Procurement without boundaries

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Driving innovation in construction and housing.

I was recently asked to present on the topic of ‘innovation in procurement’ which is a particularly ‘hot topic’ across the housing and construction sectors.  Unfortunately, procurement is rarely seen as a facilitator to innovation when considered in this context.

This is a subject close to my heart as I am a passionate advocate of procurements role in value creation in organisations.  This is often a challenging position to take in housing and construction as procurement is often a peripheral and transactional function and the sectors are renowned for a limited degree of innovative or disruptive change, often for very valid reasons.

Like many other areas of society though this position is under intense pressure – inequality, scarcity of housing, safety and compliance, skills amongst other things are putting increasing pressure on existing business models and in particular on housing and the construction sector.  This increasing pressure is often a catalyst for innovation and market disruption.

I could have looked at the brief and discussed ‘procuring through new innovations’ looking at many of the developments in how we complete our source to pay processes and our analytics.  Recent developments such as Amazon Business are clearly disrupting this space.

This, although very exciting, is not where I see the real value procurement can create.  The real value is in the ‘procurement of innovation’ – How did Apple’s supply chain and procurement change markets and production, how will 3D digital printing change traditional industries, what will happen as AI, Blockchain or battery storage develop.

Cultural Deficit

Housing and construction have never been synonymous with disruptive innovation and are traditionally slow and at best medium adopters of change.  This though is not meant as a negative statement when you begin to understand the reality of these sectors.

In the first instance both sectors are incredibly highly regulated.  Often, with life changing consequences, regulation comes with a high degree of perceived risk for individuals.  The tragedy at Grenfell clearly evidences this.

Alongside this I believe there is what I define as a ‘Cultural Deficit’.  This can manifest itself in many ways:

  • An inherent desire to transfer risk to supply chains when procuring goods and services;
  • Organisations that set targets that support the status quo;
  • A high degree of perceived cost and risk of transitioning to a new way of doing things – in particular in asset management and construction; and
  • The personal cost of failure – if this goes wrong will I lose my job or future career opportunities!

So, what we end up with are pockets of adoption but rarely is this early adoption.  A great example of this is the ‘digital transformation’ agenda across the sector.  We are embracing and adopting new digital business models but much, much later than many other industries.

 

Pent-up Value

Again, this slow adoption can be acceptable in many cases.  But, I believe that some things are changing that may require our sector to take a different view.  The macro and micro economic and social situation that is prevalent across our sectors and increasing competition means that innovation will be driven by need.

Our sectors are actually doing an immense amount of creative and innovative things such as the use of financial investment tools to build and maintain properties, smart homes, health and social care technology, digital inclusion, Internet of Things, modern methods of construction, social value and social enterprise.

We can see as a sector we have a huge amount of ‘Pent-up Value’ that is being marginally exploited but could have significant impact.  What is challenging though is that amongst all of this, some key areas around traditional supply chains in development, repairs and capital expenditure are lacking any disruptive innovation on any scale.

The structure of the construction sector is highly fragmented with multiple tiers of supply chain and a high degree of sub-contracting.  This fragmentation and transactional cost drives huge inefficiencies and does not support scalable innovation easily.

Does Procurement have a role to play?

If I link this back to procurement, I think we have an interesting role to play.  This role though requires a future view of what procurement should be doing in an organisation.  It also asks the question ’do we have the right skill sets to support the evolution of procurement creating value through innovation?’  People and culture will be critical for our future success.

Our traditional procurement model in housing and construction supports typically, a centralised function with targets set around compliance, spend under management and savings and all supported by stringent process.  If I take asset management in housing as an example, procurements involvement only occurs long after any real value creation – often being engaged just to complete and police a sourcing exercise.

What though if our sectors adopted an alternative model where procurement was characterised differently.

Skills – Our recruitment and development processes focussed on skills much wider than EU procurement knowledge such as, stakeholder management, analytics, consultative expertise, commercial acumen, product development and innovation, enterprise, and networking.

Structure – We developed our teams to work in integrated procurement groups that worked in the business rather than on the business.  These groups critically worked throughout the contract lifecycle rather than just during the sourcing phase of activities -becoming an integral owner of value creation through category management, strategic sourcing, analytics, contract management, supplier relationship and performance management, risk management, product development and so on.

