Capita Discovers Procurement – Is It Too Late?

We wrote here about the issues that might arise for customers of services firm Capita following their poor financial results and a recent rights issue. The firm is best known for its major government service contracts, but there is a consulting side to the business, which appears to be called “Business Transformation”, and within that, there is a procurement consulting practice.

“We're one of the UK’s largest providers of strategic and tactical procurement services with a global delivery platform, designing and delivering innovative, flexible procurement solutions that help our clients manage and improve their supply chain”, is the claim, and that offering includes procurement consulting, outsourcing and technology services.

Now we don’t want to kick a man - or woman - or entire business - while they’re down, but we wouldn’t like to be in their shoes right now.

That’s because of the comments made by Jon Lewis, the CEO of Capita, last week, when he talked about the rights issue and the recovery plan for the business. Now it is in his interest of course to paint a picture of a historically badly run firm, both so investors believe that there are major improvements which can be made quickly, and so he looks like a hero personally. But some of these remarks did make one wonder what on earth the previous senior managers have done to justify their salaries for many years.

It is clear that Capita was very good at winning contracts, and then sometimes good at making money out of individual contracts – but made no real attempt to bring any core, corporate “Capita expertise” to the table. The firm was very fragmented, and Lewis talked about complex inter-company charging between divisions that really didn’t benefit clients or indeed Capita itself.

And there was no overall corporate procurement strategy. You would think that such a large firm would say something like this to prospective clients -  “sign up to do business with us and we will use our award-winning procurement technology and processes, and the great deals we have with our suppliers, to bring you efficient and effective procurement within the contract – and we will share those savings with you”.

Nope. That’s not how it worked. “Capita has never executed a comprehensive, structured, multiyear cost competitiveness programme before”, said Lewis last week and it was reported that “there were 300 different stationery contracts in place”.

“Procurement has not been fully  centralised under professional category management, so we have far too many suppliers and are not leveraging our buying power”, Lewis said and the plans put forward as part of the recovery strategy includes procurement initiatives such as “better terms from supply chain rationalisation”.  (Perhaps they need to read Jonathan O'Brien's book - see picture above).

All fine, but pretty basic stuff really, and little detail on just how the firm might achieve better performance. But we wish them well.

Now back to where we started. Capita Procurement Solutions is selling expertise – and they may well have genuine expertise in many areas. But it doesn’t look good for them when their own firm has just admitted being a million miles away from procurement best practice or arguably even basic competence. Perhaps it is another example of “the cobbler's children have no shoes”, but there are plenty of other firms selling similar services who can point to internal procurement performance that is pretty top-notch, or at least looks that way – IBM for instance.

It will also be interesting to see who leads the procurement transformation at Capita; a new hire or an internal person. History and evidence suggests that real change is often better driven by an outsider, so I wonder if the head-hunters are already looking …

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