2 December 2002

Profiteers, Dubious Accountants and Parasites

Are outsourcers really set to be less popular at parties than traffic wardens and estate agents?

By Ian Benn, The Outsourcing Forum

If your research on outsourcing were restricted to the press, you would be drawing pretty bleak conclusions about the entire enterprise. Poor accounting practices, ballooning fees, bad public services and endless rounds of legal battles dominate not just the national, but the more informed trade press. Yet the industry is still growing at a phenomenal rate. Why?

Effective outsourcing can drive serious cost savings, big improvements in customer service (both citizens and internal customers), better management focus and the opportunity for staff to shift from an unchallenging job in a department that is often seen as at best unimportant and at worst an overhead, to working at the heart of a growing company. Earlier this year, I had researched a number of outsourced staff and found that, despite the generally poor opinion that they held of the communications process around the transition, over time, most that I spoke to felt that they were better off than they were pre-outsource.

So why the gloom? A large part of the problem lies within the twin issues of newsworthiness and vested interests. In general, good news is, well, no news. How likely are you to buy a newspaper with the headline "Nothing to report on major outsourcing project - operation continues to operate normally"? Bad news sells papers.

But what about those interests? Well let's take a hypothetical situation. Ministry of X outsources the business processes around a major new initiative to outsourcer, Y Services. As the project develops, government policy alters in the light of new statistics, legal challenges, or other unforeseen factors. The individuals involved at the ministry find that they are being driven further and further from their domain of expertise and as such, overlook key elements of the specification as they grapple to tie down the new processes. As things start to go wrong, Y Services start to baulk, highlighting problems but are over-ruled by the now hugely pressurised ministry team.

Eventually, the story leaks to the press. The Ministry of X sensibly decline to comment but equally decline to accept any of the blame. Y Services, mindful of the importance of their relationship with the government and the negative impact a robust defence may have on the confidence of other customers, elect to keep a dignified silence.

The journalist, seeking balance in his report and lacking a response from Y Systems turns to the union representative to get a staff perspective. But many union members see outsourcing as a form of privatisation by stealth. As one put it to me, "Put it this way: I don't know anybody who has chosen to outsource just as a means of getting their staff a better deal". The union rep is therefore quick to paint a bleak picture.

And here lies the problem - politicians, clients and union representatives are all ranged against the outsourcer's side of the story and the outsourcer often has little choice but to keep quiet and wait for the storm to pass.

In any other industry, vendors would be building up reams of success stories to seed into the press and pre-empt such problems with a steady flow of good news, but for outsourcing, it is a lot more difficult. Outsourcing contracts are huge, long lasting and have a significant impact on the balance sheet. As a result, even for the mega-outsourcers, the actual number of contracts that they operate at one time is as surprisingly small as the contract values are surprisingly large. To make matters harder, an effective case study always has a "before" and an "after" story to illustrate the value that the supplier brought. Persuading a customer to go public with the statement that they used to be hopeless at something until they brought in a third party to do it more effectively, efficiently and cheaply is a tough sell. There are many success stories out there, but they are spread thinly across multiple vendors. That's why we hear a lot about huge new contracts being won, but little about their progress.

Outsourcing continues to prove an effective approach to process improvement, drawing inward investment to unglamorous projects and sharpening management focus. Clearly there are good and bad examples and embarking on such a project for the first time does need careful analysis, detailed planning and lots of help. Many outsourcing projects do not go according to plan, but most deliver real value. Don't let the press put you off!

Ian Benn is the founder of The Outsourcing Forum. "Strategic Outsourcing - Exploiting the Skills of Third Parties" by Ian Benn is published by Hodder and Stoughton and available at £16.99 from the usual business book outlets from December.