Finance and Procurement
Tom James
ExampleProcurement_AS11.pdf
2019
BBC Digital Media Initiative
PROCUREMENT MANAGEMENT
Table of Contents BBC DMI Project ................................................................................................................................ 2
Aims and Objectives ...................................................................................................................... 2
1. Production Tools ................................................................................................................ 2
2. Digital Archive .................................................................................................................... 2
3. Archive Database ............................................................................................................... 2
Expected benefits .......................................................................................................................... 3
1. Cost Reduction ................................................................................................................... 3
2. Cost Avoidance .................................................................................................................. 3
3. Creative Dividend ............................................................................................................... 3
Executive Summary ....................................................................................................................... 3
Procurement Framework................................................................................................................... 3
Vendor Management..................................................................................................................... 4
Analysis ............................................................................................................................................. 6
SWOT Analysis ............................................................................................................................... 6
1. Strength ............................................................................................................................. 6
2. Weakness........................................................................................................................... 6
3. Opportunities ..................................................................................................................... 7
4. Threats............................................................................................................................... 7
Porters five force analysis .............................................................................................................. 7
1. Bargaining power of Buyers. .................................................................................................. 7
2. Bargaining Power of Suppliers. ............................................................................................... 7
3. Threat of new Entrants .......................................................................................................... 8
4. Threat of Substitutes.............................................................................................................. 8
5. Industry Rivalry. ..................................................................................................................... 8
Recommendations ............................................................................................................................ 8
1. Procurement Governance ...................................................................................................... 8
2. Competition ........................................................................................................................... 9
3. Supplier Management............................................................................................................ 9
Reference .......................................................................................................................................... 9
BBC DMI Project In the age of digital information, existing content is being translated from traditional to digital formats.
Due to vast number of possibilities in handling, processing and archiving digital data, many
organisations are carrying out digitization projects (Odhiambo, 2018). The goal of this project is to
have a digital archive systems that encourages archiving operations and have the users easily access
the related information through web or other application as compared to traditional methods (Dong,
Ji and He, 2014). With this objective, BBC started the Digital Media Initiative (DMI) project in 2008
(Alexander, 2012).
Aims and Objectives The key aim of the Digital Media Initiative of BBC was to move from analog based business to a digital
platform and archiving system. The main elements of the project were (NAO, 2014):
1. Production Tools
Under the new software, BBC’s production teams will be able to share and save created content. The
production tools will also allow for video editing and involvement of users.
2. Digital Archive
The digital archive would put up an online store that will host finished television shows and other
specific programmes and information. The team will also accompany the archived files with
information about the content of the files to make it easier for the user to find it.
3. Archive Database
The new database system will be providing a more efficient way of storing and retrieving content thus
replacing the existing traditional system of archiving material on physical media such as magnetic
tapes.
Expected benefits The expected financial benefits of this venture were (PwC, 2013):
1. Cost Reduction
The DMI project will reduce the operating cost.
2. Cost Avoidance
The project will save cost incurred by other third parties for providing services that will be covered by
DMI.
3. Creative Dividend
DMI will enable the existing content to be reutilized for new purposes.
Executive Summary
In 2008, BBC launched the Digital Media Initiative (DMI) project. The initiative was regarded as a
transformation programme, aimed to move the corporation from storing data in video tapes and
analogue based archiving systems to a fully digital and online archiving system. Over the lifespan of
the project however, the team encountered significant problems that attributed to the termination
of project in 2012.
Initially, BBC was able to secure a deal with Siemens for £79m with expectation to complete the
project within the following year (PwC, 2013). The stipulations for this fixed price contract will allow
Siemens to control entire BBC’s IT infrastructure. Other conditions for the contract forbid BBC to
intervene in Siemens operations (Espiner, 2011). The contract ended with a no-fault termination
settlement however, BBC blamed Siemens for having lack of knowledge and expertise in this area of
work. BBC was able to recover £27m after termination of the contract (Webster, 2013).
