Title: Identification: Version: Date of Issue: Current Status: Prepared By:

HCC E-Procurement Case Study

2 8 January 2004 Shaun Le Picq

Hampshire County Council

E-Procurement Case Study

Strand 3 Organisational Change Management Pilot Projects

Target Audience: English Local Authorities

8 January 2004 Version 2 Shaun Le Picq, Hampshire County Council

Introduction This case study is intended to provide other authorities with an overview of the approach taken by Hampshire County Council to the change management issues faced during its e-procurement system implementation. Baseline Point Hampshire County Councils e-procurement project was part of an overall IT Systems replacement project (the Enterprise Project), which replaced the County Councils aged mainframe systems for finance, procurement and human resources. Whilst our legacy systems were relatively old, certainly in procurement and finance, they were generally quite advanced in providing good functionality for end users. As they were built in-house, the majority of end user requests for improved functionality had been met over the years. The legacy systems provided: system generated purchase orders electronic workflow for authorisation payment of invoices against the original order financial commitments for budget monitoring and general ledger postings

Generally therefore, end user expectations of a new system were very high. There were recognised weaknesses in existing systems which impacted corporately rather than on end users including: poor corporate management information on procurement lack of electronic links to suppliers off-contract purchasing was easy to achieve, with end users having full local control over the purchasing process.

Whilst the above weaknesses were key drivers in undertaking an e-procurement project, eprocurement was not the main driver for the overall systems replacement project. Our legacy systems needed replacing because the mainframe system needed to be shut down as it was becoming obsolete and expensive to maintain, this was particularly the case for our payroll systems, and this was the main driver for the project at the time of our implementation. The main focus of the Enterprise Project was, therefore, not e-procurement, but as the project has developed we have realised the potential for improvements in procurement across the authority from the e-procurement part of the project. We, therefore developed the following key objectives: Reduce off-contract purchasing Improve control over local devolved purchasing Provide better procurement management information Rationalise the supplier base Increase the scope of corporate framework agreements Streamline the purchasing process.

2 of 7

The County Council decided to implement SAPs Enterprise Resource Planning (ERP) system to provide all of the functions of finance, procurement and human resources, including SAPs own electronic catalogue software, Enterprise Buyer (EBP). This approach was adopted because: so many legacy systems needed to be replaced at the same time integration was a key consideration an ERP presents potential for other functionality which the County Council is considering implementing, such as customer relationship management. We decided to take a phased approach to implementation, mainly because as a very large authority with many systems to replace, we believed this was a sensible and pragmatic approach and is an approach we have used in the past. The Enterprise Project started in October 2000 in a phased rollout as follows: General ledger April 2001 Accounts Payable, Accounts Receivable, Payroll and Central Stores and Purchasing September 2001 Corporate Human Resources October 2002 Trial of Devolved Finance, HR and e-Procurement May 2003 Full rollout to the County Council October 2003 to March 2005.

The County Council has a large number of geographically dispersed users. By the end of the rollout there will be at least 3,700 users of the e-procurement system. Schools are included in the trial and rollout, but due to recognition of school governing bodies purchasing freedoms, they are being provided with access to both the electronic catalogue (EBP) and the core purchasing modules in SAP. This approach will allow schools to raise purchase orders to suppliers which are not approved for EBP. All other departments will only have access to the approved suppliers within EBP. We are also working in partnership with Hampshire Fire and Rescue Service and Hampshire Magistrates Service in the implementation of SAP, however, the date for rollout to these organisations has not yet been set. The key statistics for our project are: Population Number of system users Number of purchase orders per year Total external purchasing spend per year Supplier records Electronic catalogue lines Number of suppliers on the electronic catalogue, of which: - Fully catalogued suppliers - Freetext only suppliers Total 1.7m 3,700 500,000 380m 70,000 Approx 52,000 to date 1,100 to date 300 to date 800 to date

3 of 7

An analysis of the main areas of spend is shown below: Type of Procurement Social Care Property Construction & Maintenance Highways Construction and Maintenance Waste Management Corporate Supplies and Services Other Indirect Supplies and Services Passenger Transport Responsibility Social Services Property Services (PBRS) Environment Environment County Supplies (PBRS) All departments and schools Environment Annual Value 120 million 40 million 40 million 43 million 45 million 80 million 15 million

Culture and Change in Hampshire County Council We have not historically had a formal approach to change management in the County Council. The SAP implementation is potentially the largest change management programme to be adopted corporately. The main approach adopted historically is to ensure maximum communication across the authority on the changes being made. In theory, the project objectives included innovation, improvement and change as a key element. In practice this has taken a minor role in the overall implementation and is only recently being addressed more fully. As with any local authority, we are used to frequent change and change management responsibility has generally rested with each department. As a highly devolved, diverse and geographically large organisation change management is difficult to achieve consistently across the authority. Implementing e-procurement in Hampshire County Council The e-procurement implementation was part of the overall project plan for the SAP implementation. Initially the plan was to implement all required procurement and e-procurement functionality by September 2001 and then to rollout the required functionality to devolved end users over an 18 month period. Issues with the corporate implementations in September 2001, meant that a more cautious approach was adopted to enable the issues to be resolved before rollout to all users. The timetable is now to rollout e-procurement to all end users, including schools from September 2003 to March 2005 and this is currently on track. A full project team was established with representatives from departments and relevant professional areas.

