Serco, SMEs and Supply Chain - A "Brutal" Combination

Serco has a lot to answer for - and none of it flattering.

As one of the major providers to the UK government (according to an FT article, they run prisons, schools, ports and nuclear facilities) they're making loads of money off of the outsourcing they supply.  To do so, they have a list of over 15,000 suppliers in their supply chain.

In effect, Serco is the broker and the little guys are doing the work.  Both, granted, are making profits (or at least we hope that the little guys are), so it's a win.

Then the UK Government says, we're cutting our costs.  We need to reduce the structural deficit and, as a means of doing so, we're looking, in part, to those with whom we contract to reduce the costs of their services to us.

That's fair.

But the Government - in the form of Cabinet Minister, Francis Maude MP (of whom I'm a long time fan) - also said (I'm paraphrasing), we don't want it to come out of the small businesses that are providing the services. We want small business not only to grow but to get a bigger piece of the UK Government procurement pie.  So, what we would like you, Big Boys, to do is reduce your margins - and for that we thank you.

This is good.

Right up to the moment that Andrew Jenner, the Serco Finance Director, sent a letter to the company's 193 largest suppliers with the following paragraph:

“I am asking you to offer us a rebate of 2.5 per cent [exclusive of VAT] on Serco’s full-year spend with you for the 2010 calendar year in the form of a credit note. Like the government, we are looking to determine who our real partners are that we can rely upon. Your response will no doubt indicate your commitment to our partnership but will also be something I will seriously consider in our working relationship as Serco continues to grow.”

This was not good.  In fact, this was despicable.

Unfortunately, the only difference between Serco and other companies contracting in and out of government, is that Serco got caught.

Give Mr. Maude his due, he stepped in immediately and asked Serco for an explanation.

Serco's response was the equivalent of a corporate "Oops" which was followed immediately by the rescinding of the request.

Bravo Francis Maude, but not bravo Serco.  Because the given is, had they not been caught and held to account by Mr. Maude - particularly in their not very well veiled threat - they would have stuck to the plan. They would have gouged, first, the top 193, then the next group, then the group after that.

After all, once a strategy starts working, don't you want to replicate?  Sure you do!  Especially if it keeps your margins just where you want them to be.

But the cost.  That's why Serco's letter and decision are despicable.

This is not about the cost of a contract.  This is about the cost of jobs and livelihoods.

We can assume that Serco can afford to cut its margins and remain profitable.  It's playing in enough fields, with enough different contracts, that there are profits built in at different levels for each.

Small businesses (SME/SMB or micro) don't have the kind of financial play that any Big Boy has. Particularly in these times when money is easily available to big business in the form of bond issues and banks and as good as not at all available to small businesses.

Sadly, Serco is also the odd man out - because it got caught.  The fact is, Big Boys (think Walmart), are always working to cut the costs of their suppliers.

They should - but, again, to what extent?

Corporate Social Responsibility is not just a point-earning phrase for your next game of Buzzword Bingo.  It is exactly what it says:  The responsibility that corporations have to a greater social good.

That's quantifiable - and, positioned correctly, it can also make you a preferred provider. Particularly with governments while they're doing their simultaneous public sector cost-cutting/private sector service increases.

After all, if you show that you're doing good for the SMEs that contract to you - helping them create new jobs, build back their communities, increase investment and tax intake - you'll naturally be thought of as a good guy.  No matter how big and powerful you might be.

So, take a look at your supply chain - no matter which side of it you're sitting on - and see whether the deals you're doing are, honestly and realistically, doing good for your company and your community.

If you're the Big Boy, make sure you're not putting your suppliers out of business with your policies, procedures and requirements.  If you're a Little Guy, make sure that you don't take a contract that puts you out of business just to get the contract.

Serco is the current poster child for what's wrong with corporations.  They're one in a long line.

Don't be next.  More important, don't be in that queue at all.