current ways of working need to change, yet worryingly over half (52 per cent) of public sector leaders believe this Hay Group. All rights reserved 3

4 February Relationship 2012 counselling: Realising public-private partnership growth opportunities Sources of friction Our extensive work with public and private sector organisations over the past 60 years highlights some key sources of friction which underpin the barriers to success. At the heart, these issues all point back to the same fundamental problem: the danger of focusing on contracts rather than cultures, and delivery mechanics rather than working methods. Suspicion: It is clear that some public sector leaders believe that profit and public service cannot comfortably be bedfellows; these leaders need to learn to be more tolerant and to recognise the efficiency that a profit motive can foster. For their part, private sector partners need to be honest and transparent about the margins they will make, while also demonstrating their passion and sincerity about wanting to improve services that make people s lives better. After all, the private sector understands only too well the need for good service: without satisfied customers, a business is worth nothing. Colloquialism: Partners will bring different perspectives, cultural expectations and terminology which, if not explored openly, can lead to misunderstanding and mistrust. Clear communication and constructive dialogue are critical for partners mutual understanding. It is unlikely that partners will change and the best one can hope for in a relationship is to understand each other s differences and find a way to work with them. Aim to tolerate and accept cultural differences or even find ways to see them as complementary strengths. Micromanagement: Indicative of a lack of trust between organisations, micromanagement can stifle opportunities, energy and enthusiasm and is the quickest route to inertia and bureaucracy. Outcomes and service level agreements should be agreed and then partners should be left alone and trusted to get on with the work. Contrary to popular belief, it is possible to be explicit when setting targets about the softer elements of service delivery getting the right performance measures in place is critical. Secrecy and poor conflict management: A lack of openness can allow hidden agendas and conflict to fester. Outstanding leaders welcome challenge, request and display honesty and are not afraid to tackle conflict. Equally critical is having key, agreed processes in place for raising issues and managing conflict. Imbalance: Some partners try to dominate rather than share, resulting in conflict or passive agreement. What is needed is active and genuine engagement. Partners should also be particularly sensitive to perceived imbalances in power and authority. Good governance arrangements can make this explicit from the start. Closed shops: While relationships are critical, strong dependence on a few personal relationships can make a venture vulnerable to changes in personnel. Likewise, just because the joint chief executives get on, it doesn t mean the operatives on the ground will and vice versa. Successful, resilient collaborations benefit from engaging and sharing with wider stakeholders Hay Group. All rights reserved 4

5 Getting the soft wiring right Keen to just get on with it, public and private sector organisations often fail to appreciate that the same due diligence they conduct on the legal, financial and contractual side is needed in exploring the culture, values and language of a potential partner. Partners need to work hard to develop the mutual understanding that is essential for success. A cultural audit When public sector organisations are looking for a partner, it is not enough to establish simply whether potential partners can do the job and to pore over the legal and technical minutiae. There also needs to be close scrutiny of culture, vision and ethics, as well as behaviours and working practices, to ensure that the two partners can work together. They need to have upfront conversations about performance that are not contractually led. Indeed the public sector is recognising the importance of compatible cultures and is now reflecting this in selection criteria of most PPP procurement processes. Both sides must thoroughly investigate the areas in which partners may be seen as incompatible, and make efforts to agree a common agenda, values and principles and to articulate the benefits and objectives that each side is striving for. Potential friction points should be identified. Time spent doing this sort of preparatory homework and cultural audit is never wasted: potential partners will be impressed that you have made the effort to understand the way they think and work, to explore differences and build trust in a safe environment before entering a deal. Skills and behaviours At the same time, organisations on both sides will need to start thinking about the type of skills and behaviours they need from their employees in a cross sector and collaborative context. Critical will be leaders who understand a range of sectors, have not only excellent commercial skills but empathy, influencing and relationship building and facilitation skills. Whilst we should be wary of believing in stereotypes of public and private sector managers, there is real potential here for cross sector learning. Many in the public sector are already highly experienced at partnership working and astute negotiators of the political context. However, they have highlighted the need to build stronger commercial skills and confidence in taking calculated risks and there is interesting learning to be gained from a private sector perspective on this and customer service. Communication and engagement Communication as ever is key, both internally and externally. Once the deal is done, both partners need to establish clear lines of communication and work hard throughout the partnership to ensure the relationship remains strong by continuing to communicate, voice concerns and address issues. Members of staff need to be engaged with the process, especially those long serving public sector workers who may be sceptical about the motives and practices of private partners. If the deal involves frontline staff, it is critical that they understand the culture, values and ethos of the organisation they are representing. With the public sector lacking confidence in PPPs, combined with increased competition from other partnership options such as social enterprises, the onus is now on private sector companies to prove that they can be valuable partners Hay Group. All rights reserved 5

6 Hay Group can help Whether your partnership has taken a bad turn and needs to get back on track, or you re bidding on a contract and need to understand potential incompatibilities that may affect the deal, we can help. Over the past 60 years, Hay Group has worked extensively with both public and private organisations. We have developed a deep understanding of the cultures, behaviours and sources of friction that can hinder collaboration, and ways organisations can create a successful, mutually beneficial partnership. We are passionate about enabling people and organisations to perform at their best, and are excited by the opportunity to develop new models that will create value for our clients in the global economy. We can help you before the deal Conduct a cultural audit with both partners to explore areas of overlap and strength and potential sources of conflict. Assess cultural bridges, areas of underlying common values and cultural compatibility. Run back-to-the-floor exercises so each side can experience the other s working environment. Organise joint visioning and common purpose workshops. Assess leaders styles and their ability to operate in a partnership environment. Conduct partnership behavioural modelling. Stress test working behaviours to establish how the partnership will fare if conflict arises. Carry out a skills audit to identify areas of weakness. We can also help throughout the partnership Work with top teams on goals, roles, accountabilities, processes and relationships. Help design the partnership structure, management processes and systems, work and job modelling, and appropriate reward systems. Assess if the project work has been broken down into clearly defined jobs that is understood by both parties. Run leadership development programmes that build specific skills that are essential for PPP management. Conduct post-deal climate assessments to judge the impact of issues on an ongoing basis. To discuss any of the issues raised or for more information on how Hay Group can help you with creating an effective partnership, please contact: Jonathan Matthews e jonathan.matthews@haygroup.com t m James Littlejohn e james.littlejohn@haygroup.com t m About Hay Group Hay Group is a global management consulting firm that works with leaders to transform strategy into reality. We develop talent, organise people to be more effective and motivate them to perform at their best. Our focus is on making change happen and helping people and organisations realise their potential. We have over 2,600 employees working in 84 offices in 48 countries. For more information, please visit Hay Group. All rights reserved 6