4 of 7

Change Management in Hampshire County Council A change management function was established within the project team to address the change management issues. As legacy systems enabled very devolved purchasing and had been developed with considerable end user input, one of the main change management issues we which believed we would face is that end users would have to use standard SAP processes which did not fit with existing processes. Our legacy systems were generally designed around existing ways of working, whereas SAP would drive the processes in future. As we had been using electronic systems internally for many years and not moving from a predominantly paper process, it was not envisaged that encouraging staff to use the system itself would cause any great difficulties. In addition, specific e-procurement change management issues identified were: Online goods receipting Restricting the suppliers available in the electronic catalogue All invoices processed need to be supported by an electronic purchase order Ability to raise electronic requisitions to be sourced by Corporate Procurement.

It was also planned to implement some fundamental process changes which were: Print all orders centrally Centralise invoice processing.

Resistance was expected to come from all departments, because all departments are generally highly devolved. However, it was recognised that schools would present particular challenges because of the delegated responsibility of governing bodies. We expected there to be resistance to the changes because staff had been able to operate the whole of the procurement process locally in a fairly automated way. They had flexibility to pay invoices locally without raising purchase orders or could choose to raise orders if required. This apparent loss of local control and decision making was perceived to be the main reason for resistance to change. A change management plan was drawn up prior to implementation identifying the change issue and responsibility for dealing with the issue. Whilst this was a useful awareness raising exercise, the plan did not generally get carried through as pressure to meet the implementation timetable meant that the focus of effort was on the system delivery rather than change management. The change management actions which were adopted were: Establishing change partners within each department to manage the process changes relevant to their department, supported by two change managers within the Enterprise Project Developing an in-house business process change course for senior managers Ensuring process changes are included in end user system training Documenting new business processes electronically within the help functions of SAP Face-to-face visits to establishments prior to rollout to explain the Corporate Procurement Strategy, process changes, purchasing requirements and current supplier profile. 5 of 7

How did this approach work in practice? As expected there has been little resistance to using the system as it has been practice to use an IT system to raise purchase orders and process invoices for many years. The move towards central order printing and invoice processing was abandoned early on in the project and before implementation, primarily due to resistance from schools. This was because a central processing function would need to be funded and currently the process was absorbed locally amongst a large number of staff. It was not possible to create real cash savings locally to fund central processing. There was also a perception of a loss of local control which was difficult to overcome. There has been little resistance to online goods receipting even though this is a new process, because the benefits of goods receipting has been clearly documented and communicated. Similarly there has been much less resistance to the requirement to raise purchase orders for all purchases than was originally expected, although it is known that a proportion of orders are still raised retrospectively (i.e. when the invoice requires payment). The main area which has caused the greatest challenge is the fact that end users no longer have access to the total supplier records available but have a limited number of approved suppliers in EBP. It has proved difficult to change this purchasing behaviour where staff have previously had little system imposed limits on their purchasing freedom. This issue has been tackled by promoting the benefits of on-contract purchasing via the Corporate Procurement Network, which represents all departments, and also by resourcing an additional member of staff to liaise closely with local managers and staff on purchasing requirements and behaviour. We have found that only by detailed analysis of the savings to be achieved by moving on-contract, or by identifying risks with current off-contract purchasing, have we been able to change behaviour. This is a very time-consuming and resource intensive approach, but appears to be giving us the greatest chance of success in increasing on-contract purchasing, reducing the supplier base, improving management information and gaining acceptance of the e-procurement system. The change partners have been a useful focus in departments, but these roles have been generally under-recourced, with change partner responsibility being added to staffs existing job. Approach Successes The main change management approaches which appear to have been most successful are: Documenting and discussing new business process maps with departments Appointment of change management partners in each department Visits and discussions with local managers and staff Promotion of the corporate procurement strategy via the Corporate Procurement Network.

Whilst it is difficult at this stage (part way through implementation) to be sure of the impact of these approaches, we would certainly look at using these approaches again in future as providing the best chances of success.

6 of 7

Approach difficulties The areas which appeared to have worked less well are: Change management resource and approaches provided by our implementation partners. The approach was weak and never gained ownership within the County Council. Mapping existing processes. This exercise turned into an incomplete paper exercise. It was not fully resourced, not completed and left major gaps in understanding what issues would be faced with the move to the new processes.

Lessons Learnt With the benefit of hindsight we would: Ensure that Existing processes are fully mapped for all areas of procurement, compared to new processes and issues identified. Change management is well-resourced and high profile within the project. A corporate procurement strategy is in place and clear procurement objectives are set for the eprocurement project. Change partners (managers) are identified and established in each department to ensure that departments own and address the change management issues more locally and that the staff appointed as change partners have the capacity to undertake the workload involved. New business processes are accurately and fully documented and discussed with change partners in each department. Resource communication and support for the e-procurement objectives.

More detailed areas are addressed in the Issues and Lessons Learnt documents. Conclusion Change issues will vary between authorities depending on their systems background and culture. However, serious attempts should be made to identify the potential change management issues very early on in any e-procurement project. From our experience we believe that Resourcing a change management function Ensuring procurement strategy objectives are documented, communicated and understood and drive the e-procurement solution and implementation Documenting existing processes, comparing to new processes and identifying the key areas of change; and Continual communication will assist in achieving a successful implementation.

7 of 7