To outsource or not to outsource? It all depends…

To outsource or not to outsource? It all depends…

18 October 2012,| The Conversation

As governments increasingly come under fiscal stress, many leap at the opportunity to cut costs by outsourcing services. The current flurry of activity around outsourcing, gaining much attention in the UK, and now reappeared as the strategy du jour for state governments seeking to reduce spending, takes us back to the future in some sense.

The old debates re-emerge. Governments and advocates on the political right sing the praises of outsourcing as a sure thing when it comes to cutting costs; and those on the left shout about the benefits of government provision and downsides of leaving public service provision to the market. Both, of course, are misguided in their approach, yet again and again we return to this fairly blunt exchange of views.

It all depends

In recent work with John Alford, we argue that it’s time to rethink public service delivery entirely and take a much more nuanced approach to this tool, one of many, that government has in its armoury.

Arguing the case that public services should always be provided by government is as absurd as arguing that they should never be.

Sadly nothing is so simple. In our book, Rethinking Public Service Delivery, Alford and I make the argument that when it comes to outsourcing “it all depends”.

On the one hand this might seem an unhelpful, possibly ambiguous, foray into the outsourcing debate; but it does offers insight into the complexities of outsourcing that is missing in the debate now, just as it was the last time governments fixated on this as “the” answer.

Three questions to ask

Our argument is that, to date, views on the costs and benefits of outsourcing have been far too narrow. We point to three major questions that should be answered in any outsourcing decision.

The first question gets plenty of attention: what are the service benefits and costs, or the “value for money” part of the “it all depends” story? Basically we make some assessment of whether an external party can do something better and/or, cheaper and this covers off most of the service benefits and costs we care about.

The second question gets some attention, sometimes, but not often enough: what are the relationship costs or the “making it happen” part of the story? Even if some other party can potentially do something better or cheaper for us, we have to expend quite a lot of effort and resources in actually making that happen. We have to define the services, we need to run tendering processes, often, to select a provider, we have to monitor that they are doing what they said they would, and so on.

None of these activities is cost free for the parties, but these rarely get discussed in any public debate about whether or not we should outsource public services. We need only to look at the current debacle in the UK on the management, or not, of the rail franchises to see the potential effects of not being able to manage these processes.

The third question, critical as it is, barely rates a mention until there is a scandal. This is the question of the strategic costs which represent the “keeping it sustainable” part of our “it all depends” story.