Measurement – Although traditional key performance indicators will still be relevant in procurement we must develop these and provide ‘weight’ to alternative measures of success.  Things such as time to market, ‘end user’ experience and satisfaction, product success, RoI, and a product or service to price and quality ratios.

Procurement can become an integral part of a functions success.  Ownership of championing the function, change management, horizon scanning, investment and funding because they are clearly integrated and aligned to the business goals.

A final word….

Who knows what we could achieve in construction and housing if we release the ‘pent-up’ value.  Maybe we could have properties that were fully enabled with sensors and repairs work was reduced significantly due to improved planned maintenance or we may be able to develop financial deals for new build at cost and builders would model in predictive maintenance costs for the lifetime of the property driving velocity into building new homes.

What is clear, is that for procurement to drive value through innovation, we need the right leadership, skills and desire.  With this I truly believe the housing and construction sector are on a precipice of a fantastic opportunity.

 

Steve Malone, MD at PfH

The future of procurement & supply management in social housing

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The Chartered Institute of Procurement and Supply (CIPS) commissioned Dr Louise Knight (Aston University) and Dr Jo Meehan (University of Liverpool) to undertake the first major academic study on the future of the profession since 2003.  The two-year study engaged business leaders, procurement leaders, practitioners, futurologists, and academic experts, to explore how the supply management landscape might change 15+ years from now.

In this article, Jo and Louise share some learning from the research project and consider some questions for procurement professionals working in social housing.

 

Artificial intelligence, resource scarcity, environmental destruction, political protectionism, wealth and health inequalities – the media coverage suggests that these megatrends are set to disrupt and transform all aspects of business and society.  While the modern world has always been in a state of flux, the pace of change is accelerating.  There are persistent challenges in the social housing landscape – the lack of affordable housing, regulatory crises, tensions between private and social housing models, the mergers of housing providers. As these interact with wider megatrends the future can start to look like an uncontrollable dystopia rather than a land of opportunity. In this new and uncertain future, how different will supply environments be?  How is procurement and supply management (PSM) positioned to respond?

 

Most methods for predicting future PSM issues tend to look backwards in order to predict the future, but the future is not necessarily a linear continuation of the past and present, and developments are not deterministic. Through our research, we argue that the best way to prepare for the future is to better understand how we create it through today’s actions, and through actively engaging in discussions on what the future could or should be. Shaping the future raises questions of what the desired endpoints are, and whose interests we serve.

 

Competing future scenarios: Titans and Networked

In our research, two competing plausible scenarios 15+ years into the future were co-developed with PSM professionals: Titans and Networked. The land of the Titans closely reflects the voice of the respondents and portrays a future where market power is ever more concentrated as, in each key industrial sector, a very small number of big corporates (the ‘Titans’ after which the scenario is named) become ever more dominant.  Markets are highly dynamic and unpredictable competing on (low) price and the Titan organisations drive and finance innovation. PSM algorithms deliver rapid, agile sourcing and contracting. To cope with the market power of Titan organisations, risk management and co-buying are critical activities.

 

 

The Networked scenario was not developed as an idealised counterpoint to Titans, but reflects the narratives seen in the professional and futures press where technology is used to re-distribute market power, and transitions to address climate change are critical.  Firms exist with a greater diversity of form, size, and competitive focus.  PSM strategies centre on regional networks, and strong data regulation is needed. Diversity and distributed power come at the cost of slower innovation, barriers to co-buying through lack of product standardisation, and there is a slowing of decision making to avoid stakeholder conflicts.

 

The full reports (available on request) provide a rich pen-picture of both scenarios’ details. Despite their fundamental differences, there is some shared learning for PSM around our preparedness in relation to market power, supply base changes, unintended consequences, biases in algorithms, and data regulation. While the content of the scenarios is interesting, they were not an exercise in prediction, and not the ultimate focus of the research project.  The mutually exclusive, competing futures are intended to serve as mechanisms to provoke, challenge, and seed debates on PSM’s future, its roles, and responsibilities.  As researchers, we were equally interested in what people didn’t discuss, as what they did address.

