Commercial Masterclasses toolkit

Introduction
This informal toolkit is an array of resources suitable to voluntary, community and social enterprise (VCSE) organisations delivering public services. They cover a range of areas, from developing governance and strategic analysis, through to bidding skills and contract risk management. This toolkit is designed to be used in conjunction with the extensive materials listed on the Commercial Masterclasses website. It is intended primarily for those who have attended the two day Commercial Masterclass programme, and offers delegates an opportunity to test and enhance their new skills. We would also point you to the extensive resources by the Commercial Masterclass partners: NCVO: http://www.ncvo-vol.org.uk/ ACEVO: http://www.acevo.org.uk/ Social Enterprise UK: http://www.socialenterprise.org.uk/ NAVCA: http://www.navca.org.uk/ Please send any questions or comments on this toolkit to: commercialmasterclasses@ncvo-vol.org.uk

Strategy
Developing Strategy: tools for mapping your external environment
One of the biggest challenges with strategic analysis is that there is too much information (data, facts and opinions) available. To organisations with little spare time or resources this can be off-putting, particularly as much of it is not relevant. Sifting, sorting and selecting is vital and needs to be done well, which requires quite sophisticated skills. In addition, amassing and assessing all this information about the external environment is only a means to an end. Its value is in stimulating our thinking in order to help us make better decisions. The process is about: searching finding out what information to look for, opening up thinking, thinking laterally and creatively sifting narrowing down, making decisions about what is relevant sorting categorising, then checking out to make sure that you have got everything you need selecting prioritising by deciding what is vital, what is important, what is merely interesting Uncovering relevant information The first step in the quest for relevant information is to open up your thinking about the external environment and the numerous drivers and influences at play out there. There will be exercises later on in this chapter to hone these down again, making them manageable and relevant to your organisation. A key word for this chapter is drivers. Drivers are the major 1

Commercial Masterclasses toolkit

forecast or trends that could positively or negatively shape or influence the future of your organisation. Drivers have a complex relationship with each other; some drivers are an outcome of other drivers. Some are reasonably predictable, others are uncertain. How to analyse drivers: using PEST PEST is a widely used set of initials to help us remember the key categories of factors in the external environment that are used in strategic analysis: political, economic, social and technological. Thinking about all your drivers in these categories helps you to better understand how the world is affecting your organisation and mission. Sometimes organisations do the PEST analysis for the sake of it, rather than because they really understand the importance of bringing the external environment into the organisations strategic thinking. PEST can nevertheless be a useful way to start to think about what is going on in the external environment. PEST categories What do you think the major drivers of change might be for your organisation or specialist sector? Reflect on what is happening and what changes are likely to happen: Politics What is going on at a national and local level (include new or likely legislation)? The economy Where is the organisations money coming from? What is the funding environment like and what are the trends? What do the key sector publications say about future developments? Social trends What do your beneficiaries want, how are their needs likely to change? Technological advances Ask some teenagers what they think the world will be like in five years time if you need some inspiration. Dont just limit yourself to the internet and equipment; spread your thinking more widely to new developments in the field in which you work.

Use the PEST template to jot your ideas down. Think about how your organisation is affected by things that happen regionally and locally, as well as nationally. Where are the important decisions made? What are the local trends? What are local policymakers and decision-makers doing and planning to do? What is happening globally might also be important to some organisations. PEST template Political Economic

Social

Technological

N.B. If you want to add further categories, sometimes PEST is represented as: PESTLE L for legal, and E for environmental or STEEPLE PESTEL plus an extra E for ethical. 2

Commercial Masterclasses toolkit

Relationships between drivers Some drivers clearly fit into a single PEST category, but others seem to straddle two or even three. There is often a relationship between different drivers, and the relationship may be important to your organisation. As you scan the list of drivers that you have developed, or the list on page seek out relationships between them. If drivers are linked, then you need to think laterally to draw in all those that may be relevant. Clustering drivers and thinking about relationships Spend some time thinking about how your drivers relate to each other. This will help you to start telling a story about the effect that these drivers may have on your organisation and may also reveal some new and important drivers that you have not considered. 1. Begin by creating clusters of drivers by grouping together drivers that seem to belong together. It may help to write your drivers onto pieces of paper and lay them out on a table to do this. You may want some drivers in more than one cluster that is alright, just write out some duplicates. 2. When you have done this, select one cluster and start to think about how the drivers relate to each other. Find one or two (or possibly three) drivers that you think are at the core of this issue. These will probably be the ones that you think are themselves driving or influencing the other drivers. Place these core drivers in the centre. Now begin to arrange the other drivers around these core drivers according to how they relate to each other and to the core drivers. Place the drivers that are most closely related to the core drivers in a circle around the centre and then work outwards. You will probably start to form little chains out from the centre. For more information on developing strategic analysis, see: http://www.ncvo-vol.org.uk/advice-support/strategy

Further strategic analysis (steps after PEST)

