Effective partnering between the UK MOD and industry

Publication date: 2007

Challenges facing the UK defence sector require the Ministry of Defence (MOD) and industry to collaborate more closely than ever. The Defence Industrial Strategy (DIS) highlights partnering between the MOD and key sectors of industry as one of the critical initiatives to be taken forward if successful implementation of the DIS is to be achieved.

• Introduction
• Partnering must now deliver the promised benefits
• The Partnering Wheel
• Achieving results
• Conclusion
• Key challenges faced by industry

DIS implementation is being driven by a number of changes that are increasing the strategic importance of the relationship to all parties.

Some of the key changes include:

• Increasingly constrained MOD budgets that are restricting the capacity for new equipment procurements and driving the need for ever reducing costs
• The need to retain sovereign capability in key areas, with only limited forward demand
• Greater involvement of industry in end-to-end delivery as the MOD continues to move from provider to decider
• The growing complexity of new equipment procurements
• An increasing move towards single sourcing as industry consolidation continues.

The result of this change is a two-fold shift: first in the balance from transactional relationships to partnering approaches; second and more importantly, a shift from partnering around specific projects to strategic partnering at a corporate level, aimed at delivering long-term outcomes: sustainable capability, improved supply chain performance and reduced through-life costs.

Partnering arrangements with industry have long been seen as a way to improve the effectiveness of relationships and generate improved outcomes. Unfortunately, with a few notable exceptions, they have generally failed to deliver the expected benefits for those involved. Various studies show partnering failure rates of between 50% and 70%, with an average strategic relationship lifespan of around seven years.

The move towards partnering means fewer competitive procurements across defence acquisition. Moving away from the procurement model that the MOD, defence industry and other key stakeholders such as the Treasury are deeply familiar with, demands broad and deep change for all parties. Changes must not only encompass improvements to the nature of relationships between the parties, but must also produce commercial arrangements that drive the delivery of a complex mix of objectives including value for money and provision of military capability for the MOD, coupled with shareholder value and long-term sustainability for industry.

While the scale of the partnering challenge should not be underestimated, it is vital that all parties seize the opportunity now, and realise the potential benefits from closer collaboration. The affordability crisis facing the MOD, and the seismic market changes facing industry, mean there is little alternative.

Many of the aspects needed for successful partnering are widely acknowledged, but success has proved to be elusive to many. Why? Simply, although the aspects may be acknowledged, they are rarely fully considered and implemented. History has shown that partial implementation leads to failure. For example, relationships with a focus on the ‘softer’ aspects of partnering will fail at the first sign of serious trouble unless there is a strong common purpose and robust commercial regime to bind the parties together.

Strong and successful partnering between the MOD and industry requires that the partnering relationship is iteratively developed from entry by: establishing a common purpose; developing the performance and commercial regime; building the management framework; and creating the relationship. To be successful, not only must all elements of the Partnering Wheel be addressed, but the wheel needs to keep turning, as the relationship will need active through–life management.

This paper examines the areas that need to be addressed if partnering is to be successfully established – as set out in the Partnering Wheel.

The entry into all partnering arrangements is paved with good intentions. All parties involved have a strong desire to increase the value derived from collaborative working for their own organisation. This legitimate desire is sometimes driven into a narrow focus of ‘doing a deal’ and occasionally into recommending a compromised way forward.

To derive most value from collaborative working, each party needs to prepare an explicit entry strategy that addresses the aspects shown in the Partnering Wheel. The entry strategy should identify where the value will come from during operations, the main options for managing the implementation of partnering, and the decision points/milestones that will demonstrate real progress of the arrangement. It is also appropriate to consider where some of the hidden costs and negative synergies may lie. An open assessment of operational risk and the risk allocation to be managed by each party will help to ensure the entry strategy covers the right ground. How much of the entry strategy is shared with the other parties is a key test of the commitment to collaborative working.

We live in an increasingly dynamic and uncertain world. External influences and uncertainties will test any collaborative arrangement. Feeling like a hostage to the contract often causes partnering agreements to fail. As part of the ongoing success of collaborative working, it is important that from time to time each party’s forward commitment to the process is assessed. In the first instance an explicit exit strategy should be prepared parallel to the entry strategy. The exit strategy is a fundamental part of robust partnering; it sets out the factors, considerations and timescales for the main options for ending the partnering arrangement. The exit strategy should: identify the main scenarios under which an exit plan would be required, establish a common understanding of when each party may judge it right to exit, and establish how the joint management frameworks and contractual arrangements could be dismantled. The key maxim linking the entry and exit strategies for a partnering agreement is “make it so that you can break it.”

There will always be differences between the goals of a government department and those of industry. For partnering to be successful, all parties need to recognise these differences and work together to translate their individual organisational goals into a common set of mutually supported objectives. These should then be encapsulated in a Partnering Charter, endorsed by the senior stakeholders, thus providing a focus for developing collaborative working at all levels.

For partnering to succeed, there is also a requirement to recognise the differences between Strategic Partnering and Project Partnering, and to establish the right type of partnering agreement. Strategic Partnering is often used as an umbrella type of relationship under which the partners work together to develop future requirements, and is often characterised by relatively ‘soft’ objectives. The challenge is to forge a framework that is meaningful and provides the authority for joint working. Strategic Partnering is, in reality, a way of working together to achieve high-level goals that are then delivered through a series of individual partnering projects. Project Partnering, in contrast, is very focused on the delivery of specific ‘hard’ objectives and as such, accountability needs to be clear and unambiguous. Recognising the differences between the two styles of partnering relationships and using them appropriately can present a major challenge, especially when working with the same partner on both strategic and project levels. The danger is that some see the establishment of ‘hard’ objectives as outside the spirit of partnering, yet these are an essential element in providing the clarity of purpose that is needed.