BBC took charge of the development post settlement with Siemens (Hewlett, 2013) and hope that its
lack of skills in the field of work will be compensated by hiring new staff and third-party suppliers.
The Public Accounts Committee reported that BBC were unaware about the high risks accompanied
with taking the project in-house (PAC, 2014). Among other things, BBC was also blamed for not
having a proper procurement framework and the procurement contracts were based on sub-optimal
methods. BBC selected Siemens without putting in place a formal procurement process where
various other potential suppliers are compared (Vallejos et al., 2018)
Years after the original deadline, the corporation still failed to get the project back on track and in
the later part of 2012, BBC Director General Tony Hall decided to scrap the project and the company
endured a loss of £98.4 million (Charette, 2013).
Procurement Framework Project Procurement refers to the process of acquiring materials or services from external providers
for the purpose of the project (APM, 2019). The two key phases of the procurement process are
Supplier Selection and Supplier Evaluation which is based upon the type of project on hand (de Araújo,
Alencar, & de Miranda Mota, 2017). BBC is a British Public Service Broadcaster, hence, the Project
Procurement Framework differs from that in the private sector.
The Procurement Process in public sector tends to involve open bidding and competition between
wide range of suppliers (Baldi, Bottasso, Conti, & Piccardo, 2016; GOV.UK, 2018). However in the case
of BBC DMI Project, the contract was initially awarded to Siemens based upon a ten and half year
contract with the same as a strategic partner (PwC, 2013). Siemens was chosen based upon open
competition for the BBC Technology Framework and gave away the DMI project without open bidding
(House of Commons, 2007). It has to be noted that Project is different from Business-as-Usual as a
project has a definite start and finish and introduces an element of change (AXELOS, 2017).
Fig: Process diagram for the project procurement strategy stage (APM, 2017)
Vendor Management
The initial Procurement strategy of BBC DMI with Siemens focused more on saving six to nine months
and cost savings of up £3 million (NAO, 2011). However, this decision was based upon trust instead of
competitive assessment which didn’t give desired results (NAO, 2011). This outcome is against the
primary objective of Public Procurement – securing ‘Value for Money’ (Lindholm, et.al. 2019). In public
project, the tenders are evaluated on the basis of MEAT criteria (most economically advantageous
tender) but a lack of clarity in the terms of reference can lead to failure (Ottemo, Wondimu, & Lædre,
2018; Lindholm, et.al. 2019).
The below was the original timeline decided for delivering the project (NAO, 2011)
A fixed term contract of £79 million was awarded to Siemens in February 2008 to deliver the system
comprising Design, Procurement and Integration by May 2009 with operational support until March
2015 (NAO, 2011). The contract was terminated in September 2009 following repeated time slippage
throughout the project. The delay was attributed to unclear requirement gathering (Morse, 2014).
BBC did not have a review mechanism and governance in place at this phase, which led to the time
slippage (NAO, 2011).
It was decided to bring the project inhouse but still failed to understand the design issues (NAO, 2011).
With respect to the supplier management post bring in the project, BBC lacked the leadership and
ended up with a slippage of 21 months (Morse, 2014). Hence, this created a procurement risk as the
project due to uncertain lead time (Hong, Lee, & Zhang, 2018).
Procurement risk could be mitigated by supplier diversification and project governance (Hong, Lee, &
Zhang, 2018; Morse, 2014). The project’s governance and a lack of a senior responsible owner led to
its ultimate failure (Morse, 2014).
However, the BBC Procurement strategy, after bringing DMI in house, did have some positives as well
viz., Option appraisal, Cost assessment and benefits realisation plan which are further discussed in the
analysis (NAO, 2011).
Analysis
SWOT Analysis
1. Strength
The BBC assigned the DMI contract to Siemens, the technology infrastructure supplier of the BBC.
