Outsource Magazine

For the outsourcing sector, the business and economic backdrop, though gloomy from a macro economic perspective, holds a number of positives. Indeed given that the aftermath of the financial crisis is still hurting businesses and the determination of the coalition government to implement deep and radical cuts across the public sector, in one sense outsourcing companies have never been in more demand or had more opportunities to prosper.

In government, swingeing cuts of around 25% or possibly more for most departments, which will become clear in the Comprehensive Spending Round due in October, will create enormous opportunties for outsourcing firms across a range of sectors. 

Currently about £80 billion or 14% of public services are outsourced, with some analysts forecasting that this could exceed £140 billion by 2015. Areas such as IT provision, supply-chain management, procurement services, facilities management, human resources, outplacement counselling and assistance etc are all areas where Government will be looking to make deep cuts - but also seeking to ensure that any central government provision of these services is replaced with top-quality private sector prodviders.

Given this, as governmental and public sector bodies are very stringent in their tendering and contract procedures, private sector outsourcing firms need to ensure that when they bid they:

• convey a company of considerable  substance
• have ensured they have a senior management/board that can deliver
• have implemented strict KPIs
• have evidence/proof to back up their concept
• a strong track record in the service area
• are well financed

They may also need to ready to be more flexible in their approach. For instance, historically outsourcing contract terms have been rather long, ranging from five to ten years. Typically the reasons for longer contracts have been the significant transition costs and ensuring stable, quality services.

However, the government and public sector bodies are likely to make a more performance-based approach in future, which will militate against longer-term contracts, to give these departments and bodies the opportunity to exercise the right to change scope or resign the services provided if necessary. In addition new models may well emerge.

Outsourcing firms should also not expect a fee bonanza from new public sector contracts. In the past, in IT for example, the public sector was often paying 40% more than the market rate for IT services.  This was largely a reflection of a combination of questionable procurement practices and inadequate management. However, the determination of the new government to bear down on costs and the likelihood of many procurement functions being outsourced to the private sector should make firms temper their quotes when they submit bids.
Lastly, outsourcing firms should ensure that they are adaquately capitalised to take advantage of these new opportunities.  Given the likely political backlash if any outsourcing contracts run into difficulties or fail, procurers are going to be very focused on whether companies ar adaquately resourced to provide the services they offer.

So though to say the next few years may be a golden age for outsourcing may be going too far, it should certainly provide a renaissance for the sector and allow it to play a strong role in improving the efficency of government and the profitability of business.