Outsourcing by Colin Cram FCIPS

Since 1990 it has sometimes seemed that no UK government could outsource enough. The Labour Party, for the information of those readers outside the UK, is generally thought to be the most left wing of the main political parties and, as its name suggests, has a close relationship with the trades unions. However, when it was in power from 1997 to 2009, the pace of outsourcing increased. This happened particularly in local government and was possibly because the Labour government changed the policy from lowest price to best value for determining which supplier would win any contest. That took out much of the risk of outsourcing and ensured that services could be maintained at an acceptable level.  The downside of going for lowest price showed in the National Health Service in the 1980s, when the Conservative government insisted on outsourcing the cleaning – a high risk strategy as standards dropped and we saw the spread of ‘super-bugs’ such as MRSA.

The result of the increased outsourcing by the public sector over the past 20 years has been a growth in outsourcing companies and for some UK ones, such as Capita, which employed about 6 people in 1986 when I first visited them, to become global players with turnovers of several $bn. So it would seem to have been good for the UK economy.

There seems little doubt that the drive for outsourcing public services in the UK has created an international ripple effect. But what is the rationale for outsourcing? Is it little more than fashion? This is a serious question, because the UK public sector outsourcing climate has changed with the current more right wing government. Firstly, Francis Maude, the minister responsible for driving improvements in central government efficiency, held negotiations with major suppliers, many of whom were outsourcing companies, and secured cash savings of some $1300m. Secondly, the government expressed concern about the quality of many of the major contracts, arguing that having several smaller contracts rather than one mega-contract would allow for more creativity and a greater diversity of suppliers. In short, it should deliver better value for money. Thirdly, it is now arguing that the ‘voluntary’ or non-profit making sector can provide many services more cheaply and better than either public or private sector ones.

Fourthly, however, it may be the economic squeeze that will have the biggest impact. Outsourcing contracts, particularly back-office services, delivered investment in new systems and savings that were typically 2% year on year. They were also a means to outsource problems. That was fine in times of plenty. However, local government in particular has to deliver much bigger savings. Outsourcing is not delivering enough and other means to save money are having to be found – slashing services, ‘lean’, better use of IT, joint working with other councils and better procurement. Some local authorities that one would expect to be friendly towards outsourcing are backing off, Cornwall and Suffolk for instance, following rebellions within the ruling party. Also, some outsourcings have gone wrong and an IBM venture, Southwest One is reported to be suing one local authority over an outsourcing contract that appears to have gone badly wrong for both parties.

It may be that the great days of the systems integrators are over, the outsourcing equivalents of the mainframe computer. However, one should not write them off. Companies such as Capita have shown great ability to adapt, but the change does allow for smaller, nimble companies to get a bite at the cherry. We can also expect to see a growth in business with the voluntary sector – in line with the much derided, but remarkably resilient ‘Big Society’ concept of the Conservative Party at the last general election and devised by ResPublica. Will what looks to be a rapidly evolving approach to outsourcing in the UK public sector also ripple out to other nations?

 

Colin Cram, a Fellow of the Chartered Institute of Purchasing and Supply, held senior procurement positions in the public sector for over 30 years, including central government, higher education, scientific research and local government. He was responsible throughout for initiating and implementing innovative strategies for procurement, shared services, outsourcings and organisational re-engineering.

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