Outsourcing and communications expert Martyn Hart looks at a hot
issue of the day.If you asked the 70-odd members of the National
Outsourcing Association to define the most important issue in
outsourcing today, what do you think the answers would be?
Getting the cost right? How to split up the service? Which supplier
will last? No.
At a recent meeting, we carried out a lightning poll and the top
issue that arose was public sector outsourcing. Basically,
suppliers were concerned over what was happening in the public
sector, and their customers - the civil servants and their advisers
- concerned over how deals should be structured.
It seems that there is real concern now about how much "power" is
concentrated in the hands of just a few outsourcers. If you take
the traditional tactical outsourcing scenario, the more business an
outsourcer gets, the better his economies of scale and the lower
the prices he can offer his clients. This makes sense, right?
Wrong. What happens if a sizeable proportion of a government
department's business is in the hands of one such supplier and that
supplier goes bust?
You would assume some clause in a contract would come into effect
and another company would take over. After all, these customers are
assets and have a value. True, but does the contract stay the same?
No matter what the procurement people say, the answer has to be not
necessarily. If it was an uneconomic contract to begin with then is
the new owner obliged to continue losing money? And if they are,
will it be with good grace? Unlikely.
So what's the remedy?
It seems the customer, in this case the government, has a duty to
ensure there is not only competition, but also a sufficient margin
to ensure a reasonable return for suppliers.
With the "one government department, one outsourcer" model this may
not be possible. Just taking tactical outsourcing, say for
infrastructure, one could see for hardware alone there might not be
the cost justification, or savings, to deliver a suitable mark-up
for outsourcing.
However, if a number of like-minded departments shared similar
infrastructure, then maybe you could offer a number of
infrastructure contracts for various government departments, to a
single supplier.
Contracts to provide common software or hardware for several
departments, along with a small degree of customisation appropriate
for the department in which the solution will be deployed, could
also be grouped together.
The result: Instead of a single company supplying all the IT needs
of a government department, the work is divvied up so that the
department is less reliant on a single supplier. However because
each supplier provides the same function for other departments, the
whole show can be provided at better value than the sum of
individual contracts. Meanwhile profit margins remain high enough
to attract competition from several outsourcing firms.
This does, however, imply joined-up government. I think I've heard
someone else talk about that.
What's your view?
How can public outsourcing be made better value for money?
>>CW360.com reserves the right to edit and
publish answers on the Web site. Please state if your answer is not
for publication.
Martyn Hart is chairman of the
National Outsourcing
Association and practice director at
Mantix, a consultancy
that delivers value from complex programmes.