So, here we are again. The rumpus of big public sector outsourcing (although not necessarily just in the public sector) has hit the headlines with both Christopher Hyman (CEO, Serco Group) and Richard Morris (CEO, G4S) both falling on their swords and resigning from their veritable institutions.
Value for money in outsourcing services, whether in the public or private sector, is always up for debate. We, at Best Practice Group (BPG for short), have been consistent in our message that, in our experience, managed well, big outsourcing or multi-sourcing relationships can provide excellent value for money. One of the material failings however on the client-side is that many senior management teams underestimate the scale of managing vendor relationships. This results in a lack of transparency, poor measurement and, therefore, often poor management and value for money in the services delivered from the outsourcing partner.
Are Big Outsourcing Providers Bad ‘Partners’?
Outsourcing partners are there to make money for their shareholders; make no mistake. However, this doesn’t (or shouldn’t) make them bad organisations to deal with; nor does it mean they aren’t capable of aligning their corporate values with your own social and environmental values to meet your delivery expectations at a lower cost. But it does take strong, assertive management of the vendor, building commercial trust and communicating your expectations in a crystal clear fashion so that you reduce the chances of material misunderstandings.
In Serco’s case, having discovered alleged fraudulent behaviour on a contact to deliver prisoners to court, Whitehall insisted that Serco must completely re-evaluate how it deals with delivering services in terms of ‘corporate renewal’. The threat being that the organisation would face exclusion from all future government contracts. Although police were called in to review the alleged fraud, it’s understood that further measurement is in the process of being undertaken by Whitehall’s CPO, Bill Crothers; he’s due to assess the company’s progress at the end of November.
In his resignation note, Hyman said that he had, “always put the interests of Serco first“. Perhaps this was the problem; putting the needs of his biggest UK government customer first, aligning that with the commercial constraints, might have been the better strategy.
A recent report ‘out of the shadows’ by Social Enterprise UK has highlighted some research on failing service levels and the high costs of service delivery by a number of private sector providers. Social Enterprise UK is, by definition, trying to promote its own agenda – but this is by no means necessarily a bad thing. The wider perception, particularly of those in the public sector, is that Social Enterprises retain a greater public sector ethos – this is logical.
However, in BPG’s experience, many Social Enterprises, whilst having strong cultures around social ethos, have a lack of commercial experience leading to problematic service delivery and the underestimation of service delivery costs once out of the bosom of their host organisation.
The Commissioning Conundrum – Considerations
So, what is one to do in the increasingly ‘commissioning culture’ the public sector is moving to? Private sector? Public sector? Social enterprise? Considerations to take away:
- Be clear on the business outcomes you want to achieve
- Quantify clearly (and objectively) the service levels you are currently achieving and what the actual costs are of maintaining your services at those levels
- Identify any financial and/or operational service gaps between your business outcomes and what you are achieving now
- Review whether you objectively believe if you can close those gaps with internal resources or by re-engineering your processes in a different way
- Having evaluated your internal capability, consider culturally, whether a private sector, public sector or Social Enterprise partner might be more acceptable to deliver the service in question
- Subject to the likely costs of the service, consider issuing a PIN notice to gain some soft market testing to see what type of organisations potentially engage for the service
- Having had your responses, set out a vendor ‘open day’ in which several hours are put aside for you to explain your aspirations to the potential vendors; ask for informal feedback – either openly or in confidence – as to how practical the business outcomes you are trying to achieve actually are. Another way of approaching this type of early market engagement is to approach an organisation such as Intellect UK to undertake one of their Concept Viability workshops. From the feedback you receive from this early market engagement, you should be able to gain a better indication as to what practical options you have to improve service delivery at a lower cost.
How to Make ‘Big Outsourcing’ Work
If as a result, you subsequently decide that one ‘transformational’ partner is really what you need, rather than applying a range of ‘fixes’, then you are often in the realms of ‘Big Outsourcing’…this takes us back to the original point of this article. Remember, these big private sector partners have an overriding duty to their shareholders; not to the public at large. They are remunerated according to their shareholder value they create; not necessarily to the values you hold dear and are accountable for.
These big relationships can and do work, but there are many lessons to be learned. For five of the key lessons, download the white paper on successful Strategic Commissioning so you have clear visibility of the main factors that should be considered.