One of the most important principles to recognise in a partnering relationship is that, ultimately, reward will drive behaviour. This means that the MOD and industry must carefully design and agree performance and commercial mechanisms that lead both parties to act and behave in ways that will drive delivery of the outcomes sought. Performance is a ‘two-way street’ – both the MOD and industry must be clear of what is required and both must play their part in delivery. The aim should be to create a ‘positive sum’ game rather than the win/lose game that often characterises competitive procurement models. It is essential that the partnering regime has a hard commercial edge. This is not, as it may sometimes be seen, outside the spirit of partnering. Rather, this edge is an essential mechanism to ensure that the loss of a competitive stimulus within the relationship does not result in a reduction in innovation or cost efficiency that would be damaging to both parties. This commercial edge must also be driven into supply chain relationships.

A critical first step in this process, and one that is often poorly implemented is to agree specific, quantifiable, outcome-based performance metrics. The complexity inherent in many of the strategic relationships moving forward means that this will be far from easy. Many outcomes appear at first sight too subjective, and often a great deal of thought and effort is needed to establish objective and measurable metrics. However, measurement drives performance and you get what you measure. Each side should be careful to define the right outcome-based performance metrics as it is in everyone’s interest to stimulate the right behaviours on all sides.

Successful collaboration demands a different style of management and enhanced capabilities on both sides. All parties will face the challenge of identifying, developing and supporting people who can operate successfully in a collaborative environment; people who can manage relationships and take the broad ‘big picture’ perspective.

Joint governance and management processes can provide effective levers to promote partnering behaviours. The processes must reflect the key principles of open communication and information sharing, and the governance arrangements must recognise that the relationship will need constant and active management. v

While partnering arrangements will expound the need for trust and win/win relationships, tensions will inevitably be encountered. It could be argued that unless a degree of conflict arises, it is unlikely that the arrangements provide a sufficiently robust and challenging environment to drive the performance improvements sought: “constructive tension” is healthy. The real test of the strength of the relationship will be the way in which these conflicts are dealt with. A well-established escalation and conflict resolution mechanism is essential.

Much is spoken about the benefits that can be derived from partnering, however, frequently these benefits fail to materialise. In part, this is because the organisations involved fail to recognise the effort and commitment that is needed to drive the change, enabling a collaborative relationship to develop, and be sustained throughout the life of the agreement. While all the elements of the Partnering Wheel are vital, the ultimate delivery of partnering is often down to the confidence and trust that develops between the individuals involved. Moving from a traditional, competitive, contractual relationship to a partnering style represents a significant culture change that not only requires a change of attitude and approach, but also the development of new policies, procedures and working practices. Driving the change from the senior team to the middle management layers and throughout the workforce is both important and difficult, and will require sustained management effort and commitment. Without this scale of change the intended partnering relationship will simply unravel as people from both parties seek to reinforce old ways of working or make assumptions based upon their perceptions of what partnering means. Yet it is not enough to just commit to partnering; there is a need to live the rhetoric, at all levels, throughout the life of the agreement. There is a requirement to constantly review and enhance collaborative working, especially when new stakeholders are introduced to the relationship. This is a particular challenge as senior MOD stakeholders tend to move on relatively frequently, and this ‘churn’ is a feature that the MOD will need to address as partnering- style relationships become increasingly important.

Following the publication of the DIS, the first step for both industry and the MOD is to develop a clear understanding of their own, and each other’s, specific and measurable objectives. There is then a need to test the willingness and ability of each party to make progress toward a true partnering style of working through demonstrable actions. This should provide the platform for the sustainment of key capabilities critical to both the MOD and defence industry.

The move towards long-term Strategic Partnering relationships presents industry with a number of critical challenges, including:

• Gaining a clear and unambiguous understanding of the military capability the MOD needs and for which it is willing to pay
• Recognising the difference between Strategic Partnering and Project Partnering and behaving appropriately
• Building the MOD’s understanding of the commercial and supply chain dynamics that drive business and capability performance, and to support a mature and open debate on partnering for military capability or equipment/ system availability
• Sustaining innovation and developing pragmatic and deliverable performance improvements and industry-wide rationalisation programmes that make substantial reductions in through-life cost a reality
• Providing a genuine industry end-to-end supply chain view that enables investment in sustaining key skills, capabilities and technologies, independent of where they sit in the supply chain
• Identifying and setting out the level playing field strategy for SMEs and specialist organisations identifying how partnering principles will be introduced and sustained through-life
• Identifying and developing ‘relationship managers’, who can lead the business in the new partnering environment
• Driving behavioural change through middle management to the workforce
• Sharing commercial information with MOD and industry partners and trusting how that information will be accessed in the future.

Source: PA Consulting
Publication date: 2007

Related Defence Supplier Guidance

• Defence Industrial Strategy
• UK MOD partnering procedures
• UK MOD partnering tools and techniques

To find out how your company can build successful partnerships with the UK MOD, contact Jeffrey Strategic.