From Outsourcing to Smartsourcing
Updated: Jul 22
Following Kerry Hallard's post of 21 February, there's no doubt that outsourcing, as a label, has developed a bad name. The very word tends to incur a critical reaction (and watch any given episode of Question Time to witness sheer outrage at the mention of PFIs). Maybe it is time for a re-brand. Or maybe how organisations make sourcing decisions is more important than what they call them.
The term outsourcing is a broad label that makes no sensitive analysis of the commercial risks and benefits of specific contracts. Tarnishing all projects with the same broad brush isn't helpful and in-house versus outsourcing are not the only options. There are some fantastic examples of public sector outsourcing (as well, admittedly, as some cataclysmic ones), just as there are good and bad examples of in-house delivery, shared services, trading, devolution and any other way in which an organisation chooses to have services delivered. The devil really is in the detail.
It's this close attention to detail that helped Buckinghamshire County Council avoid a potential outsourcing pitfall in 2014, when we evaluated the options for our back office services. There was a need to make vast savings and a strong political will to put more out the market, allowing the council to focus on what Members considered to be core business. But, long before the fall of Carillion, there was a track record building of large scale outsourcing projects having failed, often with devastating financial consequences for client and supplier alike. These deals, in the main fixed in scope and price several years earlier, weren't sufficiently adaptable or future proofed for the context in which the public sector - local government in particular - now found itself.
Fixed scopes are ideal for suppliers - they allow for effective, long term resource planning and provide opportunities to drive out efficiencies - while fixed price deals are helpful for clients' budget planning, particularly local authorities who to tend to plan over a four year period. Volatility of council budgets and of their requirements shook the foundations of these deals. The role of austerity in this is obvious but the changing nature of requirements is important, too - whether due to demographic growth and change, new duties imposed by legislation such as the Care Act or the increasingly diverse ways in which councils are seeking to commission and deliver services. These kinds of factors created a perfect storm that makes it impossible for any organisation to say, with any degree of precision, what its business requirements will be from one year to the next.
The depth of our analysis was crucial to determining that a long term, single-supplier contract wouldn't have given us the flexibility we needed within a cost envelope we could afford. Looking at how our organisation's strategy and operating model has changed in the last few years, I can say with surety that this was the right decision. But this doesn't mean eschewing outsourcing; we opted instead for a mixed economy model that strategically sources from the market where specialist expertise can add most value. We partner with third party suppliers who are experts at what they do - from a significant managed network contract with Capita Networking Solutions to our fantastic agency recruitment service from Pertemps. By sourcing selectively and strategically from the very best of the market, we get better services while retaining control of our overall customer experience and managing risk with more granularity.
Market intelligence was a powerful tool in our decision making and it's a capability I still don't think the public sector has invested in enough. (I'm constantly amazed at the size of most local authorities' HR teams in comparison to their procurement teams, typically the former being 2-3 times bigger, even when the organisation spends far more via contracts than on people). If an organisation has a mature category management capability, that truly and consistently applies the tools of strategic sourcing, it may have elements of what is needed. But, with organisations spending up to 75% of their budgets with third parties, the importance of historic trends, current intelligence and sound analysis of markets cannot be overstated. Sophisticated market analysis is the missing feature of the public sector's commercial capabilities but it has the potential to be the jewel in the crown. I like John Tizard's notion of expanding the Crown Commercial Service into a central intelligence agency. The better informed our sourcing decisions and contract management, the less likely that deals will fail. The brand image will take care of itself.
Colleagues and I have developed a Commercial Maturity Model for the public sector, with market analysis as one of five key capabilities an organisation needs to succeed. If you're a public sector organisation on a journey of commercialisation or a supplier with insights to share, get in touch and let's see how we can share best practice. A move towards smarter sourcing will benefit both sides and, more importantly, it's what people who depend on these services deserve.