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Can the UK become the global strategic hub of outsourcing?
The Conservative party’s unexpected win in this year’s general election, albeit by a slim majority, has resulted in the first pure Tory government in almost two decades. This is a government that will bring some welcome stability to the UK’s outsourcing industry. ISG’s first Outsourcing Index of this year saw sourcing activity in the UK slow, most likely due to uncertainty surrounding the election and lack of faith in an Ed Miliband-led Labour government.
Outsourcing firms will now feel more secure. Spending on public sector outsourcing almost doubled to £120 billion under the Coalition, and that’s a trend that is likely to continue over the next five years. Shares in service providers such as Capita and Serco jumped significantly days after the election outcome in anticipation of a plethora of new outsourcing deals, both public and private, over the coming months. Additionally, the UK economy grew by just 0.3 per cent between January and March 2015. However, the CBI now expects the UK to shake off this slump and bounce back with an overall growth of 2.4 per cent this year, with CBI chief John Cridland tipping the service sector as one that is performing particularly strongly at this time.
The UK already have the second largest outsourcing market in the world and the most mature. What’s more, our country already has the key ingredients to get there: our native language, the perfect time zone, strong financial markets, world-leading consultants and excellent travel infrastructure, which could be further enhanced by a third runway at Heathrow. Not to mention the fact that English law already covers the majority of outsourcing contracts.
David Cameron wants Britain to become ‘the re-shore nation’ but we could be so much more than that. For the UK to reach its full potential, we need a government that fully understands outsourcing best practice and openly promotes its country’s fantastic service capabilities.
Over the past 12 months, the National Audit Office (NAO) has taken a vested interest in public sector outsourcing, analysing case studies and tracking the success rate of outsourced government contracts.
In September 2014, the NAO focused on reforming the way in which central government manages contracts. In the report ‘Transforming government’s contract management’, the auditor recommended that the civil service (1) ‘build the commercial skills of its contract management staff’, (2) establish ‘the systems and processes needed if contracts are to be overseen and managed effectively’, and (3) ensure ‘that the responsibility for the delivery of contracted-out services properly rests with the contractors’.
This is certainly a step forward. However, it’s not just the service providers that are responsible for the delivery of services contracted-out – the government always has ultimate accountability. Attempting to place all culpability with the service provider demonstrates lack of faith and undermines the outsourcing relationship from the start. It’s just as essential for the government’s contract managers to recognise that the responsibility is shared and that the service provider is a teammate, not a competitor.
The NAO has since moved its focus on to outsourcing transparency. The auditor’s latest report ‘Open-book accounting and supply-chain assurance’ revealed that open‑book accounting data is only available in 31 per cent of public-private contracts, and even then it is not always received. The NAO recommended the Cabinet Office to develop better guidance for interpreting suppliers’ costs and profits, establish a common standard for open-book data and that every government department should have a strategy in place for the collection and use of that information.
Outsourcing and transparency
Transparency is a contentious issue in outsourcing, especially when it involves the public sector. It certainly wasn’t the coalition government’s strong suit. Despite his pledge in 2010 to ‘publish every government contract worth over £25,000 in full’, David Cameron fell short of his aims during his term in government. According to Computer Weekly, since that day, at least £5 billion worth of contracts involving public deals have not been published.
Open-book accounting is now seen by some as a potential solution to this problem. However, the open-book approach is divisive and not without its issues. For instance, there are many innovative pricing models emerging and, for suppliers, that counts as intellectual properly. If you publish how contracts are priced then that competitive advantage is taken away – that’s just one reason why the largest outsourcing providers aren’t necessarily in favour of open-book contracting.
What we have to accept is that solely attempting to reveal and then cut the profits service providers make on public contracts isn’t the answer; to do so will again hinder innovation, make the prospect of public sector work less appealing and prevent the UK from reaching its full outsourcing potential. Rather, focus needs to shift from profits made to benefits provided. The government’s first priority should always be to ensure that the benefits it is receiving from outsourcing at least justify what it is paying its service providers.
Learning from the private sector
While central government is proficient when it comes to procurement, it is lacking in relationship management, performance management, pre-buying techniques and commercial skills.
Meanwhile, the majority of outsourcing professionals in the private sector receive continuous training in these areas. What’s more, they tend to have far more experience and are incentivised to strive for the best deal possible. Public sector outsourcing managers would greatly benefit from thorough training and more attractive pay packets. These perks, in turn, would make it easier for the public sector to recruit skilled individuals.
In addition to undergoing training, it would be prudent for government departments that partake in outsourcing to seek accreditation in order to confirm the progress they’ve made. The NOA already offers a Corporate Accreditation Programme, which serves as a cost-effective way for proficient buyers of outsourcing to learn where they are weak and need to transform; accreditation then demonstrates their corporate expertise and adherence to best practice.
Room for improvement
If the UK is to become the global strategic hub for outsourcing, it needs to be led by a dynamic and resourceful public sector, manned by outsourcing professionals who feel confident in their roles and have the ability to compete with the best when it comes to contract negotiation and management.
Those in the public sector can get there by following these recommendations. Firstly, you must be clear on what you have and what you want. Speak to the market prior to outsourcing to understand what’s possible – when you do outsource, don’t outsource an existing problem and expect it to magically disappear.
Secondly, don’t shun the private sector – utilise it. Learn from the businesses you work with and look beyond internal departments when hiring for top posts. Introduce a governance charter to better focus on internal and external governance. Providing civil service contract managers with the proper outsourcing training they deserve, and support that training with incentives, qualifications and accreditation is a key recommendation. Doing so will improve the career paths of those individuals and increase their vocational happiness.
Moreover, remember it’s not a race to the bottom. Focus on value more than cost savings – better to pay more initially and get the best case from the start, rather than spend that money on consultants when it all goes wrong. To measure well, make sure you know your base starting point.
Get rid of the ‘them’ and ‘us’ ethos that previous governments have propagated. Align your objectives with private companies you work with, introduce joint senior governance and ensure your decision-making is holistic.
Making the UK the global strategic hub for outsourcing has long been the NOA’s vision and there’s never been a better opportunity for it. Outsourcing is currently the country’s second biggest aggregate employer and the services industry is one of the few in this country that is not in decline. Its current growth means further employment for UK nationals and the contribution of billions to the treasury.
It used to be the manufacturing sector that put the ‘Great’ into Great Britain. Today it’s outsourcing, and our country’s immense ability to provide service expertise and excellence is truly something we all can be proud of. The UK is well on its way to becoming a global powerhouse for providing outsourced services; the world’s emerging superpowers, such as China and India, already look to us as a services industry role model. When we get there, economic growth and mass employment will be right around the corner.