Central and local government are going to continue to look to outsourcing to help them both reduce the costs of service delivery further and provide more integrated services. The challenge for the sector, both collectively and at individual Local Authority-level, is to ensure they have the public support, systems and - most importantly - the management skills to deliver this approach successfully.
Good progress has been made in many of these areas. The importance of getting the contracts right is now widely accepted and smarter approaches (such as e commerce) are speeding up procurement processes, although there is still more to do in this area. However, the next major critical challenge in achieving successful outsourcing is one that is not well understood – the need to ensure the contracted service is effectively managed once it is in place.
Organisations understand, in theory, that an outsourcing arrangement must be well managed. They recognise that this means they have to apply the right capabilities to overseeing the arrangement, and there are strong service management process frameworks such as ITIL® to draw upon. The problem is that, in practice, the organisations often default to giving the lead responsibilities solely to the procurement department or service management teams that are dispersed across the business operations. There is then a further challenge in that people in these roles do not always have the right mix of skills to provide the effective management needed to join up the services. Suppliers can then inadvertently reinforce this through their own lack of integration with multiple sub-contractors.
The reality is that successful outsourcing needs a particular mix of skills including: commercial acumen, relationship management, and operational pragmatism and these need to be applied in an increasingly complex environment. These are high-level specialist skills that are unlikely to be found in organisations’ current workforce. Even where managers do recognise their skills gap, they will discover that people with these attributes are in short supply. This is true of the private sector as much as the public sector. So even if they can find the people, they are expensive and there is lots of competition to recruit them. For the public sector this is even more difficult because it simply cannot afford to pay the going rate in the market.
So, the sector needs to look at some alternative options. The first of these is to find ways of growing talent within the organisation. That needs to be backed by a willingness to provide significant incentives to retain that talent because once they have the skills, the private sector will undoubtedly try to poach them..
A second option is to look at outsourcing some of the management. We are seeing this happen in the rise of the service integrator and manager (‘SIAM’) model to manage large-scale ICT deals where the management of multi-sourced arrangements is effectively outsourced. There is growing support for this approach with some clear signals coming from the Cabinet Office that they would welcome its wider adoption. The difficulty is that the SIAM market is itself immature. Despite 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 recruit interim skills to fill the short-term gap but clearly this is not a long-term stable solution.
All these options underline that there needs to be a broader shift in focus by the industry to secure investment in developing the skills required to manage outsourcing arrangements. That should start with rapid collaboration across the outsourcing community to identify what skills and capabilities are required for effective management. This needs a clear-sighted view that these go beyond traditional management and include a whole set of broader skills that are needed to deal with an increasingly complex world of multi-sourcing.
At the same time, we need to focus on rapidly increasing the maturity of the SIAM market. While there have been some notable wins for some providers, the clients still see the services as new and untested. So there is a real need for customers and providers to collaborate more on what is being offered. In this way both sides can gain trust that SIAM really does offer a viable way forward. This kind of collaboration will also help to speed up the pace at which the services mature.
There is a real opportunity here for customers and providers but both need to understand that developing the right skill base is critical if the next phase of public sector outsourcing is going to succeed.
Christophe Halcrow and Vassilis Serafeimidis are shared services and outsourcing experts at PA Consulting Group.
Thanks to Jonathan Cooper-Bagnall, head of shared services and outsourcing at PA Consulting Group, and Mike Dodd, expert in shared services and outsourcing at PA Consulting Group, for their helpful input in the preparation of this article.
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