A parliamentary all-party outsourcing and shared services group, chaired by Bob Blackman, Conservative MP for Harrow East, has been created to look at the potential for outsourcing and shared services to deliver savings for the public sector. Coincidentally, the National Audit Office is reviewing the Research Councils’ Shared Service Centre(SSC), which provides joint services, including procurement and HR, to the nine research councils and their research institutes.

A good definition of outsourcing is “work done by an external provider that has been or would have traditionally been done in-house”. Certain shared services operations, such as the SSC, would fall within that category, even though they are provided by the public sector. Social enterprises and mutuals also provide outsourcing services, but the overwhelming value is provided by the private sector.

The objectives for outsourcing are well rehearsed: delivering savings; introducing external upfront investment; access to specialist expertise; improving services; reducing headcount; increased accountability – and (more often than people would wish to admit) outsourcing problems. However, outsourcing has a somewhat chequered history. There have been some real successes, but there have been too many failures.

Why do outsourcing contracts go wrong? The main reasons are unrealistic customer expectations, lack of due diligence by either or both parties – the expected savings may not exist or circumstances are not right for success – and unsatisfactory contract management arrangements by either or both parties. Suppliers can be tempted to bid low in order to break into the public sector; but this works only once and only when it leads to sufficient further business to continue justifying continuing with a contract that at best breaks even.

Sometimes there is inadequate appraisal of the option and outsourcing (or shared services) is the wrong solution. Simple arithmetic can illustrate why. Public sector organisations normally expect savings of 10%. Suppliers wishing to achieve a decent return expect a 10% profit margin. The customer often wants upfront investment, for example in ICT; costs that the supplier has to recover. Added to that are the costs of change/implementation and the bidding costs. This means that suppliers may have to find ways to cut costs by between 25%-50% in order to make a reasonable profit.

There are various ways to achieve this and the customer may need to recognise this and help. If the work processes remain broadly the same, the supplier may need to off-shore. This is not something that local government, for instance, is likely to be keen on given that most councils are keen to develop their local economies – consider Birmingham’s recent U-turn on this. Once government legislation allows them to receive a good proportion of business rates, they may be even less keen to see business being delivered from further afield.

A much better way is to encourage suppliers to do things differently, to use their specialist expertise, to innovate and choose cheaper ways of doing things, sometimes challenging the requirements. Outsourcing of print services – managed print services, for example – frequently delivers over 30% savings. Specifications for back office services may need to be designed to allow for new software solutions if desired savings are to be achieved.

Joint outsourcing can enable outsourcers to deliver greater benefits, but wider public sector bodies largely seem incapable of working together in this way. One approach I have advocated would be for organisations in the same part of the public sector to agree model specifications and create frameworkagreements with indicative pricing.

For example, the potential savings if all councils had the same specified waste collection outcomes and co-ordinated tendering would be huge. Such approaches could give the private sector more confidence to invest, innovate and deliver better outcomes.

Source:http://www.guardian.co.uk/public-leaders-network/blog/2011/aug/31/public-sector-outsourcing

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Source:http://www.industrytoday.co.uk/it/outsourcing-data-entry-providers-and-minimize-charges/6590