Socitm report highlights outsourcing risks
To avoid them, get advice, be strategic and retain a well-informed in-house team
Indiscriminate outsourcing can see local authorities out of pocket and unresponsive to change, according to a new report from public sector IT body Socitm.
The report, Costs of Outsourcing – Uncovering the Real Risks, examines the risks in detail and offers advice about how to tackle them.
Socitm points out that although there are often good reasons for outsourcing, especially for smaller organisations unable to benefit from economies of scale or afford to change technology as regularly as their larger competitors, outsourcing a major component of an ICT service is fraught with risk.
It also argues that when comparing the costs for any service, most elements will be more expensive over a 10-year period if outsourced. This may seem counter intuitive, but report author Martin Greenwood said: "It is a myth that outsourcing is cheaper, across most areas it is more expensive and people outsource for a range of reasons other than cost."
The risks begin in the negotiation phase when suppliers will likely be more experienced and knowledgeable of the process of negotiating contract terms than a local authority that will go to market only rarely for a major outsourcing deal.
Another risk lies with outsourcing information assets alongside technology, as the ability to exploit these is a key source of efficiency savings and even advocates of outsourcing advise against this.
Key to negotiating a successful outsourcing contract is management of the contract, but the Socitm report argues that many local authorities outsource because they are unable to manage an in-house operation through lack of understanding, and that this same lack of understanding may mean that they are unable to manage their contracts.
Associated with this is the loss of in-house expertise, leaving the organisation unable to check, or even challenge, the view of the supplier. The report explains that "this is equivalent to the naïve householder faced with a plumber who takes a sharp intake of breath, asks ‘Who created this mess then?' before presenting a large bill."
In these circumstances, urgent jobs will tend to be done at an excessive margin, as the supplier seeks to recoup lost profits through the typically hard-fought and costly competitive tender process.
An organisation can protect itself against risks by:
• Identifying the potential savings to be expected from an outsourcing deal by benchmarking cost and satisfaction with the existing service against the other successful similarly outsourced ICT services (by other local authorities or internally) and writing the difference into the specification
• Getting professional advice around framing and negotiating the contact
• Adopting "strategic outsourcing", in which the organisation separates components of the ICT operation, and offers them to the market individually rather than as a bundle
• Retaining an in-house team as a source of expertise and capability
"Outsourcing should not be considered an inevitable response to austerity," said Greenwood. "Even smaller organisations that need to gain economies of scale, and struggle to keep up to date with technological development, should consider collaboration and sharing with other local public services as a genuine alternative.
"If they do take the plunge into outsourcing, they should make sure they are aware of the pitfalls and know how to avoid them."