The road to successful outsourcing

Written by Martyn Hart, Chairman of the National Outsourcing AssociationThe National Outsourcing Association is the UK’s only not-for-profit trade association that promotes best practice in both IT Outsourcing and Business Process Outsourcing. Our mission for 2010 is to improve the reputation of outsourcing as an industry and profession. The first quarterly results from our Outsourcing Reputation Index predict a surge in both public sector outsourcing and offshoring.
    
The research which monitored and measured over 1,600 unique communications pertaining to outsourcing in the first quarter of 2010 revealed that nearly half (43 per cent) of all commentary on outsourcing was focused on the public sector. More significantly, nearly three quarters (70 per cent) of all commentary on offshoring was centred on the public sector.  
    
The research also unveiled that cost savings were the clear driver, with this being cited as the reason for outsourcing in more than half of cases (55 per cent). This was followed by a focus on improving customer service (with 17 per cent share of voice).
    
Concerns relating to public sector outsourcing were also cited, with quality being the main concern taking 39 per cent of overall commentary, followed by job losses (29 per cent) and security (12 per cent).
    
The NOA’s Outsourcing Reputation Index offers clear indication that the UK is expecting a significant uptake in public sector outsourcing and offshoring in order to cut the public sector deficit. We know government is committed to cuts, and a sizeable portion of these will inevitably have to come through public-private contracts, partnerships and shared service arrangements. So, how does the public sector outsource and even offshore to best effect?

A lifecycle approach
The NOA has a published Outsourcing LifeCycle Model which its members embrace (if they don’t have their own). The outsourcing lifecycle is central to an understanding of outsourcing and how to ensure the success of an outsourcing strategy. To succeed it is critical that the outsourcing parties manage the lifecycle process as a continuum, rather than as discrete projects.  It is for this reason that the NOA LifeCycle has ‘Strategic Leadership’ at its core, reflecting the need for strategic leadership to link and drive forward the other key stages of the lifecycle model: Relationship Engagement; Transition and Change; and Relationship Management.
    
The good news is there are plenty of excellent suppliers out there ready to share their expertise and experience. All take a lifecycle approach to their outsourcing projects, seeing them as a partnership and a journey, more than a simple contract.
    
Take NHS Shared Businjess Services as an example. This is the 50:50 commercial joint venture between Steria and the Department of Health that has established a new business model for the delivery of public sector business processes. The partnership is moving in leaps and bounds with over 14 trusts signed up and impressive savings (over £40m to date) beginning to flow through. Satisfaction ratings have been high, so enabling expansion across additional service lines.
    
Another excellent example is CapGemini’s project for the Ministry of Defence, which won the NOA’s Public Sector Outsourcing Project of the Year Award in 2009. The project set out to enable British Forces and civil servants worldwide to book business travel online – to save time and deliver value for money. The results achieved exceeded expectations throughout the first 12 months, with the MOD achieving a 20 per cent saving against its annual travel expenditure of £300m – enabling the redirection of MOD budget to vital frontline activities.

Steps to successful outsourcing
When gearing up to outsource it is impossible to overstate the need for getting preparation and planning right. However, gaining buy-in from all those involved before the procurement process can take place is the most important factor of all.

  • A change of approach – thoroughly assess the situation and the end objectives. Outsourcing must be seen as central to success, not a barrier. This can be done by re-establishing priorities through not only setting targets but changing the operating business model.
  • Safely manage out – evaluate what to keep in-house and what to outsource. This allows public departments to remain focused on delivering core services.
  • Communicate – outsourcing plans may well meet with stiff opposition. Form a strong action plan with robust communications with all stakeholders, internal and external, including unions, throughout. This will ensure planned efficiency savings do not end up becoming counter-productive through potential strike action. 
  • Get into the community early – talk to suppliers before you commence the procurement process and do so at an early stage before a ‘vision’ is put together.
  • Realism is vital – don’t try to force suppliers into arrangements outside what they are supposed to be doing. Negotiate the contract including contract termination.
  • Create shared incentives for partners – the public sector needs to be aware ROI is important for suppliers too. Evaluate performance and manage relationships with this in mind.
  • Learn from mistakes of past administrations – a number of high profile outsourcing projects have failed in the past few years. The new government must study and understand so as not to repeat costly mistakes.

There are also new methods of sharing services that will be more popular – the G-Cloud is a great example. And huge savings will be achieved just by changing the approach to outsourcing.
    
The government has a sizeable problem, and developments like the G-Cloud, enabling services to be easily shared though a “government apps store”, will enable significant savings. However, there is no broad-brush measure that is going to address the public sector deficit. Increased outsourcing and offshoring is just one weapon in an arsenal of possibilities along the road to recovery. The public sector will need to choose the right mix in the right measure to win the war.

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