The next section will focus on analysis of the implications what kind of opportunities and threats do the drivers reveal? Different drivers will impact in different ways, at different times, but all need to be considered as you craft plans for future activities for all with whom you work. You will learn about how to seek out new opportunities for improving your service, opportunities for managing future risks and threats, and perhaps most important of all, opportunities to innovate for your beneficiaries. First, refer back to your organisations mission, your stated purpose. The changes your organisation wants to make Mission

What next for your strategic analysis: what, so what, now what? So far you have unearthed the what drivers are relevant for your organisation using PEST analysis, with your mission and the change you want to see as the backdrop. What (scan the external environment and identify drivers)? The next two questions in the chain are: 3

Commercial Masterclasses toolkit

So what (might the drivers mean; consider the implications of those drivers)? and Now what (should you do about it; considering the next steps your organisation might want to take)? The assessment grid below encourages you to ask `So what? in other words, to consider the impact of each of your drivers against different aspects of your organisation to help you pull out implications and opportunities across the whole spectrum of your organisations activity.

How could each driver affect your organisation?

Your key drivers Driver 1 Driver 2 Etc

External
Users and their needs Funders and their priorities Relationships and influence (media, policymakers, other players etc.)

Internal
Workforce (paid, volunteer and trustees) Your organisations work (services and activities) Governance (including accountability and evaluation) Systems and skills (communications, administration, management etc.)

Making decisions with this information

Opinions and decisions People will disagree not only about the key drivers, but also about what their impact might be and that is good news. It is why strategic analysis needs to be done by a number of people to capture the range of diverse opinions. Strategic conversations are extremely helpful not just in planning, but also in getting to know each other better and learning new ways of looking at things. If strategic conversations happen without leadership though, you will spend all of your time exploring and not enough on narrowing down thinking to enable decisions. You need to be clear about when all the talking needs to stop, when thinking needs to be closed down, and decisions made. Level of impact versus likelihood You will need to work with colleagues to consider the interplay between all of the opportunities, the level of impact, the likelihood of each occurring and the combined effect. You will then need to consider options and choose a strategic response that best suits your situation. It is unlikely that you will have the capacity to make the most of all opportunities; however, you will want to make contingency plans to meet all potential high risks. 4

Commercial Masterclasses toolkit

Assessing impact and likelihood This risk map tool has been adapted to help you decide which opportunities and risks focus on. Priority grid Level of impact (positive or negative) High Likelihood High Medium Low Medium Low

Plot out all of the opportunities (including risks) that your impact analysis threw up. Base this on their level of impact and the likelihood of them happening. You will want to consider doing more work on all of those in the High/High box whether their impact is potentially good or bad. It is also worth noting that some opportunities can become threats and vice versa. This may affect where you put them on the priority grid. No-one said strategic analysis was simple! Before considering the implications of your chosen drivers, take a look at the different kinds of opportunity that strategic analysis could throw up. We see a risk or threat as a kind of opportunity an opportunity to improvise and either minimise or get rid of the threat or risk.

Com mmercia al Master rclasses toolkit

Relationship ps
Stakeh holder Mapping M Template T e
For use to map the important contacts c wit thin organis sations (i.e. a prime) an nd / or supp ply chains. T This is an example e tem mplate for yo ou to modify y. Use this before the Valuing Stakeho older templa ate.

Com mmercia al Master rclasses toolkit Valuin ng Stakeh holders

For use after the St takeholder Mapping M Te emplate. Th his tool enab bles you to express the e importan nce and qua ality of different relation nships so you can pr rioritise actio on accordin ngly. Example e and templ lates given below.

Key:

Supporter Undecided Negative

? NG

Dontk know

Next ste eps: questi ions to ask k to value t hese relationships Having identified an nd valued your stakeho olders, cons sider who, how, h when a and what ac ctions should b be taken to achieve ide entified aims s i.e. to win a contract. Also consid der the ove erall principle es and mech hanisms your organisa ation require es for effect tive relations ship manag gement. Use the TACT Building Trust Based B Rela ationships case c study to t develop a model of effective relations ship management / rela ationship m anager role e: http://www w.ncvovol.org.u uk/sites/defa ault/files/Creating_Trus st_Base_Re elationships s_Case_Stu udy_TACT_ _Februar y_2011.pdf 7

Commercial Masterclasses toolkit Building Trust Based Relationships

See appendix 1: Case Study - Creating trust-based contracting relationships

Assessing Opportunities
See appendix 2: Prompt List when Considering Subcontracts for the Voluntary and Community Sector