 

Playing the game better

Changes to supply markets as a result of technology and other megatrends were generally not fully considered – the assumption being that suppliers, market structures, and PSM practices would be similar to what we have today – albeit with transaction times speeded up and more visibility into supply chains.  Defining PSM’s scope and its lack of strategic recognition still overshadowed debates on the future of PSM, obscuring creative thinking, new ideas and ambition. As competition between social and private providers intensifies, PSM demands new thinking on its future role and impact, rather than being able to just play the game better.

 

Changing the rules of the game

Social housing requires PSM to consider the consequences, intended and unintended, positive and negative, at a wider systems level.  It is at this level of thinking that we see issues of value, social justice, and sustainability emerge as key indicators of PSM ‘success’ in social housing. The Titans and Networked scenarios raise questions about whether PSM’s current contracts and regulatory frameworks provide sufficient protection or incentive to handle asset-less business models, future data ownership, or collaborative networks. If PSM seek to shape and steer markets we need to question the desired end-point; who wins and who loses, and what is our role in determining the direction of travel.  These are complex questions requiring careful judgement and diverse viewpoints.

 

Changing the game

People struggled to link the longer-term implications of mega-trends to PSM environments.  There was a blind acceptance of future markets with little recognition that current actions –aggregated, over time – create future market conditions. This lack of attention to the long-term, cumulative consequences of today’s procurement decisions reflects the pressure to focus on approaches that promise ever more cost reductions, technical innovations and efficiencies. The operational PSM versus strategic PSM dichotomy considered only from an organisational viewpoint constrains our field of vision and masks collective responsibilities and accountabilities.

 

Strategic PSM is not just about looking further ahead on our current path.  We need to explore other paths and other destinations, and recognise the trade-offs of our choices on profits, communities, and the natural world.  If we are heading towards a seemingly uncontrollable dystopia, how can we go beyond playing the game better? Collective, cumulative impacts across organisations come to the fore and force us to question what we buy, why we buy, how we buy, and from whom.

 

Using futures methodologies highlights the difficulties of challenging assumptions and being truly future-focused. To actively shape more desirable, diverse and equitable futures, PSM needs to elevate thinking beyond the organisation, and beyond the supply chain.  We need to challenge and provoke the deeper, often hidden assumptions and ideologies that shape human behaviours and our profession. Although this can sound abstract, principles around responsible trade and social justice or short-term profit maximisation take root here setting the performative measures of PSM success.  In many respects, social housing already leads the way here, but we need to be careful of blindly imitating other organisations, as the commercial and social impacts of collective failure can be catastrophic.

 

A crucial point here is that futures are multiple, organic, malleable and adaptive, and as PSM professionals we can have real and significant agency in shaping change. The methodology developed in our research forces an uncoupling of present and future, which is challenging, but can be the key in creating desirable futures.  The impacts of PSM on society and our wider communities is important in all industries but for social housing with issues of equality, access to opportunity, and dignity at its heart, it is perhaps even more critical.

For an extended report CIPS members can access via this link: https://cips.org/en-GB/knowledge/procurement-topics-and-skills/innovation-and-technology-/future-of-procurement–supply-chain/

Non-members can request a copy from by emailing Jo or Louise (jomeehan@liverpool.ac.uk, L.Knight2@aston.ac.uk)

Materials: Six steps to strengthen your contract

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Every social landlord wants a materials agreement that delivers top quality, at the best price, for the life of the contract. Yet few manage to tick all three boxes, all the time.

Here, Jeff Edginton – materials category manager at PfH – discusses the foundations of a strong materials deal – and offers six tips on how to get the basics right.

Stress-test your current agreement

When was the last time you procured your materials contract? If it was more than three or four years ago then your housing organisation, like many, may have evolved and your existing agreement might not be entirely fit for purpose.

Maybe your organisation is now part of a group structure with new corporate standards. Perhaps you are using a materials contract inherited from a recent merger.

Reviewing the terms of your deal might help to remove conditions that are no longer needed. For example, your housing association could be paying for a service such as Call & Collect, yet raw materials or parts are now delivered straight to site.

You may have recently set up an electrical repairs team. Are you procuring the products they require at the best price? If your operatives are driving around to pick up parts and struggling with availability, would it be better for them to get everything from one, large central merchant that stocks hundreds of different lines?

Review your KPIs

KPIs are essential to effective contract management. They ensure your supplier knows what must be achieved and what you’re going to measure their success or failure against. But setting KPIs isn’t enough – it’s the monitoring of them that tells the real story. Get this scrutiny wrong and you may miss problems or negative trends early on before they develop into more major service failures.

