How outsourcing can benefit Local Government

When addressing the All Party Group on Outsourcing and Shared Services, former COO at the Cabinet Office Ian Watmore said that outsourcing and shared services are ‘at the heart of the efficiency and reform agenda.

This demonstrates how outsourcing was identified as a key focus by the coalition government when they first achieved power in 2010. In the UK’s ongoing state of austerity, outsourcing certainly has had, and will continue to have a central role to play in the reduction of our country’s deficit.
Somewhat unfairly, outsourcing is perceived negatively by swathes of the UK public and politicians alike, largely because it is misunderstood. And when Barack Obama himself gets confused by the concept, who can blame them? Outsourcing is associated with job losses and cost cutting – a staggering 80 per cent of the general public do not think the sourcing industry is helping UK PLC, with 22 per cent claiming that they actively dislike the outsourcing industry and only 19 per cent believing that outsourcing can help reduce the UK deficit. Outsourcing is in fact the second largest aggregate employer in the UK, responsible for over three million jobs. It is often associated with cost cutting because, more of than not, reducing costs is a key objective for the companies and governments using outsourcing.

In its simplest form, outsourcing is the use of third party specialists to deliver a particular business function or process. It is not to be confused with privatisation. When a government body outsources an operation, it usually maintains full control and accountability for that service, while privatisation takes ownership away from the government. Furthermore, outsourcing is not to be confused with offshoring – many companies set up facilities of their own offshore, while plenty of outsourcing takes place here in the UK.
The use of specialists makes eminent sense today, just as it did when the division of labour was introduced as a theory thousands of years ago. Specialists are experts in their fields and in addition to bringing process efficiencies – brought about through process excellence and technology investments – service providers today also bring productivity improvements and further innovations. In a recent survey conducted with the National Outsourcing Association (NOA) members, 92 per cent of those on the buy-side agreed that outsourcing delivers business value, with 59 per cent planning to increase the scope of their outsourcing over the next five years.
Today, even local government needs to be able to act in a 24 hour global environment – outsourcing will help it do just that. And it’s a misconception that outsourcing necessarily involves sacrificing quality in order to cut costs. There’s no doubt that in this modern world of social media and mass communication, organisations pay a high price for delivering substandard services. That’s why so much emphasis is placed on the need of ‘more for less’ – the best outsourcing partnerships involve a delicate balance of improved services and reduced costs.

Examples of successful public sector outsourcing
When you consider the future role that outsourcing could play in the public sector, it’s vital to study current outsourcing relationships and identify what makes them successful. It’s unfortunate that high profile outsourcing failures make for such popular news stories; for every one of those stories, there’s a vast number of outsourcing successes that are not nearly as widely reported.
Take Sefton Metropolitan Borough Council as an example. In 2008, austerity measures placed unprecedented pressures the Council’s controllable budgets, so they entered into a 10-year public-private-partnership with arvato. Their contract included the delivery of customer services, revenues and benefits, payrolls, pensions, transactional HR, ICT and more. Arvato consistently achieved the agreed target of 10 per cent savings from day one, made business processes 15-20 per cent more efficient and the partnership retained its Investors in People accreditation, with assessors praising the commitment to the wellbeing of employees from both sides.
Margaret Rawding, Head of Corporate Finance and ICT at Sefton, applauded arvato’s work. “If more outsourcing engagements were structured in this way, I believe the public sector would be more able to effectively deal with new challenges.”
Margaret was right. Chesterfield Borough Council, one of the first UK boroughs to outsource services, also achieved success, hitting more of its key performance indicators than ever before after outsourcing some of its non-core services. In April, Serco announced that the London Borough of Enfield had opted to extend their IT outsourcing contract with them for a further four years, while Lincolnshire County Council recently signed a five year contract with the same company involving a range of business process and contact centre services.
Moving away from local councils, three major London hospitals recently entered into a three-way join venture with The Doctor’s Laboratory, a private pathology provider. The £1bn deal will result in the creation of the UK’s largest pathology supplier.
Where do outsourcing and the public sector currently stand?
Recent research conducted by NelsonHall shows that the quantity of UK public sector outsourcing deals rose by 168 per cent last year. 75 per cent of those were onshore agreements kept within the UK, and over half were first-time outsourcing deals, demonstrating that public sector outsourcing is growing more popular. IT is still the service that is most widely outsourced by the public sector, but business processes such as customer services, contact centre services, HR, pensions and payroll are all now commonly outsourced.
At the NOA, we were very pleased to see the new EU procurement laws come into place on the 26th February 2015. The NOA has always argued that more needs to be done to help SMEs with the procurement of public sector contracts, and these new rules should go a long way towards helping SMEs by making contracts more accessible and cutting the cost of the bidding process.

The NOA’s responsibility
One of the main goals of the NOA is to professionalise the outsourcing industry. That is why we offer outsourcing training, along with qualifications for all levels of outsourcing. We also run the public sector skills academy, a series of courses which are tailored to the nuances of public sector outsourcing.
Using third party specialists that are willing to invest in new technologies and improve processes makes complete economic sense. That’s why the outsourcing industry is set to continue its growth, but it’s our responsibility to ensure that this happens to the benefit of all parties involved. That means the government, the suppliers, and of course the end consumers of public services.

Further information