Is Public Sector Sourcing Set for Disruption?
by Kerry Hallard, CEO, National Outsourcing Association
Thursday, November 13, 2014
In a week of hoaxes and profit warnings, spooked investors and sliding share prices, you have to wonder if this is a great time to buy outsourcing shares - or is public sector sourcing going through a period of disruption?
Disruption is often spoken about in terms of technology, but true disruption brings about new models, new behaviours, new ways of doing things, new players. Due to the length of contracts in the outsourcing industry - even though they are getting shorter they are still relatively long - disruption will never be an overnight thing, in the way that Pixar and Toy Story shook up animation or YouTube changed the way we use the internet.
No, disruption in outsourcing will be much more methodical than that; barriers to entry are huge in the public sector. I suspect that outsourcing’s disruption won’t be a Berlin Wall moment, but, behind closed doors, the evolution is picking up the pace.
Capita has announced a tightening of its new business pipeline due to backing away from proposals that seemed risky, and refusing to bid low to win deals. Serco took the opposite approach, bidding low, winning work and later, when it transpired that revenues weren’t quite as expected, it felt the pinch. But Capita is feeling the pinch a little too. Despite taking contrasting stances towards the government’s more bullish attitude to risk sharing, both these companies have seen investors cool on them this week.
I’d like to see disruption come about in terms of a paradigm shift for the whole industry when it comes to optimism bias. That doesn’t just go for the public sector’s propensity to pick the cheapest bid, rather the whole industry-wide culture of bidding low needs to become passé, if outsourcing is to truly mature. That the government is becoming more intelligent when it comes to risk-sharing is a good thing. But there wouldn’t be quite so much risk to bear if there was ultimate transparency from the outset, on all sides of the deal. I’m talking about an age of realism and openness, of succeeding and failing together, of adding value to the British public first and foremost, and worrying about profits and claw backs second.
For now, we will have to wait and see how the big guns’ business plans play out. Serco is selling off some private sector businesses to focus 100% on public sector work. Capita is concentrating on expanding its private sector efforts, and perhaps moving into Germany…and spare a thought for poor old G4S: on the same day it makes a positive PR play by selling Guantanamo Bay, some bright, yet malevolent spark illegally clones their website and announces a fake profit warning, bashing their reputation further and sending their share price spiralling.
You have to wonder, would that have happened to a company beloved by the public, such as Apple or Google? I doubt it.