If you do uncover issues, then just presenting a supplier with the results and saying, ‘you need to do better’, won’t work. You also need a clear system for acting on findings and rectifying issues.

Remember to review your KPIs regularly so you have exactly the right ones in place. Perhaps you have a set of indicators that measure cost and performance, but since you last put gauges in place, social value has become more of a priority for your housing association. Do KPIs need to shift so they consider a commitment to local suppliers, the creation of apprenticeships or other wider community benefits?

Build trust and equality with suppliers

Your relationship with suppliers is paramount to a contract’s overall success. Acting in partnership with your supply chain, explaining issues and seeking joint solutions will get better results.

Occasionally, a new supplier may take time to ‘bed-in’ to delivering a new service as conditions may be ones they are not used to. It’s vital that you don’t immediately go into confrontation mode, thinking that a muscular response will solve everything. This can set a relationship off on the wrong foot, creating a combative culture that makes it more difficult to resolve issues in future. Instead, if you work with a supplier, rather than against them, then, from experience, they will settle in faster and work with you even harder to achieve your goals.

Manage your product lists

PfH achieves value for money for its members through a core list that covers the most popular materials goods, identified via spend volume. However, it isn’t unusual to see ‘product drift’, whereby less of an organisation’s spend goes on the core products for which PfH has negotiated preferential rates.

To avoid costs creeping up via product drift, check spend with your suppliers at regular intervals. Ensure that staff are buying from the core list and periodically refresh the items on this list so they reflect your housing association’s current needs. At PfH we achieve this via regular review meetings and ongoing dialogue with suppliers.

Rationalise product lines

Members often focus on the savings they can achieve when initially negotiating contracts, but further savings can often be made by looking at how materials contracts are managed on the ground.

Product rationalisation is one way to do this. For example, a housing provider might buy several types of one particular building material, product or part. By working with the supplier to refine the number of lines; they benefit from reduced stock requirements. The housing provider’s operatives benefit as it’s more likely that the product will be in stock and the social landlord benefits from cost savings.

Review new goods

New products come to market all the time, including a supplier’s own-brand goods and leading edge, innovative products that may work quite differently from existing lines. To help members navigate the latest releases, PfH looks at how products work in practice and, where advantageous, works with members and suppliers to embed them into core lists at discounted rates.

Your suppliers should keep you informed of new products that may improve service delivery, reduce cost, require lower maintenance, be easier or quicker to install and have longer guarantees – particularly relevant when considering life cycle costing.

It takes time to get the fundamentals of a materials contract right. But these six tips will help you to start building a cost effective, high quality agreement that delivers a wide range of benefits for your organisation and its tenants throughout its life time.

Materials and Associated Managed Services: The materials framework helps asset managers deliver their strategic objectives with access to a wide range of products across 10 lots including electrical, building materials, plumbing & heating and renewables.

Details are available on the PfH website or contact our category expert Jeff Edginton on 01925 286377 or JEdginton@inprovagroup.com

Shifting social value to the procurement start line

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In the past, family fun days were the social value staple of some housing associations. But six years on from the Social Value Act, things are changing. Lawyer Andrew Millross explores how landlords can use procurement to make a meaningful difference to the communities in which they work.

 

Short-term ‘social value’ initiatives that offer little wide-ranging impact for tenants and come with hidden costs for landlords are, thankfully, becoming less common.

 

The sector is also wiser to the fact that social value must be linked to a contractor’s area of work. Unless your maintenance company also hires out bouncy castles, then a family fun day shouldn’t form part of their tender.

 

Housing providers are also more alive to the fact that they always pay for social value somewhere in the contract. Transparency is important; providers need to know how much they are paying for their social value outputs so they can check they are good value for money.

 

A classic “own goal” is asking a supplier to allocate a proportion of the contract price to “social value activities”. This just increases the contract price (on which the provider pays VAT), and also means that the contractor chooses where to spend the money rather than the provider being able to.

 

So, six years after the Public Services (Social Value) Act was first introduced, what other lessons have been learnt about how to secure lasting social value through procurement?

