We have talked about the utilities setting foot in outsourcing before. Today we’ll say something about improving public sector outsourcing. Colin Cram, a public sector consultant specialising in procurement and the former director of the North West Centre of Excellence, will tell us how things can go wrong and what public managers can do to get the most from the process.
First, what is outsourcing? A good definition of it is that “work done by an external provider that has been or would have traditionally been done in-house”. The objectives for outsourcing are well rehearsed: delivering savings, introducing external upfront investment, access to specialist expertise, improving services, reducing headcount, increased accountability, and outsourcing problems. For all these, then why do outsourcing contracts go wrong? It is mainly because of unrealistic customer expectations. Suppliers can be tempted to bid low in order to break into the public sector, however, 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. Furthermore, when there is inadequate appraisal of the option and outsourcing is the wrong solution, public sector organiastions normally expect saving of 10% while suppliers wish to achieve a decent return expect a 10% profit margin.