Are public sector cuts good news for the private sector?

Wednesday’s announcement of the government’s Spending Review was greeted in some quarters with howls of derision by critics who argue that the cost-cutting measures are leading Britain into a new age of uncertainty. But how fair is this view?

It seems to me that the government has approached the review in the same manner as any organisation would do at the outset of a successful outsourcing deal. By reviewing performance as a whole, and then identifying non-core competencies in each department, the Chancellor has found where fewer resources need to be committed, and has trimmed the fat accordingly.

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£25bn inefficiencies in public sector procurement

According to the IOD the public sector could save up to £25bn by overhauling its procurement and outsourcing. It says procurement is currently far too siloed leading to mass wastage and duplication of work. While £25bn is obviously a top-end figure, it’s great to see someone with the IOD’s profile doing the numbers on this.

We’ve been pushing the message on public sector sourcing for some time now and more recently, gathering together expert guidance on the issue through our public sector steering committee. The IOD adding its voice to the roster marks the latest in a long line of organisations that believe there is real money to be saved through public sector outsourcing.

As always though, dissenting voices abound on this subject; from the Unions to those who simply think private sector involvement in public service delivery simply doesn’t work. They certainly have ammunition and will readily roll out the figures spent on ill-conceived and badly managed IT projects.

But this is why the IOD’s report is a breath of fresh air to the debate. The public sector already outsources a lot of work and advocating much more in the same way would be a mistake. It is mismanagement and lack of knowledge-sharing where things come unstuck and savings are not realised. Learning from mistakes is not currently fed into a body of knowledge on which to base future decisions; errors are instead made again and again. Centralisation, or grouping at least, would be a clear step in the right direction as would further tools for sharing success and failure.

While the government has tried this before through OGC it hasn’t really been a great success. For this reason it’s important the government doesn’t try to do it in one ‘bite’. Rather they should try the ‘eat an elephant‘ approach and encourage units to get together that have common issues. They could also use the Treasury’s budgetary controls to ensure that organisations that band together and make savings then get the “saved” money back for further positive projects.

Another good effect of this approach is that it would give suppliers larger potential contracts creating a monetary balance against the bids they lose. They would also be able to afford the development contracts. On the other hand, small businesses may lose out though because they wouldn’t have the breath to take on these bids. But there again there is no indication that small businesses do well from government contracts because of their often Byzantine complexity and lengthy time-scales.

As the election draws near, possible savings of £25bn are clearly going likely to catch the eye of all political parties. That mountain of debt isn’t going anywhere fast, so we continue to expect much more interest in outsourcing post-election. We can only hope that the new government, whoever wins, takes note of bodies like the IOD and the NOA and takes a more logical and coherent approach going forwards.

For those that are interested in sharing their experiences we’ve organised a Public Sector Forum on the 27th of April where practitioners can do just that. The event is free for members and those working in the public sector and interested parties can sign up here.

Should public sector IT professionals hang their heads in shame?

This week the Independent Newspaper decided to reopen old wounds from public sector IT failures of the past. The paper, with the bit between its teeth, decided to mount an investigation into the biggest IT ‘bungles’ presided over by a labour government. The current bill stands at a staggering £26bn above initial estimated costs.

Though most of these embarrassing projects have already hit the headlines before, the investigation brings some important issues back into popular consciousness. The first is that many of these projects are still ongoing, continuing in their haphazard fashions to eat scarce public funds as they snail towards completion. Those working on these projects are going to need to do some serious thinking at the election draws near, working to understand how these projects are to be finally completed at a reasonable cost. The Tories have already committed to ‘end the era of large government IT projects’, and whoever comes to power, such failures will not be allowed to continue interminably.

Secondly, at the cusp of a boom in public sector outsourcing, those at the coalface need to fully understand what went wrong so it doesn’t happen again. And that’s the key.  Going forward, those in charge will be loathe to enter into new agreements or start large new projects without meticulous planning and a complete understanding of how the project will be carried out. Private sector partners charged with delivering these projects can also expect to take on more risk in new arrangements  – models like gainsharing and increasingly stringent metrics will become more apparent. With the government’s huge spending deficit, increasingly there will simply be no leeway for failure.

The NOA has recently launched its Public Sector Transformation Steering Committee to do its bit in addressing the sector’s increasing challenges. We’ll be pushing out more and more best practice advice from our regular events as time goes on. However, since the committee’s inception some important IT transformation success factors have already been identified:

• Have a clear vision of goals – do not outsource for the hell of it; understand where you want to be and why outsourcing can help
• Be realistic about what can be achieved – outsourcing won’t solve everything in one fell swoop. Savings from outsourcing can take time to feed through so look first at maintaining and improving service
• Make sure you understand the benefits and communicate them.  Small steps and small wins are better than aiming for Shangri La an eternity away.
• Don’t seek to outsource a problem – problems cannot be outsourced easily, you will pay for that. The outsourcer can work with the outsourcee and advisors to solve the problem, THEN work out how to outsource it
• Communicate early with outsourcing bodies; advisors and prospective partners – advice and best practice is vital
• Seek to create a partnership – negotiation is not a competition but a co-design process; there must be incentives for both sides to participate

From our work with the public sector it is becoming clearer what ‘best practice’ and ‘transformation’ should looks like, we are still going through a process of determination of course, but we hope our committee can play a vital part in this formulating what this looks like and avoiding a return to the failures of the past.   And no hanging of heads!