BBC's had selected the Siemens as a strategic partner to deliver the project for the best value for
money and fulfil the BBC's future technology needs. The procurement contract framework was aimed
at delivering efficiency, reducing cost and time. The BBC had employed with Siemens in characterizing
the program during 2007 and trusted Siemens had a decent comprehension of the BBC's necessities.
The BBC evaluated the cost and time to procure the technology supplier of the DMI project by the call-
off method and BBC decided to avoid the open procurement consequently BBC saved 6 to 9 months'
time and £3 million costs as well (NAO 2011).
2. Weakness
The BBC had not been conducted the competitive procurement for a technical supplier of a DMI
project instead of that as quicker BBC directly handover the contract to the siemens. Thus, the BBC
failure to do a required capacity assessment of siemens to deliver the project within the given
timescale (Leach, 2011; NAO, 2011).
The primary focus of BBC was to be publishing early technical releases to prove the progression,
although it did not prepare the clear information user requirements for the archive and product. The
ambiguous requirements then result in delays, procurement issues, and inadequacy of arrangement
between the requirements of the framework development and the archive and production teams that
use it (Comptroller and Auditor General, 2014). The development of the project fully depended on
third-party products/suppliers, although BBC appointed a Supplier Management post in a later stage
of the project (NAO, 2011).
Strength
•The procurement agreement framework was designed to improve efficiencies, reducing cost and time (NAO, 2011).
•BBC has avoided an open procurement for saving time up to 6 to 9 months and costs up to
Weakness
•Lack of assessment in the procurement of IT contracts (Leach, 2011).
•Failure to follow-up the risk and issue management (PwC, 2013).
Opportunity
• Introducing efficient new technology for improving creativity and productivity (NAO, 2011). • Increasing financial benefits (PwC, 2013)
Threat
• Did not assess the value for money (European Union News, 2011). • Time Slippage due to change in vendor.
SWOT Analysis
No single individual had been appointed for the accountability to take the overall delivery and benefits
of the project and there was no responsible person to raise questions when a problem arises. Due to
the inadequacy of defined roles and responsibility implied the Corporation missed to react to notice
flag that the program was in a difficult situation (UK Parliament, 2014).
DMI project team missed to maintain proper document for meetings due to continuous changes of
reporting format and transparency in the project. The project team had not been followed by the risk
and issue management process as described in the DMI project Manual book. This hindered DMI from
giving a view of both the risk of technology and business benefits. And the Executive team did not
give solid reasons for changing colour from Amber to Amber-red (PwC, 2013).
3. Opportunities
DMI is an advance and innovative technology project that progresses the method the BBC works,
which leads to the higher efficacy of cost-effectiveness, time and giving space to improves
creativeness. The delivery of a DMI project was technical resolution for the BBC employers and
partners because they can create, access, edit, share and handle video/audio files and programs on
their own systems (in house production tools) (NAO, 2011).
4. Threats
The project was delayed by 21 months because Siemens was unable to deliver a system contract with
the BBC's DMI program. Any delay in a project, it will also increase the project budget. This delay has
driven the project beyond the budget (PwC, 2013). After a certain period later, the BBC cancelled the
contract with siemens and took the responsibility to develop the in-house system. But here BBC
missed assessing the value for money and risks for the alternative options (NAO, 2011; Hewlett, 2014;
European Union News, 2011).
Porters five force analysis
1. Bargaining power of Buyers. As Miller 2005, personal desires of the individuals in difference to economically-driven
organizational supplies. Consumers are frequently demanding lot. They need to bargain for
the best offerings existing by spending the least price as possible. Supremacy as the potential
to impact (Dahl, 1957, Emerson, 1962, Yukl, 1989) is unspoken in all buyer –seller relations
(Croom, Romano, & Giannakis,2000) . This creates pressure on BBC, Inc on success in the long
run. From this situation, for control, studies to distinct buyers and sellers from their public
atmosphere is equally difficult (Wilson,2000). The broader and more influential buyer base of
BBC Inc, the higher the bargaining power of the customers and increase their capacity to hunt
for growing reductions and promotions. This made BBC to think of its innovative initiative
DMI project to provide maximum service on each penny the customer spends.
