Why the public sector needs more outsourcing

Just a quick follow up to yesterday’s piece around outsourcing.

It drew this comment from "Bitter and Twisted", our regular and much valued reader / cynic.

“Peter, you describe all sorts of problems with public sector outsourcing, yet still cling to the ideology that Outsourcing Is Good?”

Well, that is a very good point! I suppose in the context of public or private sector outsourcing, I am what you might call a sceptical supporter. It seems very clear that "outsourcing" in its broadest sense is essential for pretty much every organisation these days - the world is too complex for anything else. Even a small organisation such as Spend Matters has some technical support, some help with our mailing lists and newsletter, an accountant..  and so on.

But I acknowledge that too often outsourcing has been executed by people and organisations who didn't really know what they were doing, placing business in the hands of organisations more concerned with growing profit than giving great service. Done properly, however, it must be an important business tool. And if you need persuading that the Government could do with some further external expertise, consider this.

One of the central Government "flagship" shared back-office service centres, run by civil servants, has accounts payable as one of its key service lines, but can only accept invoices by post.  And I mean “only” – not as an option, but as the only possible route. They can’t accept a Word document or pdf by email, let alone e-invoicing.

Produce the document, print it out, hard copy, put it in an envelope, find the address, find a stamp (I know they’re in the drawer somewhere…), walk to the post-box, then wait for payment, hoping that the invoice did actually arrive at the other end of the country.

And that's just one reason why there is still significant scope for Whitehall to make more use of outsourcing.

Voices (7)

  1. Huhh?:

    Unfortunately I’ve never seen outsourcing to a totally external company EVER deliver benefits, except for the outsourcing organisations! All that ends up is poor service, lack of staff morale and the huge headache and mess of reintegrating a smashed function back into your organisation. As an aside – -I suspect there’s money in a training course around “What next when your outsourcing explodes in your face…”

    The only time it works is when all parties have nuts in the vice and payment is contigent upon success. Contracts let on a sensible risk/reward profit % for all parties…

    As government specialises in have a framework of the vultures they’re always going to be ripped on any outsourcing deals.

    I mean where’e the IBM dude when you need him to pop up and defend big blue’s track record in the face of any financial facts…

    1. RJ:

      “I’ve never seen outsourcing…EVER deliver benefits” but “the only time it works is when…” – leaving aside the contradiction in the two statements here, I think you’ve just answered the question.

      As most of the readers here should be switched on to the benefits of good procurement it is surely self-evident that high quality outsourcing can and will deliver benefits to any organisation whether public or private sector. The problem is that so many outsourcing exercises are undertaken with a poor understanding of objectives, the scope of requirements and the true internal costs (and value/benefits), are driven by short-term goals and with little consideration as to how they will be managed on a long-term basis.

      As you rightly say, where the service provider has a real commercial interest in the long-term success of the initiative, the outsourcing organisation creates an effective structure for managing the delivery of service (including management by output rather than just “lifting and shifting” the in-company team, processes and practices) and the parties are not just interested in headline cost reductions in the first 12 months then you’re likely to deliver.

      Unfortunately, whether in the public or private sector, headline-grabbing management seeking a quick fix are often the main driving force, giving rise to the horrendous statistics on how many outsourcing activities fail.

      Working for an outsourcer myself I know which of my clients get more value out of me and they’re not the ones just looking for 25% savings in the first year.

      1. David Orr:

        Dear RJ,

        Which outsourcer do you work for please?

        Can you priovide some examples of successful outsourcing contracts please?

        Sureley effective management and relationships is something an enlightened outsourcer woudl advocate and supply or walk away from the deal (short term porfit & sale commission notwithstanding)?

        1. RJ:

          Dear David,

          As I am not part of the sales or PR team in my company, I post on this forum in a personal capacity.

          However, I’m not sure if there is any way Peter or SpendMatters can put us in touch with one another directly but if so I’d be very happy to give examples of beneficial outsourcing deliverables – both where I’ve been part of the delivery team and where I have been the procurement manager handling the outsourced activity. I’d also be honest enough to share some war stories where it’s not gone well and why, in my opinion.

          Effective management is indeed something my organisation advocates and often “educating the client” is a key component of our long-term contracts. We have also walked away from deals where we don’t believe we’re adding significant value.

  2. David Orr:

    Peter – You didn’t exactly rise to the challenge I posed on your origimal posting around Local Government and outsourced “back office” in so called partnerships and joint ventures like: Liverpool, Suffolk & here in Somerset (through a 75% owned IBM company called South West One).

    To recap:

    It was reported in November 2011, 4 years into the contract, that cashable savings (of the IBM/SW1-stated £192m target) are just £7.6m! Yet IBM/SW1 operate “category-based” procurement using their own implementation of SAP?? SW1 were even awarded a prize for their procurement plans (before a penny was saved)! Was that CIPS?

    Add to the £50m charged by IBM (through SW1) for “transformation”: £4m to let the contract and form SW1, £3m for interest on the £30m loan and £5m to staff the contract management team (over 10 years) then you have the equation that:

    Costs to Date = £62m whilst promised savings are just £7.6m (of “assured savings” £192m). Do the maths.

    Following massive “front loaded” 28% cuts in Somerset in 2010/11, the elderly and other vulnerable adults are now only given care if their needs are “substantial” (formerly intervention was for “moderate” needs – expect NHS beds to start blocking); Libraries (illegally) closed; youth services decimated; rural bus services cut right back etc.

    Those so called “assured” back office & procurement savings were really necessary for real frontline services to real people. Very real impacts.

    I am in favour of accessing external expertise, but would usually prefer an in-sourcing route to maintain control and ensure skills transfer etc.

    We seem to have lost sight of “investing in people” and then fall prey to the aswer being to outsource or contract in all expertise.

    Many of these skills are strategic. They need to be invested in people whose loyalties and aims are yours!

  3. bitter and twisted:

    small office next door…couple of laser printers and delivery kids……ker-ching

  4. Ian Makgill:

    There’s another good reason aside from cost-savings, outsourcing provides also provides opportunities for social enterprises and charities to get involved in public sector delivery.

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