Outsourcing: Truly the work of the devil?

devil work

“It’s not the tools that you have faith in – tools are just tools. They work, or they don’t work. It’s people you have faith in or not. Yeah, sure, I’m still optimistic I mean, I get pessimistic sometimes but not for long.” 

Steve Jobs

 

Background

A broad definition of outsourcing is “the contracting out of an internal business process to a third-party organisation”.  It is by no means a new concept, but the manner and frequency in which it is now applied – and that there are many successful global businesses dedicated to providing outsource solutions – has certainly changed the way in which both public and private sector has operated for perhaps 30 years.

The political debate is very much focused on the ethical issues which arise when a public service is subject to outsourcing. The motivation of the service provider (pursuit of profit) over the delivery of outputs to the community, especially where there are considered to be possible negative impacts by potential infringements of civil rights for example.

From my decade of experiences working on contracted services, with a number of different commercial organisations, has provided me with experiences and knowledge to draw my conclusions on how the public sector might benefit in future.

The principle potential benefits include:

1. Focus on “Core Activities”
It might be argued that strategic planning, policy development, and casework are the core of government.  The delivery of the myriad of services which a public body are legally required to provide, or which are considered as necessary or a local priority, is also amongst them but only insofar as ensuring the desired outcome is met.  Of course, some public bodies do provide direct services but they will also have clearly defined “core business” with many support and ancillary services too.  It will not matter to most stakeholders or service users the means of delivery provided it is to the required standard.

2. Reduced Costs and Enhanced Efficiencies
The nature, scale and costs of your support services, such as HR or IT, will correlate with the complexity and diversity of your structure and business interests.  Also, if you are not providing a particular service directly then you do not need to provide HR, training or payroll for those staff, for example.  These will provide the opportunity to reduce staffing levels, or perhaps re-allocate to address new or additional tasks.  A side-benefit is that the operating costs for the organisation and process will be identified as part of the preparatory work.  This will help in the delivery of future efficiencies or process changes if required, or else if there is a need for business change.  This can be particular helpful if the focus of your work is subject to political change of programmes and priorities.

3. Reduced Overhead
The costs of support services are high, and require specialist skills, training, equipment and IT.  The outsourcing of these services reduce cost, and also demand for accommodation and associated costs too.  An enhanced benefit can be realised if, for example, there is a requirement to provide a small number of specialist vehicles.  There are significant savings if solution can be provided by a fleet management solution removing the need for vehicles, support, staff training etc.

4. Operational Control
Operations with high running costs should be considered for outsourcing alongside other solutions such as staff reductions.  Teams which may have evolved over time delivering disparate or ad-hoc services, or those which have poor reputations or performance issues may also be appropriate for outsourcing. It can be an effective tool for the delivery of change management or rationalisation of your business resources.  An outsourcing company can provide management skills, resources and a focused drive to succeed which otherwise might take years to deliver.  A complimentary benefit might be some much needed skills transfer, such as Change Management.

5. Continuity & Risk Management

Outsourcing will provide a level of continuity to the service – if necessary mitigated by penalty costs – while reducing the risk that a poor level of service brings.  This is possible because of heightened resilience through running multiple contracts providing access to staff and resources where required.  The penalties, or perhaps bonuses, within your contract should provide sufficient incentive to protect the daily operation.  The core business should be shielded from extraneous demands should there be operational impacts or incident.

Of course many of the benefits might only be realised within a “sliding scale of success” subject to how well the contract and relationship with your service providers are managed.  Stakeholders need to “buy in” that returns will not be instant, and provided with some narrative that during the mobilisation period there will be disruption.

During this early stage in particular assurances may need to be provided that there are contingency arrangements, and you remain responsible and ultimately own the service should there be a failure:

1. Loss of ownership and influence
A notable risk is the alienation or even hostility of stakeholders and service users if you do not continue to actively engage with them.  You should consider thoroughly the consequences of retracting yourselves from the community you serve otherwise it is likely that the outsourcing venture will then be seen as the surrogate of your organisation and may even start to initiate work or make decisions on areas of operation which are inappropriate.

2. Loss Of Managerial Control
Whether you sign a contract to have another company perform the function of an entire department or single task, you are handing over the management and control of that function.  Your outsourcing company will not be driven by the same standards and mission that drives your organisation, unless these have been specifically articulated within the contract. They will be motivated make a profit from the services that they are providing for you.

