TOPIC 5.3: Applying contestability to a service – a generic 4 step approach

Step 1 Strategic Assessment

Apply Step 1 practices to identify opportunities (costs and benefits) for service(s) in your work area, program or agency to undergo a contestability test.

Table 5.1: Step 1, Strategic Assessment

At a micro level or within your area of responsibility, it is helpful to start with a focus on service and the following three questions at this early stage:

1. Who are your customers?
2. What are the services they need, now and in the future?
3. How are those services best delivered?

Your customers may be internal or external. Your services should be linked to your agency’s vision and values.

Examples of services: licensing, public housing, wildlife permits, maintenance, planning approvals, auditing, legal services, advice, inspections, investigations, etc.

Apart from reference to your organisation chart, standard industry processes, and existing supply chain data, you may need to have informal discussions with staff involved to define activities and processes that contribute to services. The idea is to develop a service catalogue that identifies the service (or product) currently being delivered.

How the services are being delivered and any benefits of the current service delivery model should be documented in your service catalogue.

An example service catalogue from the Public Record Office Victoria (PROV) is:

At the macro level and once an organisation-wide strategic assessment has been completed, prioritised services that have potential to deliver improved cost efficiency, quality and productivity outcomes by applying the contestability process can be identified.

Developing a service catalogue will help you to capture all the current services provided by your agency at a high level and then consider them for contestability.

Part of the strategic assessment for contestability is to consider the benefits of changing the service model. The purpose of contestability is to compare and test the service against alternative market-based service provision to ensure that it is providing the public with the best possible solution at the best possible price. All forms of potential value need to be captured at the start.

Benefits have at least five categories of value:

• Public value
  • Social benefits
  • Political benefits
  • Economic benefits
  • Environmental benefits

The benefits of changing a service model needs to be discussed and agreed on by the stakeholders involved in order to establish criteria for comparison between existing and alternative service models.

While cost reduction is one desired outcome of contestability and service delivery reform, it is only one component. At the core of contestability is the idea that services, and the assets supporting them, exist to help people and society. The final outcome must always be couched with empathy for the end user and a strong grasp of the service the government is seeking to provide. (Deloitte, 2015)^[1]

You may be able to identify, qualify and quantify a range of benefits to be realized by implementing the contestability process to the service, such as:

• improved customer experience
• increased productivity
• reduced costs
• happier workplace
• efficiency gain
• sustained quality

An example of capturing your strategic assessment may be in the format of an Investment Logic Map such as the example in Figure 5.1.

Figure 5.1 Investment Logic Map^[2]

We have identified a service for contestability and reviewed the benefits to be gained from doing it differently. Let’s scan the market for comparisons, benchmarks, innovations or alternative providers.  This leads us to Step 2 of the procedure.

Step 2:  Preliminary Options Identification

Step 2 of the contestability process includes developing a baseline for the service(s) being considered in the contestability process including demand profiling, costs, performance measures and resources. The potential service delivery models to be tested and assessed are determined and we commence a preliminary investigation of the market to understand the system of current and potential providers.

Table 5.2: Step 2, Preliminary options identification

A helpful tool for understanding the service system is a Value Network Analysis (VNA) (Allee, 2008). Remember in Module 1 we drew a rich picture of the system within which our stakeholders interacted and in Module 2, we drew our network illustrating the nodes and links within our professional personal systems of interaction. The Value Network Analysis depicts the stakeholders (service providers) in the service system. Stakeholder relationships with each other (competitive, collaborative) and through a value network with the customer, client or consumer, is made visible.

A simple example of a Value Network Analysis is presented as Figure 5.2 below.

Figure 5.2:  An example of a Value Network Analysis^[3]

The following questions will help you to understand the market/potential of non-government providers of the service:

• What are the main features of the local supply market?
• How is supply of services arranged geographically and what are the segments?
• How does demand compare to supply?
• How is the service delivered elsewhere? Australia/overseas?
• Who are the main suppliers in this of similar service markets?
• What is the likely impact if there is a change in service delivery?