2. Bargaining Power of Suppliers. BBC has selected the supplier as Siemens a non-competitive supplier for the DMI project,
thinking about its technical advance. Siemens was selected as a call of agreement without
doing any background check on its capability any competitiveness in market. The researches
have exposed the significance of selecting suppliers for organisation’s performance also
whole performance (Kannan and Tan, 2002), main attention needs to be on those specific
actions that have better remain measured when selecting contractors. The significance of
growing selection standards outside the conventionally used like, fee, quality, service, etc.to
consist of additional strategic also more relationship-based criteria have been pressurised
(McCutcheon and Stuart, 2000, Kannan and Tan 2006). Siemens had agreed for a lower price
without knowing or assessing the actual requirement. Continuous delivery slippage and
missing the milestones made Siemens to have low bargaining power in front of BBC.
3. Threat of new Entrants Threat of new entrants for BBC is less because of the huge investment and time consuming.
Huge capital investment and lack of skill lead the new entrants to move away from these kinds
of innovation.
4. Threat of Substitutes.
The new alternates of storage hardware’s are drop box and google drive. The risk of a
substitute invention or provision is huge if this propose a great value proposition that is
exclusively different from present offerings of the business. In DMI Project BBC was given the
contract to its strategic IT partner as an open competitive tender worth 79 Million. When BBC
saw Siemens is not delivering the contract It took steps to rectify the situation. BBC tried all
the possible option to complete the project, like continuing the program inhouse, procuring
from another supplier, stopping the program altogether BBC worked with several suppliers,
but It decided to continue the project in house. Executive board members submitted same
proposal without making any changes considering the change of circumstances or need of the
project.
5. Industry Rivalry.
As BBC is the leader in the news industry by holding 40% of the market share without charging
any fee to its customers. BBC can lead the industry by leaving the competitors behind the
players like American news channels, itv, CNN, even though the industry is growing in a slow
pace make the intensity of competition among the opponents are high.
Recommendations
1. Procurement Governance
Transparency and Governance are primary when it comes to public project. When it comes to the
procurement aspect of any Public Project, the below framework can be used to ensure holistic supply
chain management throughout the project (Hueskes, Verhoest, & Block, 2017)
Fig: Phases of PPP life cycle in which governance instruments may be deployed
In the BBC DMI project, the NAO (2011) noted that there was a lack of investigation in the area of ‘best
value for money’. Even though the initial contract indicated savings in short run, long term
sustainability of the project was risked. Hence, effective oversight of contracts on a case-by-case basis
is needed.
2. Competition
Siemens was awarded the Technology Framework contract based upon open competition. However,
with respect to the DMI, there was no bidding for the contract and it was given to Siemens (PwC,
2013). An open bidding process is ideal for such large scale projects as it gives scope to innovate and
promotes fairness in procurement in a public projects (Bauld, 2016). An ‘optimal procurement design’
can be achieved through contracts framed based on open competition (Spagnolo, 2012). Increased
accountability, openness and fairness in competition significantly improves the effectiveness and
efficiency of procurement (Herman & Yohannis, 2018).
3. Supplier Management
Supplier management strategy ensures revenue generation and business continuity (Wuttke,
Donohue, & Siemsen, 2018; Sunil Kumar, Routroy, & Mishra, 2018). With increasing competition in
the market, supplier management becomes crucial to obtain competitive advantage (Sunil Kumar,
Routroy, & Mishra, 2018). With the advancement of OTT platforms, BBC DMI didn’t have the
technological backing to support the future needs. OTT refers to “Over-The-Top” platform like Netflix
where the visual content is delivered to the customer via internet (Chen, Shyi-Shiun, & Han-Mi, 2018).
By creating a leaner and simpler organisation, BBC was able to deliver the future critical projects like
End-to-End Digital and MyBBC effectively (Morse, 2016).
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