Quick guide to assessing market competitors

Your likelihood of winning contracts and work in part depends on the quality of other organisations who may be either bidding against you or operating in the same supply chains. It helps then to have at least a cursory understanding of the strengths and weaknesses of other organisations who may become your collaborators or competitors or often, both! Why assess other organisations? There are a number of reasons: 1. Short term it helps you decide: a. whether you should bid for specific contracts b. the strengths and weaknesses your organisation has as you work out your stance for any negotiations 2. Mid term it helps you work out your position in the market, to decide: a. Whether you should bid for future contracts b. Competition and partnership options with others c. Whether you are well placed to provide services or influence them from outside the supply chain (you can do both) d. On-going suitability of the market for delivering your mission and sustaining your organisation 3. Long term assessing other organisations enables you to think about risks and opportunities for your impact, growth and sustainability a. Whether you should invest in developing your position and skills in this market b. Whether the market is likely to offer you future funding that is both sufficient and suitable c. How do you learn about other organisations? What questions should you be asking? Area of work Significantly stronger than you Stronger than you Equivalent to you Weaker than you Notes and action

Experience - Delivery - Collaboration - Sync with market demands? Expertise - Means of proof (impact) 8

Commercial Masterclasses toolkit

Marketing of proof (reputation)

Profile - With commissioners - With potential partners Financial health - Deficit (i.e. pensions) - External funding Governance Capacity and resources a) Strategic working b) Bid c) Deliver

Once you have done this, pool it with the other information you use to make decisions on contracts and your future market position.

Qualifying Financial Risk in Contracts

This tool contains a number of risk headlines for you to review when considering a contract opportunities. These headlines are not be comprehensive and should not be taken as such. Financial risk is the catch-all term for the financial implications of any situation ie a new contract You must measure financial risk against the financial (and other) advantages You may also want to look at risk against the portfolio of your other funding and future aims maybe this is a risk you can offset or wish to take for the benefit of future market positioning / building new relationships?

Commercial Masterclasses toolkit

Deal or no deal factors in detail Strategic alignment Does a contract meet you current and future mission and objectives? Does it fit with your other business? Measureable results Is it easy to demonstrate the results being purchased from you in the contract? Procurement process Is there sufficient scope for dialogue and negotiation? Is the timescale sufficient? Can you pass the PQQ? Is the award criteria suitably balanced (if too much is based on price, what will that mean for your quality of service and likelihood of winning)? Governance Does your Board understand the risks involved? Sponsorship At the commissioning authority / prime what level of interference or support is their to enable the success of the procurement process and contract? Rate of return What is the financial benefit if all goes well? Risk profile In addition to financial risks, what other risks are contained in the contract terms i.e. TUPE transfer, intellectual property rights Is there reputational risk? Is there future risk of not doing this business?

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Quantifying the financial risk Know what the financial parameters are that work for you Use the table on the next slide Are there other factors you would add? Your treasurer and financial officer should work on this. Should you also get external professional advice? Are there parameters you would take away? Then work out is the bid target range: Use the contract, specification and payment terms and schedule Use what you know of mitigating factors (both those you control and those external to you) Work out the optimum that this contract will achieve against each parameter Then work out the red zone of circumstances which would cause you to perhaps choose not to bid Then model all this against the contract and work out whether it is a good opportunity or not Remember that ultimately you will also use your general sense of whether its a good opportunity even if it comes out differently on paper

Risk categories that will affect the financial viability This is a suggested list of risks you will want to consider in your financial modelling again, this isnt comprehensive and you may want to adapt it. Volume/demand Size and validity of size (is the data accurate?); transaction volumes (ie individual placements?) Specification Does it make sense does the commissioner really know what theyre buying? Is it well funded and realistic? 11

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Does the commissioner clearly understand the business so theyre likely to be good to work with around any arising risks. Service transfer and implementation This is a disruptive period: what will the implications be for your delivery and costs? Obsolescence Have you accounted for this? Is the data you used suitable? Termination and exit Can you get out if the terms are wrong?

Bid management
Are you Ready to Bid? See appendix 3: NCVO bid-ready checklist: questions to consider

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Commercial Masterclasses toolkit

Delivering a contract
Areas of performance management in the subcontracting context
What is performance management? Performance management is: Terms against which you are measured The systems / information required to prove your work The corrective steps taken The rewards offered The comparison with other providers / the wider market It doesnt include wider values, on-going market diversity, or previous performance. Performance management as immediate, demonstrable and not sympathetic to different sectors. Performance management is crucial for taxpayers value for money and understanding what works. However, it can be skewed by a number of factors: Initial opportunity to compete (you may not be able to) Ability to prove value, even if you are delivering it Narrow terms against which the contract wants you to measure performance Having to use performance management processes that are new / unsuitable /disproportionate for your organisations way of working Its important to understand performance management before you sign and start any contract or subcontract. Performance Management: how to Conduct a SWOT analysis to identify strengths and weaknesses in your performance management Be clear about performance expectations to ensure they are achievable especially when delivering a contract especially where payments are attached to results Make sure targets to not compromise the quality of your delivery and are a good cultural fit for your organisation. Learn through capacity building. All Primes should have a plan to deliver this. Make sure in your general consideration of a subcontract that you understand the sanctions and support that performance manage the supply chain

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