 

Identify what you want to achieve

Surprisingly, many housing associations don’t begin the procurement process with this important social value question. They should ask it right at the start of the process, when scoping what they want to buy. Instead, they ask their contractor what community benefits they can deliver, rather than thinking about what they, as the client, want to get in terms of a social value. This type of approach doesn’t even comply with the Social Value Act.

 

Some providers may want to create apprenticeships, work placement opportunities or develop school links. Others might want to get their contractors to host DIY training seminars, build a new playground or paint a community centre. These are all familiar outputs, but it’s worth considering a wide range of options. You might want to get more tenants from black and minority ethnic groups into maintenance careers, promote the use of electric vehicles or encourage your contractors to donate surplus materials to community groups.

 

Use good practice guides

Don’t reinvent the wheel when it comes to how you embed social value into contracting processes.  At Anthony Collins Solicitors LLP, we have supported the ‘Tradeswomen into Maintenance’ project by writing a free legal guide for social landlords, ALMOs and local authorities that want to address gender imbalances in the construction trades workforce through their procurement activity.

 

The Tradeswomen into Maintenance Legal Guide explains relevant equality and procurement legislation (including the Social Value Act) and sets out the steps clients can take to promote the creation of opportunities for women in maintenance careers. It includes template clauses for each stage of the procurement and contracting process which could also be used if your housing association wants to help other underrepresented groups into maintenance jobs.

 

The guide can be freely used and it is one of a number of good practice guides which aim to support landlords and other businesses working in the social housing and public sector to increase the number of women working in construction trades. Other guides can be accessed on the Mears website.

 

Invest in enforcement

A supplier promising to deliver social value at tender stage is one thing, but ensuring they deliver on this promise is another.

 

This means that good contract management is crucial to making sure suppliers deliver on their social value promises. The ‘let and forget’ culture that still prevails amongst many landlords makes this difficult as some still see contract management as a back-end process. Procurement teams must change this, setting out how a supplier will be managed from the start – right from when a tender is first being pulled together. They also need to make sure the right resources and processes are in place to manage the contract effectively.

 

The Social Value Act requires housing providers to consider, at the outset of each procurement process for services, what social value (if any) they want to secure. But putting community value at the heart of procurement in a meaningful, enduring way is not easy. Hopefully these pointers can help social landlords design their procurement and contracting process to generate real change in the communities they work in.

 

Andrew Millross is a Partner at Anthony Collins Solicitors LLP, a leading procurement and construction lawyer, and an active member of the Procurement Lawyers’ Association.

As safe as houses

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A Which? report published last month (15th February 2018) has highlighted the safety risk that faulty domestic household appliances can pose to residents. The investigation reveals that appliances such as fridges, freezers and ovens are responsible for over 60 per cent of household fires, with washing machines and dryers highlighted as the biggest culprits, causing over a third.

The number of household fires has stayed at a similar level for five years, causing close to 16,000 life threatening blazes since 2012 and demonstrating that little improvement is being made year-on-year to this worrying statistic. As a result, Which? is calling for government action via the new Office for Product Safety and Standards, which launched last month, to ensure unsafe goods are kept out of homes.

Ensuring tenants’ safety in their own homes is always a number one priority for landlords and choosing the right appliances and white goods is a critical consideration given the latest findings.  Without updated guidance from the government this can be a difficult responsibility and JLA believes that suppliers need to support housing organisations in finding alternative solutions when domestic options are currently failing them.

When it comes to communal laundries and kitchens or even within the home itself, JLA stresses that it’s important for landlords to remember that domestic equipment isn’t the only option available. Commercial appliances that have been designed specifically for social housing can significantly reduce the safety risk, providing all the robustness and longevity of an industrial machine, while still retaining the key benefits of a domestic appliance including the size and ease-of-use which is so important in promoting independence amongst residents.

From compact washers and tumble dryers to under-counter dishwashers and fridges, there is a range of commercial products to suit all social housing needs. In addition, JLA has been at the forefront of developing unique innovations in the fight against appliance fires such as its Sensor-Activated Fire Extinguishing (S.A.F.E) technology which automatically dispenses water vapour into the dryer drum if higher than normal temperatures are detected, preventing a fire starting.

