Does outsourcing work? Does anyone actually know?

So, does outsourcing work? Can anybody actually provide a definitive answer, even after two decades of often knee-jerk outsourcing in organisations of all sizes across the UK?

The biggest focus on this question is underway in the local government sector. Councils in Cornwall, Somerset and Barnet in London have been embroiled in controversy over plans to put huge amounts of public services out to be run by the private sector. Councillors’ heads have rolled, as some feel that outsourcing plans have been forced through without sufficient public debate.

Outsourcing in local authorities is becoming an increasingly religious issue – you either believe in it no matter what, or you don’t.

Even existing, long-term initiatives such as those in Birmingham and Liverpool have come under scrutiny. Questions of value for money and quality of local services are at the heart of the issue. In Barnet, services outsourced to Capita will be provided from locations as far away from the borough as Belfast and Carlisle, with 70% of the affected staff likely to lose their jobs.

The finances behind Barnet provide an insight into how these deals work.

Barnet council has made its case for outsourcing on the basis of saving 18% of its back-office costs. Yet the actual savings that will be made are about 45% – the difference is retained by Capita as profit.

Compare that with the approach at Sunderland City Council. Here, the local authority has established its IT systems as a profit-making initiative, offering cloud and datacentre services to local businesses, as well as other public sector bodies such as NHS and fire services.

Taking another approach, Whitehall is pushing the mutual model – where public sector, private sector and employees share ownership of the organisation. We’re likely to see several IT shared services operations from government being mutualised in the near future.

But which is best? Outsourcing cuts costs but history suggests that it ultimately benefits the supplier most. Selling your own services is high risk, but if done well provides a valuable service to the community. Mutualisation sounds good, but is unproven.

Recent examples suggest the decision comes down to the willpower of the individuals – typically politically motivated – driving the change. Is that really the way to make such fundamental, often irreversible decisions?

The reality is that austerity is often being used as the excuse to drive ideological changes without enough consideration of the real alternatives. Public sector IT chiefs need to bring the clarity and evidence-based approach to balance the whims of their political masters.

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Very interesting piece Brian. We’ve seen many reports of a public sector outsourcing boom this year, however, unless the provider can adapt its services to meet the department’s specific objectives, it’s unlikely that results will be seen.

We’re seeing interest from departments / organisations in taking charge of single, smaller projects; an approach which clearly lends itself to the mutualisation model you describe. As you say, evidence is needed to support these projects, but this is something that providers are starting to take very seriously.

Austerity may be an over-used excuse for outsourcing, but it’s hard to ignore the budgetary pressures that demand local government has to deliver more for less. By further opening up public service delivery to independent specialist providers, the bottom line savings to the taxpayer could be substantial with the added value of better service – and we can all play a part in helping to achieve this.

Alan Charnley
Managing Director
Xerox (U.K.) Limited

An important debate. But it's not a question of what is best. It's a question of best fit, for a given sourcing requirement. This will be driven by an array of factors, unique to a given organisation and the service in question.

What is required is well thought out sourcing strategies, using the full array of options available, carefully matching to the nature of the service and the environment it is being delivered within.