Business

SMEs: The impossible dream for the public sector

Mar 14, 2019 Written by Infomentum

After years of austerity, the public sector is crying out for solutions that can help solve its issues quicker and more cost-effectively. Yet, while there is a multitude of choices available in the form of digitally native businesses, they’re not being considered as credible options. This post will examine why is it so difficult for the public sector to engage with SMEs?

 

Counting the cost of public sector spending

The public sector and its relationship with finance is an uneasy one. For more than a generation, organisations strived to realise their own potential. Of course, this meant investing in ‘the best’. While such an approach has merit, it also has a considerable downside. Not least when it comes to running at a profit and getting bang for buck with every pound invested. Expensive doesn’t mean ‘good’ and it certainly does not automatically constitute value. 

You don't need to look back far through the annals of Google to find reports of unplanned overspend or excess payments for what would seem straightforward projects. At the same time, budget cuts are rife, which is having an impact on critical services from refuse collection to road maintenance. The fact that this is all taking place in an environment of council tax hikes and pay rises for senior executives means the sympathy from the public has never been lower. 

 

The answers are right in front of you

But if the public sector is a poster boy for financial mismanagement and failure to reach its potential, then the UK’s SMEs are its polar opposite, most notably in the technology sector.

This is an area of the UK that has become one of the most revered in the world, driven by the success of initiatives such as Silicon Roundabout in London and others further afield like Tech Manchester. When combined with our education system, natural geographic location and heritage with industrial productivity, it’s no wonder the UK is a destination of choice for some of the world’s most highly skilled technicians. The output of this perfect storm has been remarkable. Today we are surrounded by innovative SMEs that provide a cheaper, simpler, quicker and better alternative to what has come before. So, why is the UK's public sector not doing everything in its power to engage with these businesses?

 

The three P’s of the SME problem

There is no one-size-fits-all answer. Yet, at our recent event, ‘Thinking smart in public sector’, we asked a group of industry experts who pinpointed three major reasons why there appears to be a black hole between public and private sector collaboration. 

Arguably, the biggest barrier is perception. Namely, after years of overspend on big name consultancies to manage major projects, organisations do not believe that a service from an SME can cost so little in comparison and be equally, if not more, effective. This was most aptly captured by public sector technology expert Hilary Simpson, who said, “The public sector has this idea that a service costing £4K is rubbish. That it is too good to be true. We’re seeing businesses of the perfect size and cost, with a tailor-made solution to a problem, bounced-back for no other reason than they’re too cheap.”

But let’s give the benefit of the doubt and assume there are public sector organisations prepared to take a punt on an SME that looks ideally suited to solve a problem. They may overcome the first hurdle, but then very quickly come to another - procurement. This department has an invaluable role to play in ensuring public sector organisations are not over-exposed to risk or an unreliable provider. Yet, one of the main challenges posed at our event was that procurement has simply not moved with the times. The notion being that it is now preventing the best and most obvious solutions from working with the public sector because they don't pass a test that isn't fit for purpose - ruling SMEs out on grounds of size, scale or historial trading. 

One of the main challenges posed at our event was that procurement has simply not moved with the times.

One such viewpoint came from a senior executive at Wandsworth and Richmond Council who said, “The modus operandi for procurement is the Crown Commercial Service framework and, by its nature, that excludes SMEs. It is something we need to change. For local government to move forward, we must strip out the bureaucracy, cut the layers and make it easier to get things done at an appropriate cost and that means finding ways to engage SMEs.” 

Perhaps unsurprisingly, in an environment where every decision is scrutinised, pressure was also cited as playing a key role in the prevention of SME engagement. Specifically, the need to trust that a supplier will deliver, on time and on budget. Consequently, this self-preservation approach does not encourage public sector organisations to look for something new. One of our guests from the Local Government Information Unit, summed it up perfectly saying: “In the public sector, you’re punished for the risk that doesn’t come off. You’re not punished for doing the same old thing, You’re not rewarded for coming up with great new ideas. It’s obvious that to keep the status quo, you’ll revert to the one thing you know works - irrespective of cost.” 

Speaking from first-hand experience, Infomentum co-founder Vikram Setia said, “We know we can offer a solution to public sector problems but get dragged into a process that hinders any effort to innovate quickly. We’re in a world where technology moves at a rapid rate but sometimes months can pass between RFP and project sign off and in that time the problem has moved on. The desire to collaborate and get things done quicker is there, but is being suppressed with politics, fear of job losses and insecurity of sharing data.”

 

Rewriting the spending rulebook

What is clear is that to move forward in a positive manner the public sector needs to re-evaluate how it works with SMEs. To do so effectively will require a fundamental change in mindset and approach - something we will cover off in our third and final blog in the series. But what is clear is that the relationship between the public sector and SME needs to be made stronger. The problems and solutions are staring each other in the face and it is the public sector that must blink first.

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