It seems likely that the pace of public sector outsourcing is going to continue to increase as central and local government seek to reduce the costs of service delivery further. The challenge for the sector is to ensure they have the public support, systems and, most importantly, the management skills to deliver this approach successfully and coherently.
While outsourcing has long been accepted in the private sector, there is still a degree of public mistrust about its application to the public sector with fears about privatisation and loss of jobs. The public sector also faces the particular problem that any outsourcing will be subject to parliamentary and press scrutiny. Setbacks are quickly exposed and any turnaround has to be carried out while coping with increased attention and criticism. In contrast, in the private sector, exactly the same challenges are usually dealt with away from the media spotlight.
Much of the debate and criticism of public sector outsourcing has focussed on the process that leads to the procurement and the signing of contracts. While there have been a number of high-profile problems, there are also examples of excellent procurement and contracting which often go unrecognised. The importance of getting the contracts right is now widely accepted. While continued hard work will be needed to ensure best practice is followed, in both the public and private sector it is an area where customers and suppliers know – at least in theory – how to get the best contracts in place. The fact that mistakes are still made does not reflect a lack of industry knowledge, but it does mean we must be consistent in the identification and deployment of the right skills. The next critical challenge in achieving successful outsourcing is one that is much less widely understood: the need to ensure the contract is effectively managed once it is in place.
Organisations understand at a theoretical level that an outsourcing arrangement must be managed well, and that this means they have to apply the right capabilities to overseeing the arrangement. In practice, they often default to giving these responsibilities to the procurement or service management teams. The problem is that people in these roles do not always have the right blend of skills to provide that effective management. A particular mix of commercial acumen, relationship management, and operational pragmatism need to be applied in an increasingly complex environment.
Many organisations have not yet realised that these are high-level specialist skills that are simply not available amongst their existing people. Even where they do recognise what is needed, they then face the key difficulty that these skills are in short supply in the private sector as much as the public sector. If they can find the people, they are expensive and very much in demand. For the public sector the problem is made harder because it simply cannot afford the market rates.
And so, it needs to look at alternatives. The first of these is to find ways of developing talent within the organisation. This needs to be backed by a willingness to provide significant incentives to retain that talent because of course those people will undoubtedly receive lucrative offers from the private sector.
A second option is to outsource some of the management. We are seeing this happen in the rise of the service integrator and manager (“SIAM”) model to manage large-scale IT deals. Effectively, this is the outsourcing of the management of multi-sourced arrangements. The Cabinet Office has made it clear that it wishes to see this approach adopted more widely. The challenge here is that the SIAM market is itself immature. While there has been some over-confident marketing from some quarters, there are few organisations able, or willing, to take on this work and very few people with the skills required to address the complex commercial, legal and operational issues of implementing and managing such arrangements.
The final alternative is to hire interim help, which provides a short-term solution but is not sustainable over time.
What is clear is that all of these alternatives need to be underpinned by a shift in focus across the industry to make the necessary investment required to address the lack of skilled people to manage outsourcing arrangements. We must quickly collaborate across the outsourcing community to identify the necessary skills and capabilities required for effective management. This needs to reflect a clear understanding that this is not just about service management but also about developing the skills that are appropriate for an increasingly complex world of multi-sourcing.
The next step must be to rapidly increase the maturity of the SIAM market. The offerings in this area are in their infancy and while there have been some notable wins for some providers, the clients still see the services as new and untested. If customers and providers can collaborate more on what is being offered, both sides have confidence that they are viable options. By working together in this way, we can accelerate the pace at which these offerings mature.
We will also need to develop new training programmes through a private/public sector collaboration to increase the base of available resources and skills. Any courses in sourcing which are currently available spend very little time on the management disciplines, and even less time on developing skills and capabilities in these areas. This further underlines that there is a gap that must be filled urgently by developing the knowledge needed for service integrator roles.
Finally, organisations will need to identify the people with the ability to move into these management roles and embark on a programme of sustained talent development to support them to take on that activity.
Underpinning all these principles is the need to recognise that the challenge of finding, retaining, and developing talent to address these issues is huge and requires major investment. In spite of the continued pressure to reduce expenditure, it is essential that the public sector (and its political masters) accepts this and secures the right skills before embarking on significant sourcing exercises. Recruiting and paying for these scarce skills may not be cheap, but the cost of ineffectively managed contracts and poor service integration will be far greater
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This article was first published in Outsource Magazine.