However, the fact is that best practice will always be evolving as the industry learns its lessons and matures along the way. This is not a reason to shy away from outsourcing though. The pressure is only going to increase and outsourcing will have a big part to play in the public sector’s future. The choice for those on the front line is: do I get involved now, learn how to make the changes needed and pursue success? Or, do I wait to be pushed into the inevitable confusion that inaction entails? Your choice…

The public sector recession is on its way

With the recession apparently coming to an end, 2010 promises to be a game of two halves for the UK.  The private sector will be heartened at the prospect of increased capital flows and customers finally loosening the purse strings. For the public sector on the other hand, things don’t look half as rosy.

In fact, it is fair to say that the public sector’s recession hasn’t even begun yet. But it will soon, that’s for sure, and it doesn’t look like we’ll have to wait for the predicted Tory rout for this to happen. The extent of repercussions of the UK government’s banking bailout could become clear as early as the Pre-Budget Report on Wednesday 9 December.  Sources tell us that a ‘Comprehensive Spending Review’ is on the cards, setting out departments’ budgets for three full years from April 2011. Figures currently being bandied about are truly alarming, but also in-line with what needs to be done. The spending review is predicted to include 30 percent reductions in resources and 50 percent in capital spends, and local government will not escape with much better terms.

The private sector has already suffered the first round of consequences of the recession and they have made the necessary changes cutting staff and spending to the bone. For them it now depends on whether the recession really is over, or is just being held a bay (the cynics would say until after the UK general election in May).  Out of prudence the private sector is looking at outsourcing to help them contain costs and improve services through volume based contracts. This is also allowing them to focus on recovery and growth without the risks and investment of fixed assets and full time staff.

It is clear that the private sector has already learnt the recession’s harsh lessons and now the public sector must do the same. Those on the front line of public sector procurement should be taking advice, speaking to their private sector counterparts and working to understand the sizeable part that outsourcing will have to play in their survival now and in the future.

And what better place to learn than at the NOA’s Annual Sourcing Summit next Wednesday and Thursday. It’s time for the public sector to think private and, with end-user case studies from Aviva, Easyjet, Zurich, BP and more, I can think of no better place to start.

Public sector outsourcing – get ready for round two

So, it’s finally happened. The public sector has been told, in no uncertain terms, that outsourcing, real no nonsense outsourcing, will be necessary in 2010 and beyond. After both the Tories and Gordon Brown’s ailing government both openly admitted that public sector spending cuts are necessary, those on the economic front-line are starting to work out what this actually means in reality.

The hard truth has been delivered this week by the CBI, a body those in public sector procurement will hopefully listen to. Its report, or ‘Blueprint for Balancing Budget and Supporting Economic Growth’, states that ‘an extra £120bn will need to be taken out of current spending to achieve budget balance by 2015-16’, this is no mean feat when you consider the various inefficiencies that have plagued the public sector in the past. The report goes on to suggest, ‘allowing the private sector to provide non-core activities, such as back-room functions. This could save £30bn by 2013-14.’ While their estimates may be a little ambitious, they do serve to demonstrate the potential benefits of renewed outsourcing in the public sector.

But that’s the problem that many in the public sector are still struggling with; we’ve all been here before haven’t we? Remember that other public sector outsourcing rush, where the NHS’ NPfIT overran by billions of pounds and DfES’ Individual Learning Accounts, with endless overspend and internal issues. Let’s not even speak of the Child Support Agency’s seemingly endless IT saga.

The legacy of problems past is, understandably, a sizeable reticence towards commencing new projects. Those that have been stung by poorly delivered projects will be loathe to ‘dive’ back in, while those that watched from the sidelines as their sector counterparts were trounced in the press, will be keen for continuity above all.

Further outsourcing bashing by ITV this week, complete with tacit allusions to the NHS (although the health service was in no way implicated in the programme), will do little to boost confidence.

But the change is coming and there are various reasons why this isn’t a bad thing. For one, as we’ve seen, these cuts will have to come from somewhere. Eking out another £30 billion, one quarter of the additional savings stipulated by the CBI, just cannot be done by simply being a little more efficient. These are big numbers, it means transformation, so increased outsourcing has to, and will, happen next year.

The other reason is the increased maturity of suppliers and those responsible for outsourcing in the sector. Just last week the NHS Shared Business Services won two awards at our annual ceremony for both Best BPO Project and Outsourcing Professional of the Year. The joint venture, from the Department of Health and Steria, has gone from strength to strength after its creation in 2008. Just recently a further eight NHS bodies have signed up with the organisation and there’s seemingly no stopping them.

So, this time around the industry will have to look back at outsourcing and actually get it right and it’s examples like NHS Shared Business Services that will help them do so. The NOA is also doing its bit with the launch of its Public Sector Transformation Steering Committee, set up to develop and disseminate best practice outsourcing advice for public sector outsourcers.

The sector will need to draw on this combination of best practice advice and visible success to ensure that public sector ‘outsourcing 2.0’ both cuts costs and maintains the service that the UK public deserve.

And the future?  Maybe the public sector moves away from  DIY to commissioning services!