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Can the outsourcing industry detoxify?

Tuesday December 3rd, 2013

The UK public services business outsourcing industry has had a torrid year, attracting the worst kind of media attention. Major companies have been exposed for failing to pay UK corporation tax whilst others are the subject of police and Serious Fraud Office enquiries. The National Audit Office (NAO) has written about a ‘crisis of public confidence’, and companies have seen their leading executives depart and their share prices fall.

Understandably, politicians and senior public sector executives and managers have begun to question the financial and operational advantage of traditional public service outsourcing to the business sector – this at a time of growing interest in and commitment to collaborating with the social, voluntary and community sectors, as well as moves to create both user and staff-led mutuals and co-ops, and some with joint user-employee ownership.

John Tizard

John Tizard

In addition to the specific issues and challenges facing outsourcing companies, there has been a wider public questioning of the ethics of businesses and markets based on the pursuit of avarice and profit maximisation at the expense of social and wider public interests.

I am frequently asked that given these conditions and attitudes, what steps should public service outsourcing companies undertake in order to attempt a process of ‘detoxification’ and begin to rebuild shattered reputations and lost public confidence.

Of course, not all companies are in the same position but I think there is no doubt that the industry as a whole is in trouble, and so individual companies have to first take stock and understand what the public, customer and ‘potential’ customer perception is of them – which may vary considerably across their services and markets.

All companies operating in the public service markets as outsourcers have to understand and acknowledge the extent of the damage that has been done by recent revelations and events. Public denial or even self-denial would be a mistake. Damage has been done.

Personally, I believe that the credibility of the traditional public services outsourcing model was already waning and recent events have reaffirmed that view.

My advice to companies seeking to remain in this market and win public sector business is to review and fundamentally reshape their business models and more importantly their behaviours. This means changes to behaviours by shareholders, owners, senior executives, managers and staff. These changes have to be more than skin deep; more than a public relations exercise; and will have to change the very nature, ethos, ethics and performance of the companies.

Such behavioural change will not be easy. It will take time. Not all individuals, including shareholders involved in the companies, will be able to make the change. Some may have to depart. Change will need to be lasting and visible. It will require investment of time and money. It will require the reshaping of business models as well as behaviours. The industry and individual companies can and should lead on this change. It should not wait for government regulation and/or contract terms that will demand change.

Individual companies will decide what they wish to do. I believe that they would be well advised to consider some or all of the following:

  • a commitment to transparency of performance, profit and internal money flows for all public sector contracts, with these being subject to independent publishable audit; and accepting compliance with the Freedom of Information Act and political scrutiny
  • practical demonstration of adding social value and being a good corporate citizen at all locations; with non-executive directors appointed to oversee ethical and CSR standards
  • empowering staff to be responsive and serve users and communities; and eliminating incentives that foster inappropriate behaviours and outcomes
  • establishing service user advisory panels for projects with some financial reward being subject to the degree of stakeholder satisfaction
  • adopting protocols for partnering and working with social, voluntary and community organisations as partners or in the supply chain which are to agreed national standards
  • being willing to enter into flexible contracts with public sector clients having greater control over activities and outcomes and, where appropriate, some client right to vetoes over certain aspects of these activities and key appointments
  • adopting profit share models and profit capping
  • a commitment to pay UK corporate taxation fully
  • demonstrating real innovation that benefits service users, the community and the public sector
  • adopting exemplar employment standards including the ‘living wage’, talent development, employee involvement and employee representation at Board level, and working constructively with trade unions
  • extending share ownership to all employees and not simply to senior staff; and enabling staff to form ‘spin-out’ mutuals

In short the industry will have to re-invent itself in a transformative manner. It will need to develop new ways of working with and for the public sector and with other sectors. It has a very hard challenge to demonstrate that it can deliver social value with a public service ethos given the revelations of the last year.

In my view, unless the companies, which have made (and wish to continue to make) significant profits from public sector outsourcing contracts, are willing to show some contrition and change, then they are likely to find considerably less business open to them in the future. It is encouraging to note that already some are being contrite and others are offering to be more transparent; and some are talking about adopting new behaviours. However, there are still strident voices which seem to be in denial that there are problems and simply demanding more contracts.

The public sector from central government outwards has to be resolute too. It must not allow itself to assume that traditional outsourcing is always appropriate or the default option. It can look to alternative service delivery models including contracting with the social sector and ‘in house’ services. And where it does contract with the business sector, it should be on terms that work for the public interest. The public service industry has no right to ‘expect’ public sector contracts; and certainly not on its own terms.

The question is: ‘Will and can outsourcing companies radically change and detoxify?’ Can they restore public confidence? If they can’t or won’t, then such businesses don’t deserve to have any further public sector business.


John Tizard
Twitter: @johntizard
Linked In: John Tizard


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