To Boldly Go… To Market

Whilst Captain Kirk may have known little about avoiding split infinitives he could teach many of us something about the power of boldness, not least the outsourcing industry and its clients.

With such a strong Tory performance in the general election we can expect a more bold approach to implementing change over the next few years, including increased private sector opportunities in a delivering a range of public services. Indeed legislative changes have already made this more possible.  So is the outsourcing market rubbing its hands in glee, or is it may be wondering if it should have been careful what it wished for?  As advisors to public services clients on major outsourcing deals we have seen an increased nervousness in the market, this manifests itself in low market response to the opportunities out there and a preference for the safe ground of familiar services and approaches at a time when the real opportunities don’t lie there anymore.

The question is why?  Well one factor is that more imaginative deals are coming to market, services that have not typically been outsourced before, like Social Care provision and Environmental Health. This newness means that it is consequently hard to assess the risk in delivering whilst ensuring a financial return. Another factor is that we are not in the first or even second wave of outsourcing anymore especially in Local Government, the easy gains have gone and the market needs to rise to the new challenge. Even non-outsourced services have had 15+ years of the efficiency programmes to strip out waste and consequently the benefit of even a first generation outsource is diminished as there are few new benefits.

What this all adds up to is that ‘its outsourcing… but not as we know it’. So if we are seeing signs of potential market failure what needs to be done to avoid it?  Our initial prescription is as follows:

Outsourcers:

• Get real about where the opportunities now lie; the old paradigm won’t cut it anymore
• Use tried and successful approaches and apply them to these new services bundles – your expertise is in driving change, bringing challenge, managing risk, and yes keeping an eye on the bottom line.  The essential skills you need that to run these new services will TUPE over to you – you need to provide the environment to get the best from them
• Invest in the future – yes the unknowns will lead to higher risk, but this risk is your R&D and can be budgeted for accordingly.  No one is saying cut fast and loose with vital public services but we are saying consider taking a chance on the underlying commercial model – the benefits of getting it right are too great to ignore – you  will be enlarging the size of the cake rather than just your slice of it
• Be honest in soft market testing – all too often this ends up as an exercise that involves a lot of nodding and smiling which then falls away when a formal procurement exercise starts – your clients invest time and effort in this, if you reciprocate it will save you time and money later

We may sound a bit harsh on the market in the above but we also have some suggestions for potential clients:

Clients:

• Get real about the offer you have for the market; if you can’t identify the underlying logic of why outsourcing your services will produce tangible benefits (financial and other) then question why you are outsourcing – outsourcing is not a panacea for all organisational financial ills
• Consider commercial models that enable the market to take measured risks – locking a partner into a 10 year deal on services it has not run before and having punitive charges for early termination will not provide the environment in which these risks can be taken
• Provide clear vision, set any ‘red lines’ early on, consider what a true partnership means and act accordingly, and help identify the opportunities you think exist.

The risk of not being bold here is one of stagnation and decline – the world has moved on, adapt or die (when you’d rather ‘live long and prosper’).

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