A recent report by the Independent Institute of Government has indicated that public sector outsourcing projects have achieved mixed results at best. Services like waste collection and maintenance have delivered significant savings, while others like private financing construction and probation have increased costs or have failed to deliver the desired outcomes.
IT has traditionally been outsourced by local government but has had very mixed feedback to say the least. The ‘your mess for less’ model can work poorly; and while a static, routine service can benefit from providers’ economies of scale, these always come at the cost of innovation, improvement and ability to adapt.
But it is understandable when an organisation feels that IT is not at its core (which is harder and harder to believe these days), and that it can trust another commercial organisation to be its delivery partner.
Transform, and then consider outsourcing
Given that static, ‘low risk, low change’ environments in IT are hard to come by, I believe that outsourcing prior to completing a full digital transformation project is a mistake. Perhaps once the initial success in digital transformation is achieved, there may be an opportunity to engage a trusted delivery partner for the ‘transformed’ environment. Doing this after the initial heavy lifting is over allows the buyer to understand the true ‘new’ cost of running things, and to capture the benefit of the reduction before an outsourcing supplier takes credit for it – thus making them able to measure the real improvement they have delivered. I have worked closely with local councils to understand their pain points and help them overcome their challenges to achieve significant efficiencies but above all improve the quality of services they deliver to the public.
Build flexibility and scaling (both up and down) into the contract
Outsourcing doesn’t have to mean handing over full control. Especially for local authorities that are working with more traditional on-premise IT systems, transitioning to the cloud and deploying Software-as-a-Service (SaaS) solutions, where the OEM tech vendor is responsible for the deployment; upgrading and maintenance of the systems, might come as a ‘cultural shock’. This can cause lack of internal support and even push back for the project. The right partner would allow authorities to maintain a level of autonomy, control and input throughout the process. Departments can, therefore, retain the ownership of the transformation process and ensure that change happens at a sustainable pace, and keeps going post-outsource.
For this, flexibility needs to be built into the contract, and the customer needs to retain architecture and commercial capability. Many of the services will have mechanisms for easy adjustment, or even taking services in and out of the arrangement. As the transformation project is delivered, you are ideally not asking for investment from the service provider, so any ‘minimum spend’ or ‘minimum revenue’ guarantees should be minimal, and flexibility built into the contract.
Understand your service end-to-end
Think smart and choose a provider that can offer a comprehensive front-to-back end solution. Local councils operate a complex IT estate with a myriad of legacy front and back-end applications that are often disparate. Outsourcing or transforming either the front or the back-office alone would in reality be adding a further layer to this complexity. It is important to ensure that systems are integrated and information and data feed into one another. This will save the authorities money down the line. Sooner or later integration will be inevitable so best to address this early with a partner and ensure they have integration capability.
Don’t stress about service level agreements
This might be controversial, but SLAs are not important in my view, and are never worth paying for. Where most of what you consume is SaaS, IaaS or PaaS, SLAs become almost irrelevant. If you are worried your outsourcing partner is not going to respond to you fast enough, and not prioritise your tickets over others, don’t contract with them.
Each SaaS has its own natural service level. Improving it is hard, but be safe in the knowledge that all customers share the same SL. Paying extra to have a better one is both unrealistic and unnecessary. If you put penalties on non-performance, all this means that you will get some of your money back at some point - the best thing is not to pay it in the first place – this way, you get to keep all of your money.
As with everything, use the above advice where appropriate. If you have specific project SLAs, or perhaps fix times on a legacy issue, agreeing this might be very smart.
Don't be afraid to be different. This is the time to break any remaining silos and it is likely that a technology solution that delivers results and brings value in one area can, in fact, be as efficient in other areas of the organisation. It might be that you outsource to a consortium of several SMEs, but of course this carries some risk of them blaming each other. This risk can be offset if these companies have a level of competitive tension. You are choosing something very complex, and individual to your needs. IT is a capability that should be strong in-house – and inseparable from the business – but if you or your leadership are dead set on going to a partner, try to get the power balance right.
In an overcrowded marketplace, embarking on an outsourcing project and choosing the IT partner to implement it can, and should, be daunting. The right IT partner would act as a consultant that will help you navigate through your needs of your organisation as a whole, but would also act as something of a ‘poacher and game keeper’ – thus the savings should not come from IT your management, or you will get what you pay for. As mentioned above, ‘your mess for less’ is the worst possible idea – and virtually every spectacular failure of an IT outsourcing giant can always be tracked to this model.
Work on aligning the incentives to your real desired business outcomes. This is the way to test whether successful outsourcing is possible for you. If you cannot have three clear, measurable goals that you can contractually describe as testable KPIs for an outsourcing partner, and structure their incentives along those lines, then don’t do it.
Denis Kaminskiy is from Arcus Global