How to stop the “race to the bottom” in the Outsourcing market
What’ going wrong?
I watched with interest Serco’s Group Chief Executive, Rupert Soames, on Breakfast News yesterday morning discussing the need for a reformed UK Public Sector Outsourcing market. He expanded on this theme in Serco’s 2017 full year results presentation, warning of “a market for the dumb and desperate” if collective action is not taken.
He’s right that action is needed. Across the industry there is a long history of failed contracts, in terms of service delivery for end customers, and financial and reputational losses for service providers. The recent collapse of Carillion and Capita’s profit warning, almost halving its share price in a day, have brought things into sharp focus for Government and Outsourcers.
The Outsourcing sector is one of the key levers the UK Public Sector has to “deliver more, and better, for less”. It employs 1.2m people in the UK and it’s important to those that fund (UK taxpayers) and receive these services that it functions well. So, why’s it going wrong and how can it be fixed?
Why’s it going wrong?
Many Outsourcers talk about “the race to the bottom”. The collective view is that the contracting customer (the Public Sector) no longer differentiates sufficiently on the quality of the services that the supplier promises to deliver and has the capabilities to deliver. In short, let’s assume everyone is as bad/good as each other and go for the lowest price. The Crown Commercial Service (CCS) has good intentions and wants a vibrant outsourcing market with genuine competition. However, by the time individual Departments are procuring specific contracts, these good intentions often appear to be lost. The cheapest bidder wins, impacting the quality of service delivery and/or the contract profitability for the provider.
It is natural to expect some issues with first generation outsourced contracts (the first time the work is delivered by the private sector), but by the time contracts are in their 3rd, 4th or 5th generation you expect much better operational maturity on both sides. Sadly, this is a long way from reality, with government broadly procuring what they did last time with minor modification to the requirements. The incumbent providers have great insight into what has worked and what has not worked under the previous generation of the contract, but this seems to be often ignored when the new contractual requirements emerge. Key Performance Indicators (KPIs) that drive the wrong behaviours remain, and in the desire to push down all risk to service providers there is insufficient incentive for government and outsourcers to work collaboratively to improve delivery over the contract lifetimes.
Outsourcers also carry their fair share of responsibility. Key to the lifeblood of all Outsourcers is bidding, successfully, for new work. Too often the bid teams are separate from the delivery teams, with a somewhat different agenda. Winning a bid is very different from winning a bid with a solution that can be delivered effectively at the forecast levels of profitability. Maturity here is increasing, but it still has a long way to go.
Most of the problems emanate from decisions and commitments made in the bidding process, but there is frequently insufficient improvement of the services during transition and contract delivery. Delivery teams are established and start to make sense of the commitments made during the bid. For ‘messy’ contracts this can take months or years. If clear, pragmatic improvement plans haven’t been established during the bidding phase, it may take years before these are in place, especially when the real improvement capability has been withdrawn from the contracts.
How can it be fixed?
So how can this destructive cycle be stopped, before the outsourcing market is fully broken?
Both government and the Outsourcers, should look to other industries where the need to “deliver more, and better, for less” has been achieved. Across many product-based industries the application of Advanced Quality Planning has helped achieve this goal. Customers, suppliers and their supply chain, working together, using a common language, to ensure that up-front planning results in a product that satisfies the customer. It’s been proven to work, but it needs both the customers and suppliers to participate fully.
Achieving these improvements in an outsourced service environment, presents its own challenges:
- Delivery solutions are developed and commercial commitments made at bid submission, so much of the quality planning work needs to be undertaken during the bidding phase
- The end customer participates in the delivery of the service, requiring more flexibility and responsiveness from service delivery staff
- Supply chains are shorter, but bi-directional and more dynamic. This strengthens the need for the end customers (Service Users), the commercial customer (Government) and the supplier(s) to all engage in developing the right delivery solution
- There’s more variation in the services required and the people delivering the service etc.
However, Oakland has started to apply its Advanced Service Quality Planning (ASQPTM) framework with some early adopters in the outsourcing market, adapting the methods that have worked in product-based industries.
Applying ASQPTM throughout the business lifecycle (pre-bid, bid, transition and delivery) helps as:
- The cost of fixing problems increases by orders of magnitude as you move from service design, to service delivery, to service recovery (when things have gone wrong)
- By investing in prevention activities, during service design, the cost of failure and assurance activities in delivery reduces
- It provides a platform for sensible conversations between customer and supplier.
As product-based industries have discovered, it requires the full participation and commitment from customers, suppliers and their supply chain to gain the full benefits of Advanced Quality Planning. So, everyone will need to “come to the party” to see a real transformation in the outsourcing market.
If you’re interested to hear more about ASQPTM and how it can work in the outsourcing context, then please contact Rod Scott at firstname.lastname@example.org