As the market-leader for commercial laundry and catering equipment, JLA is committed to supporting social housing landlords meet and exceed standards for their tenants and prompted by the latest Which? report,  JLA is offering free consultations to all social housing organisations to ensure the equipment they are providing is fit for purpose and provide guidance and advice on improvements or upgrades.

The full Which? report can be viewed here: https://www.which.co.uk/news/2018/02/revealed-the-brands-linked-to-the-most-appliance-fires/

Housing Division at JLA

Established over 40 years ago, JLA is the market-leader in the supply and maintenance of commercial laundry, catering and heating equipment and works closely with Housing partners to provide all-inclusive solutions that meet every need.

www.jla.com                     @jla_Ltd

Tel: 0800 591 903

Six Steps to Successful Recruiting

With continuing pressure on funding, housing associations aren’t always able to offer high salaries, but there is much they can do to entice the cream of the crop.

Whitefriars frees up 85% of staff time with PfH framework

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When Rehman Akhtar began working for Whitefriars Housing as a building surveyor, one
of his first roles was to review asset management procurement.

The Rise of Centralised Heating Schemes

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Social housing landlords face constant government pressure to meet and improve on sustainability targets. The added strain of rising energy prices has seen centralised boilers and district heating schemes become increasingly popular in multi-dwelling residences. A highly efficient, centralised heat source helps buildings meet sustainability initiatives, such as the GLA’s ‘Be Lean, Be Clean, Be Green’, and other building regulations. The integration of Combined Heat and Power (CHP) plant within the system further improves the building’s energy efficiency.

 

Heat Interface Units (HIUs), located within apartments, are integral to the centralised boiler approach. They connect the space heating and domestic hot-water systems to the central boiler network and provide control functions, control devices and measure heat consumption.

 

Sales of HIUs have grown 85% between 2012 and 2017, from under 25,000 units in 2012 to nearly 45,000 in 2017.  This is still only a small proportion of the 1.6 million domestic boilers sold annually in the UK. With the Zero Carbon Policy coming into force in 2020, district heating and HIUs could be seen in up to 20% of all new build residences in the UK, with forecasts for 100% in multi-dwelling high rise buildings.

 

Advantages

 

There are several benefits to landlords and property managers.

  1. Centralised systems do not require gas distribution to each flat. This means easier maintenance, less safety checks and lower fire risk.
  2. One boiler is contained in a single plantroom not in each dwelling. Engineers and facilities management can carry out maintenance and gas safety checks more easily.
  3. The heat distribution system is more efficient compared to individual boilers in each apartment.
  4. Energy efficient CHP units can be easily integrated.

 

Disadvantages

 

Complex Billing

The landlord, rather than the utility company, bills the tenant. Third party operators offer landlords a site-wide billing solution. Billing systems must be identified by the design team and included early, as changing the billing provider may require infrastructure changes. The HIU and internal controls chosen will need to interface correctly with the billing system.

 

Uncontrolled Heat Dissipation

Pipework distributed through communal areas can overheat. Pipework distribution and corridor ventilation require careful planning during the design to limit overheating in common areas.

 

Product Quality

Not all HIUs are made equal. Some are less intelligent and harder to control, which can affect performance. Simple models are easier to maintain and most of the internal consumables are readily available to a good plumber. More sophisticated units give the user greater control and can be remotely operated and faults diagnosed via a data link. However, these units require a manufacturer’s approved engineer to maintain them, and use more specialist consumables.

 

Customer Experience

Depending on the controls of the unit the time taken to deliver hot water to the tap from the HIU may differ significantly between units. The delay may not meet the customers’ expectations for instant hot water.

 

In conclusion, HIUs and centralised boiler systems provide energy efficiency to multi-dwelling buildings. However, models, manufacturers, third-party billing options and pipework distribution must all be determined as part of the new building’s design. The sooner the kit has been identified and integrated into the design, the greater the benefits to the landlord, building manager and residents.

 

Steven Norwood is Associate Director at Crofton. He leads a team of building services engineers from our London Bridge office.

 

Crofton offers electrical, mechanical, structural and civil engineering design consultancy. Our multi-disciplinary teams have experience across sectors. Our offices in London, Kent and Sussex serve clients across the South-East.

Discover more about our Technical Support Services framework

 

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Communication Without Borders

Unified communications are offering housing associations more effective ways to liaise with tenants and residents. Jonathan Sharp explains the world of WebRTC