We have identified a service for contestability and the current model of service delivery. We have baseline data on benefits and costs of the current model. We have done a preliminary analysis of the service system and identified the network of stakeholders (providers and consumers) and their relationships.

Now we are in a position to identify possible options and alternative models, including process redesign possibilities, to enable improved services.

Step 3: Options Assessment and Alternative Models

Step 3 requires the completion of a quantitative and qualitative assessment of all possible delivery model options. Determine and commence market engagement both formal and informal as defined in the contestability strategies.

Table 5.3: Step 3, Options Assessment and Alternative Models

Potential delivery models, contestability strategies and new creative ways to deliver services may include:

The question is on what basis can we compare the alternatives and our current service model?

As we mentioned earlier, there is no point pursuing change without accruing benefit. Benefits profiling, management and realisation provide the rationale for change.

One of the ways we can assess the value of the options is by revisiting the benefits we identified as part of our strategic assessment. The list is not exclusive but here they are again:

• improved customer experience
• increased productivity
• reduced costs
• happier workplace
• efficiency gain
• sustained quality

Options assessment is the systematic comparison and evaluation of options so the preferred option (or a hybrid model) may be selected. We should be able to articulate the story of our options assessment and the reasons why we have selected the preferred option as a way forward.

We could use various techniques to assess the options for improved service delivery. For example:

• Cost benefit analyses
• Value for money assessment (including cost and risk sharing)
• Multi-criteria analysis (e.g. 3As – attractiveness, achievability, affordability)
• Public sector values
• Renewal program or agency measures of success

Here is a sample options assessment for delivery of a licensing service.

Table 5.4: Sample Options Assessment Matrix^[4]

In summary, options assessment is best done with the original intention of the contestability process in mind i.e. by returning to the original stated investment objectives and stated benefits to be realized in the strategic assessment. The question to be answered is – which option is likely to deliver the best public value outcome?

We are at the stage in the contestability process of wanting to work with the preferred model of service delivery. We are in a position to map the improved service model and to identify the changes that need to be managed to achieve the benefits.

Step 4:  Solution Design and Business Case

Step 4 involves developing a solution design and supporting business case to achieve the desired service outcomes for the recommended option(s) progressed from step 3.

Table 5.5: Step 4, Solution Design and Business Model

For our purposes, we will refer to a business model here rather than a business case. A business case would be a detailed plan with detailed costings and rationale for implementation. We will attempt to capture our new/improved service model using the business canvas tool i.e. illustrating the service model on a page.

The Business Model Canvas (Osterwalder & Pigneur, 2010)^[5] has the following nine key components and is set out as a one page ‘canvas’.

1. Value Propositions: The overall value solution that the organisation seeks to provide to solve customer/client problems and satisfy customer/client needs.
2. Customer/Client Segments: What are the client segment/s that an organisation seeks to serve?
3. Customer/Client Relationships: What is the nature of the relationships that are established and maintained with each customer/client segment?
4. Channels/Delivery: What delivery mechanisms are used to deliver value propositions or solutions to customers/clients, through communication, distributions, and sales channels?
5. Key Partnerships: What are the key partnerships and what the activities may be outsourced; what resources are acquired outside of the organisation?
6. Key Activities: What are the most important things an organisation must do to make its strategy work?
7. Key Resources: What are the assets required to offer and deliver the above-mentioned elements?
8. Cost Structure: To deliver on the value proposition, what are the components of the cost structure
9. Revenue/Funding Streams: What are the tangible results that accrue to the organisation as a result of the value proposition/solutions successfully offered to customers; or funding streams successfully maintained/gained?

Below is an example of a blank business model canvas.

The next 2 steps of the contestability framework relate to managing change and implementation of the new service delivery models.

Operational management and change management are covered in GSZ634 Managing Operations for Outcomes.

Step 5: Implementation Pathways

Define the plans for all approved service areas to implement the new service delivery model(s) including improvement initiatives, commercial/contractual processes, restructuring, new skills and capability, integration and change management, benefits and market impact assessments.

Step 6: Implementation

Establish new service delivery model(s) including building new capability, performance frameworks, any required legislative amendments, change and stakeholder management, service transition and stabilization.