Once more, the validity of outsourcing in the public sector has been brought into question.
Just this week, the National Audit Office released a report on the UK government’s programme to transfer back-office functions to two shared services centres. The report outlines that although savings were made, so far to date, it has not achieved value for money.
The worry is that new outsourcing contracts could actually cost the taxpayer more than they save, which no department or organisation ever wants.
There are always risks associated in business, whether commercial or public sector, which can be exacerbated when outsourced. Outsourcing contracts, whether low- or high-value, have the risk of not delivering on their promises, leading to the view that taxpayers’ money has been spent badly, or even wasted.
Like any other business working with the public sector we encounter all types of readiness or reticence to outsource, and my advice is always the same: do your due diligence first, and rely on good recommendations.
It’s fair to say that outsourcing providers are encountering a culture in the public sector whereby the view is that money can be better spent elsewhere rather than on outsourcing, which is particularly true within finance teams.
The due diligence piece
As I mentioned above, due diligence is the best place to start when considering outsourcing. I always encourage prospects to talk to at least three separate suppliers of the same service – get a feel for what is out there and what opportunities there are for the organisation.
But before you even approach the outsourcing suppliers, make sure you know what you’re looking for: how much do you want to outsource? Are you looking to free up your time? Are you looking to bring cost savings to the business? Do you have the skills in house to manage the relationship with the outsourcer effectively? Get to the root of what you want to achieve.
Once you’ve chosen the three (or more suppliers) that you think will meet your goals, speak to their customers; the benefits that commercial organisations see do cross over into the public sector so don’t be put off by commercial customers. It may seem obvious, but a supplier that readily provides customer references is far more preferable than one which can’t, or won’t.
The next step is to make sure that any contracts you look at are fair, that they provide an agreed scope of work, deliverables that are achievable, deliverables that you’re happy with, and don’t necessarily lock you in for in inordinate amount of time (decade long contracts tend to favour the supplier rather than the customer!).
Avoiding the dreaded ‘failed outsourcing contract’
Outsourcing failures can come about from a number of reasons. There is a view, rightly or wrongly, that the public sector moves very slowly in the adoption of new technology and new ways of working.
No clearer example can be seen than from the NAO on the shared services failures in the Cabinet Office this week – due to delays in designing, building and testing the new systems meant that there were increased costs to maintaining and extending the life of existing and ageing systems.
As the NAO’s report states: “The Cabinet Office’s failure to manage the risks around the move to two independent shared service centres from the outset means that the programme has not achieved the significant anticipated savings and benefits to date.”
This is why due diligence is so important. There are, at times, unavoidable delays, but a good supplier will be able to identify all of the possible risks of moving to an outsourced platform. This advice from your supplier should then help you build a risk profile on moving to an outsourcing provider; the timescales, the impact on customers, the expected costs and savings of the project.
With budgets being squeezed ever tighter, public sector organisations are having to find cost savings in every area of the business and outsourcing is still one of the best ways to bring about some of these savings.
Yes, there are risks, but with good due diligence the benefits of outsourcing can far outweigh the risks. There are, due to rapid developments in technologies such as the cloud and Software-as-a-Service, many smaller and niche outsourced services that can take ownership of virtually any part of a business function from Employee Relations and Human Resources through to payroll, expenses, contracts and corporate diligence, for example.
Keep in mind the failed contracts of weeks and years past, but listen to your colleagues and peers who’ve been successfully outsourcing, and if you think there’s an opportunity to bring about cost savings or efficiencies, then don’t discount them. But do your due diligence!