Capita – Not Another Carillion But More Big Questions for Public Procurement

After the collapse of Carillion, it's easy to see why the problems at services outsourcing specialist Capita last week caused so much consternation and generated such a lot of media coverage last week.

The firm's share price peaked in July 2015, at around 1300p, and a series of setbacks since then has seen it fall to just 162p, having lost half its value in 2018. But the recent statement from the new CEO, Jon Lewis, was particularly scathing about his own firm’s performance and situation.

We are now too widely spread across multiple markets and services, making it more challenging to maintain a competitive advantage in every business and to deliver world class services to our clients every time. Capita has underinvested in the business and there has been too much emphasis on acquisitions to drive growth. As our markets have evolved, the Group has not responded consistently to new customer demands… Today, Capita is too complex, it is driven by a short-term focus and lacks operational discipline and financial flexibility.

Now we understand why Lewis said this. He needs to show that he understands the problems, and he goes on to suggest how he might sort out the problems. He also needs the confidence of investors who will he hopes support a £700m fund raising.

However, his statement must set some alarm bells ringing for customers, potential customers and procurement people. If I am in the middle of a procurement process, and Capita are bidding, do I want to award a contract to a firm that admits it isn’t offering “world class service?” An organisation that is too complex, lacks operational discipline and is short-termist in its approach? And of course one that clearly has some financial issues.

I mean, outsourcing is generally seen as a way of utilising skills provided by an external party, skills that aren’t available in-house. But here is this firm admitting it “lacks operational discipline?” Perhaps old Fred and Vera and their team in our mail-room / kitchen / IT department aren’t that bad after all!  Or perhaps I’ll find another firm that does have "focus and discipline" …

We would be very surprised if Capita does not see a reduction in their pipeline and percentage of tenders they win – they have historically had a very impressive success rate, but that may well change now. They’ve introduced doubts into the minds of potential clients.

One other point - We have always thought it was odd that the big public sector outsourcing firms, who sold their services based heavily on efficiency, were never leaders in terms of their own procurement effectiveness. Most of those firms operated very decentralised structures, with pretty weak procurement governance.

I had an interview some years ago for the CPO role at one of the largest outsourcing firms, and walked away when I was told that the procurement centre would have no mandate of any kind, and would be “purely advisory” to all the different business units. I wasn’t expecting to be offered world domination on a plate, but it was indicative of a certain approach, and I didn’t feel very comfortable with it. Even my suggestion of a pretty strong central policy role for procurement was looked at with little enthusiasm.

Anyway, Capita is not in the same situation as Carillion, but it is leading to more serious questions about public sector outsourcing. We will be back to examine those again, I’m sure. And we have sympathy for Meryl Bushell, the “Crown Commercial Representative” for Capita. She is the ex CPO at BT and a good person, but one who is heavily “portfolio” now in her career and probably never dreamt that taking on the Crown Rep role might just see her on the front pages if things go badly from here …

Voices (2)

  1. IanR:

    I don’t think they’ll have trouble raising the £700, £700m however….

    On a more interesting note, and partly linked to the silly argument we had from a minister who said procurement cannot take into account a contractors financial position when awarding contracts. Can a public contracting authority take into account an organisations public statements on their capability to provide world class service in evaluation when their tender response suggests something very different? Would be interested in your views.

    1. Peter Smith:

      that’s a great point! If the CEO is describing the firm’s failings, that would seem a reasonable bit of evidence to take into account. Perhaps we should ask their Crown Rep what she thinks…

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.