3. Hidden Costs
Remember, this is the outsourcing company’s business, they do “this” everyday. Their legal team will happily agree to a flawed contract which is in their favour, therefore always assume that you are at a disadvantage when negotiations begin.  You will sign a contract with the outsourcing company that will cover the details of the service that you think you want them to provide but anything not covered in the contract – and there is usually lots – will be the basis for you to pay additional charges.  If you have a positive relationship with your supplier there may be an element of goodwill but this will quickly diminish as costs accrue.  You must also remember that you remain responsible for your legal, procurement and contract management costs for the life cycle of the contract.

4. Threat to Security and Confidentiality
This should be a primary concern for any public body especially.  There must be an absolute assurance by commitment and process that information will be kept secure and managed in accordance within the applicable legal framework and other appropriate policies.  If you have payroll, medical records, or any other confidential or restricted information that will be transferred to the outsourcing company, there is a risk that the confidentiality may be compromised.  Evaluate the outsourcing company and satisfy yourself that your data is protected, processes are regularly audited, and the contract has a penalty clause if an incident occurs.

5. Quality Assurance & Responding to Change
The outsourcing company will be motivated by profit. Since the contract will fix the price, the only way for them to increase profit will be to decrease costs. As long as the service delivery targets are met they will continue to get rewarded. There must be a process of quality assurance which provides you with sufficient management information to satisfy you that any reduction in resources is not impacting upon quality of output. In addition, you will lose the ability to rapidly respond to changes in the business environment. The contract will be very specific and you will pay extra for changes, without any allowance or encouragement for capital investment or use of new technology which might provide long term benefit to your organisation. Essential that public sector contracts do protect business changes which are required by local or naitonal policy directives as well as legal changes, there might be unavoidable costs attached subject to negotiation but the mechanism for change must be robust and responsive.

6. Their reputation becomes YOUR reputation…
Since you will be turning over part of your operations to another party, you will now be tied to the financial well-being of that company as well as it’s reputation.  It is critical that you obtain appropriate level of assurances and if necessary securities to support any contingency arrangements which might be necessary. The financial failure of a service provider will not only impact your reputation but may also leave service users vulnerable or at risk.

The other side of the coin
There is no hiding from the fact that the reputation of outsourcing companies is that they aggressively cut costs, which impact on workers with job losses and reduction in wages.  It is the responsibility of outsourcing companies to decide on their operating principles, and to approach the marketplace accordingly.  One day this may result in poorly conceived plans not being competed, it would certainly ensure clear daylight between ethical operators and others.  Perhaps it might also further encourage a greater number of positive and progressive proposals from public bodies too.

The burden of responsibility to ensure that contracts reflect the principles and standards must rest with the owners of the contract, who set the terms and conditions, (and surely for any level of government these should be within standing policy).  It would nevertheless be refreshing for ethical issues, including statements on diversity, environmentally impact, and trade union recognition, to be stated principles from the outsourcing companies.

Dig deep and wide foundations
It is essential that prior to embarking on the outsourcing route the full cultural and business impacts are fully assessed. Even if you are fortunate, you are unlikely to realise a significant benefit within the short-medium term.  The complexity of the contracted service; the known issues which might impact change management plans including community hostility, workforce anxieties, and implementation of new technology are all considerations for determining the timeline for full mobilisation and maximum benefit.

There is of course a cost to the organisation in the preparation and management of any outsourcing arrangement.  Any consideration of cost benefit must include your set up costs in the scoping, negotiation, letting, and internal change management. An ongoing cost will be the contract management (performance and commercial) and relationship management alongside your outsourcing partner.  To me this is the single most important factor of any successful outsource https://deanlreeves.wordpress.com/2013/08/01/do-you-mean-a-contract-manager-a-horse-with-stripes-is-still-a-horse-not-a-zebra/  and as such must be resourced to both minimise risk and promote opportunity and innovation within the contract. My only additional comment at this time is that the appointment of a good “contract manager” is proportionate to the risk and benefit ratios to the overall value of the contract.

The scoping, and then the assessment of bids, for the contract is what identifies and determines the framework for future delivery. This is the opportunity for the service requirement to factor in ethical factors including diversity policies, environmental impact statements, resource sourcing and staffing matters.  A responsible organisation will promote their principles and want to ensure that any partner reflects their same ethics in their delivery.  If you are intending that the product delivery at base cost is the only concern then of course many of the risks reported above become heightened.

