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Outsourcing faces continued challenges

September 4, 2012

In an article last week, the Financial Times once more raised questions over the ability of the public sector to effectively place and manage outsourcing contracts. Citing a report produced by a UK think-tank, it highlighted questions over both the skills and the drivers behind Government policy.

The report mirrors a series of findings by the UK’s National Audit Office and replicated in investigations in countries such as the US, Australia and Canada, which concluded that the public sector does not have adequate commercial and contract management skills. It also raises the question whether selection of suppliers is too heavily weighted to those who promise short-term savings, versus those who have the capability for longer-term value.

But is any of this really surprising? First, it seems somewhat disingenous to suggest that people who chose the public sector as a career should have the commercial understanding of those who selected the private sector. There is a very real difference between public service and the pursuit of profit – and that starts at the uppermost reaches of management and the principles under which both politicians and their immediate staff operate.

Second, is there evidence that the private sector actually manages outsourcing any better? There are certainly success stories, but there are also success stories in Government. There are many disgruntled customers in the corporate world and many consultants suggest that up to 70% of contracts fail or underperform.

Based on IACCM’s experience and research, the problems discussed in this article are generic. Many outsourcing contracts are negotiated in a spirit of limited trust and consequent adversarial behavior (especially when third party negotiators are involved). Many buyers claim they want value, but in fact drive to cheap. And few customers commit the resources and skills needed for effective commissioning and governance of the outsourced relationship.

Certainly there is plenty of room for improvement in the way that Government selects and manages outsourced relationships. But the problems are generic and it is organizations as a whole that have yet to grasp the commercial realities of extensive outsourcing, especially for the provision of services. There are small glimmers of improvement, especially with the development of supplier relationship management and, more importantly, an evolution towards relational contracting. These are both areas where IACCM has invested heavily to raise understanding and skills among its members.

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