Outsourcing Debate part 2

Arcus Global

Arcus Global
September 28, 2010

There seems to be a debate about the current drive for cost reduction forcing some of the councils to consider outsourcing. Sure: you are promised same or better for less, and you don’t have to worry your pretty little head about a thing. Your headcount drops too, and you may even get a capital injection – if not now, then perhaps in a few years time.
As you can imagine, its never that simple…

I have spent my career as the outsourcing (on the buy) side, with deals over 300M to manage and award.

Firstly the cost of proper selection and evaluation is high (several million), and has to be part of the business case, but almost never is. (Bucks county council recently cancelled a project with 4 of its districts – this was supposed to be a shared services outsource. After a year of work and several million spent internally, they cancelled it and it never happened). Will this cost be included in the cost of the next outsourcing project?

Secondly, in terms of lessons learnt: outsourcing will only work if:
1) councils really understand the cost drivers in everything they do, and what is needed
2) councils are prepared to standardise and accept a more “vanilla” approach to services
3) You are prepared to spend a bit more money to be able to truly focus on your core products and services

In my experience of Local Government, all of the factors are a firm NO. First one because if you do that, then you should be able to reduce costs yourself, if its cost reduction you are after. The second, Local Government always has a special way of doing things – that has been the major problem of shared services. On the surface the same, underneath, workflow, paper, people and process completely different. Some authorities perform over 2000 services – they simply cannot have “vanilla” because their residents aren’t. Third one, simple – age of austerity + so many of councils core services are delivered by the same people/systems/process who deliver internal services. Separating them is therefore difficult and counter productive.

The bottom line is: whilst a great idea, outsourcing is also very risky: its a catch 22 – in order to create a good contract you need to know the right SLAs, be able to protect your costs in the future, be able to manage demand, be able to understand cots (see above), and must find a vendor who is not much larger than you (or you will be ignored), wants to respond, will be reasonable and will not take you best people, and then sell them back to you for 2x the cost, whilst letting you deal with the costs of TUPE. If you can do all that, then you should be selling outsourcing, not buying it.

As a final “smack” consider this – more councils are trying at the moment to rip their existing outsourcing deals that to get new ones. I know of 5 that are doing it, or have just completed.

My opinion is that rather than outsource “your mess for less” (a total myth, no matter how much sharing you throw at it), councils should focus on improving the way they work internally. I am talking about efficiency, not cuts. Better systems, new working practices, resident service co-creation. There is a wealth of untapped potential there.