Best Practice Group and the History of Serco

The Best Practice Group (BPG) and their MD, Allan Watton, are genuinely deep experts around business process outsourcing contracts and what makes them succeed or fail. They work in both private and public sectors, and probably have as much experience as anyone for instance in how local authorities let and manage outsourcing contracts.

The firm also regularly has interesting articles and blogs on their website, and generally produces strong and useful content. The latest article is the first of what promises to be a four-parter from Watton, all about the rise and fall – and perhaps forthcoming rise again – of outsourcing giant, Serco.

I didn’t know all the background to the firm, so that was interesting to learn. Serco emerged years ago from a division of American industrial giant RCA.  (RCA was – and is – also a record label of course. I seem to remember them being particularly strong in the Glam era...)

"In 1929 the Radio Corporation of America decided to spread its wings across the pond with the formation of RCA Services Limited, a UK subsidiary dedicated to supporting the burgeoning cinema industry as it moved from silent movie era into the first talkies".

Many years later, after a management buyout, the firm became Serco – short for “Service Company” of course. One key comment in the article is this - discussing the change from a technical organisation when part of RCA to a managerial operation, which in time became Serco.

“... it turned out that the skill that they most needed was the talent to efficiently and effectively manage people, to get them to do what was needed. They reinvented themselves as a management organisation and it was this move that catapulted them to new heights”.

That leads to a fascinating philosophical question really – just why and how did Capita and Serco (and others in time) win so much work, without in all truth being deep technical experts in terms of many activities they picked up from the public sector? How could they take on all sorts of disparate areas and (apparently) perform the work better and cheaper? A skill to “manage people” is important, but why was that seemingly enough to build a huge business?

Watton says that the private sector “recognised that outsourcing some of its more mundane or repetitive tasks could free in-house talent to concentrate more productive or profitable endeavours”. But that freeing up talent argument does not really hold in the public sector. So why did the growth in public sector outsourcing come to pass?

You have to ask whether it was really a failure of the public sector to get to grips with good management practice and drive efficient operations – and perhaps also an element of paying above the true “market price” for certain roles (which arguably also indicates a failure of “good management”).

So Serco, Capita et al could take over almost any type of work, and know that they could drive savings out of it simply through managerial competence. That would generate enough savings to offer the client some benefit and make a profit themselves. Now the cynics might question whether the firms did actually achieve this, or whether it was all smoke and mirrors – get in and then re-negotiate the contract upwards so actually the outsourcing was not in reality better value. Or maybe it has been a combination of both factors; some genuine management capability benefits plus some manipulation.

The other question is this – if failures in management led to the outsourcing boom, then what about the capability of the public sector to manage the outsourcers once they have won the contract? Well, we have some historic evidence that might suggest an answer, but let’s leave that diatribe for now. Do read the BPG article, and we look forward to the next three in the series!

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First Voice

  1. Dan2:

    Capita, Serco et al – around at the right time for PFI?

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