It is critical that consultation with stakeholders is “far and wide” at every stage of the process from “scoping” through to contract award, mobilisation and day-to-day operation.  It may not be possible to address all needs, wishes or concerns but the “buy in” to the process is invaluable in terms of implementation and onward management.

Where a contract is “seen” to fail by stakeholders, although it may be technically compliant, the position still needs to be recovered.  The “failure” might be the result of any combination of poorly scoped contract, a failure of stakeholder engagement or perhaps a breakdown of the relationship with the contractor.  It is however something which can readily be picked up by the media, and add to a negative public perception of outsourcing.

Social Enterprise
There has always been private involvement in the delivery of public services.  We continue to live in a period of austerity, and there is little likelihood we would ever again have the resources in future to deliver solely through government.  The reality is that when a service is outsourced the very same staff on transfer are delivering the service.  The outsource provider hold both legal and contractual obligations to meet, and should be subject to ongoing review and scrutiny.

What service an organisation might consider for outsourcing, and the terms on which it is done, will be subject to shareholder or democratic account.  Is there really a considered view that any level of local or national government there is universal enlightenment promoting ethical delivering of essential services? A few individuals aside I certainly have no experience of the State operating “of the people, for the people”.  Under these circumstances I find it difficult to raise an objection against outsourcing on moral grounds.  Where I consider there to be legitimate debate will be the individual applications which is the ground politics will be fought over.

Founded on the principles of private initiative, entrepreneurship and self-employment, underpinned by the values of democracy, equality and solidarity, the co-operative movement can help pave the way to a more just and inclusive economic order”

Kofi Annan

I have written previously  (social enterprise: opportunity or threat) on the opportunities for genuine democratic and community engagement in providing services through social enterprise.  Innovative and progressive organisations looking at outsourcing should consider how to encourage delivery through social enterprise. Equally, outsourcing companies should look to work with local suppliers and support either through formal partnership or else as a commitment to enhancing the wider community benefit which may not be articulated within any contract.  This is the type of behaviour which will enhance the reputation of a valuable tool.

The Final Word
The word “outsourcing” carries baggage.  There is no hiding that any combination of poorly constructed contracts, lack of contract management and an outsourcing company focused on profit alone seem to provide an open invitation for failure. It is surprising recent events have so far not seemingly provided sufficient motivation for all parties to change their behaviours, but it should not detract or discourage the use of outsourcing as a beneficial tool for the delivery of public services.

It is right that there should be debate on the application of outsourcing but in itself, but arguing that the pursuit of profit to deliver public services is by it’s nature wrong does not sit with the social history of this nation.  Whether it be the philanthropy of the 19th century, the provision of services through taxation or the coming “payment of results” all delivered services from the pursuit of profit.

I certainly see no social ownership or socialist agenda pursued through council or government providing centralised services delivered through bureaucracies – certainly too few success stories in delivering change.  I would prefer that the terms of outsourcing contracts were specific and provided a genuine opportunity for co-operatives, worker’s mutuals, community projects and supplied by local companies.  My final words are that outsourcing has a role to play; we should make it work for the benefits it provides and in the interests of the many not the few……and if for no other reason I can say with certainty it is not going away anytime soon.  But the final final word goes to….

“Capitalism has improved the lives of billions of people — something that’s easy to forget at a time of great economic uncertainty. But it has left out billions more.  They have great needs, but they can’t express those needs in ways that matter to markets.  So they are stuck in poverty, suffer from preventable diseases and never have a chance to make the most of their lives.  Governments and nonprofit groups have an irreplaceable role in helping them, but it will take too long if they try to do it alone. It is mainly corporations that have the skills to make technological innovations work for the poor.  To make the most of those skills, we need a more creative capitalism: an attempt to stretch the reach of market forces so that more companies can benefit from doing work that makes more people better off.   We need new ways to bring far more people into the system — capitalism — that has done so much good in the world.”

Bill Gates

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2 comments

    • …and that is where the opportunity sits. Outsourcing can be enhanced as a tool for community benefit, or it can be used to reap profits for “cheap” contracts. It is for the contract owners who decide the terms and outcomes…..it is this part of the process which need to be more open and democratically accountable.

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