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Public sector efficiency targets - Outsourcing’s angel or demon?


The recent budget raised a great deal of eyebrows across the public sector community.  Alistair Darling’s efficiency targets for government organisations have been met with mixed reactions from both the private and public sector.  The UK chancellor announced £15 billion of efficiency savings to be made over the next three years.  For organisations such as the NHS, MOD and HMRC, notorious for haemorrhaging money, this announcement will have significantly increased the weight on managerial shoulders. 

The public sector holds significant power within the outsourcing community.  Service providers see public sector contracts as the Holy Grail in terms of monetary value as well as enhancing credentials. These efficiency targets may have a significant impact on how the public sector outsource as well as the amount of processes they look to dish out to third party providers.  However, there could be more sinister repercussions for the outsourcing industry to endure. spoke with a variety of industry experts to find out just what these efficiency savings will mean for the public sector and their outsourcing strategies.

Alastair Maughan, a partner at legal firm Morrison and Foerster, believes that there is not much more left to be outsourced within the public sector, “Departments such as DWP are already pretty heavily outsourced.  However, government departments [or local governments] may start to outsource processes that involve direct work with citizens, such as help desk services.”

The suggestion that the public sector may not have much left to outsource points to the likelihood of government organisation looking to renegotiate contracts in order to get more service for a lesser price, something which Mr Maughan agrees is a distinct possibility, “Public sector bodies will be looking to renegotiate existing contracts.  The sheer negotiating power the public sector has will mean that if one supplier does not accept a contract another will.  It is a buyers market,” he added.

Suppliers may have to prepare themselves for a cut back in prices and a more aggressive public sector procurement team.  It is understandable that price will be a factor in renegotiations however; excessive bartering may result in a supplier backlash where service quality diminishes because resources are allocated to more profitable projects.  Archaic negotiation teams, beware.

Staying on the subject of procurement, Richard Gibson, Account Director for public sector and charities at buyingTeam, believes that the public sector might not be doing enough, “The efficiency targets are modest and ambitious at the same time.  They are modest because the public sector could be doing a lot more to drive efficiency and they are ambitious because past performance suggests little chance for success.”

Indeed, the public sector has a distinct precedence of failure when it comes to sourcing the right suppliers for the best price.  However, all parties that sourcingfocus spoke to believed that the public sector has matured in some areas.  The NHS for one has significantly improved their outsourcing and procurement processes.

One area where the NHS has appeared to forge ahead in has been shared services.  David Turner, Director at Agresso, believes that this is marked for growth in light of these efficiency targets, however it is not a problem free strategy, “Shared services is also an option however the issue there is the giving up of control.  There is a huge amount of internal politics associated with shared services.” 

Indeed local governments are notorious for continuous bickering when trying to implement a shared services strategy.  The notion of losing control does not sit will with council managers.  However, efficiency targets will force previously unsupportive local authorities to address the issue of shared services.

“There is a much stronger political will to push these strategies through.  The Gershon report in 2004 merely suggested that savings could be made in some areas.  Now there is a greater willingness from central government to push organisations to engage in efficiency strategies,” added Mr Turner.

A big push from central government will certainly help drive efficiency savings amongst all organisations.  Outsourcing is synonymous with streamlining processes and producing savings, the government will almost certainly support strategies that involve outsourcing to vendors on shore as well as shared services schemes. 

However, Mr Maughan believes that the only way to really reduce cost quickly is to offshore, a taboo that the government will be certainly wary of.  The public has been very hostile towards offshoring recently and it will take a bold public sector organisation to consider an offshore supplier, Mr Maughan points out that data security would be the main deterrent, we all know how much publicity lost laptops get.  The question is, when efficiency targets of this nature have been announced, how can the public sector ignore instant cost savings of around 15 percent simply because of possibly misguided public opinion?  It will be interesting to see whether this is explored further.

The outsourcing industry will get a mixed bag with these efficiency announcements.  On the one hand suppliers and consultants may have more work coming through, especially in the area of procurement, BPO and shared services.  On the other hand we may find procurement teams nailing suppliers to the floor on price, something which no vendor will be too pleased with.  Either way the public sector will have to meet its targets, failure would just be far too costly for everyone.  In a bid to meet the £15 billion target, we may see some work go to our European or possibly Asian neighbours.



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