40,000 years of outsourcing
As I write this, five days into the Olympic Games, the pinnacle of global sport and the spotlight on London is well and truly switched on. The reality, of course, is that the City has been in the spotlight for some time now, but this past month has shown what's good in our business community and where we sometimes let ourselves down.
Let's start with the obvious, the announcement of the shortfall in security personnel available for the Olympic Games under the oversight of G4S demonstrated in stark relief the pitfalls of what can happen when a major contract is not managed actively. The fundamentals of outsourcing are once again in the public spotlight, specifically in terms of accountability to the taxpayer. The view that has not, so far, been articulated fully, is that failings occur on both sides of the contract. G4S may have mismanaged the recruitment and vetting process, but Government must shoulder a proportion of the responsibility for this problem due to the absence of satisfactory post-signature management of the contract. Time and time again we see that large complex Government projects run into trouble, either because they do not stand up to value for money comparators or because they are poorly delivered, or both.
A recent article in the Financial Times, which provides a good overview of some of the stigma facing outsourcing, was extremely well timed ahead of the G4S saga.
In my view, the issue is not outsourcing. It is actually procurement. Outsourcing is really another word for purchasing. There are 40,000 years of human activity that has seen tasks progressively reapportioned to others who can better perform them, so that we, in turn, can focus on what we do best (Adam Smith tacks etc.). This decision not to slaughter mammoths and let someone else do it was the first outsource. The rest is ever more sophisticated variations.
Apple does not make Ipads. Many car companies do not make engines, or seats or wing mirrors. Airbus uses others to manufacture landing gear. Some professions are predominantly 'outsourced' or purchased already. Marketing is a good example where the 'Mad Men' generation of ad men have taken over what was previously an internal function. This is outsourcing. Yet no one thinks that this is odd (or even realises it's outsourcing!).
In procurement and outsourcing, success is often defined firstly by how well a contract is set up and secondly by how well it is managed on-going. My experience of watching outsourced (ie large ongoing purchasing) contracts all over the world concurs with the FT article's view that without consideration of this, even the best intended results will go wrong. However, I think Government contracts are slightly more prone to problems because they:
- Contract with many contradictory objectives (diversity, sustainability, local supply, stringent standards of service and performance) and have unclear end goals
- Consistently fail to put in enough skilled resource to manage the contract commercially as needs evolve
These are problems to which there are many solutions, if the will is there. But they are not issues that pertain just to outsourcing. They are issues that occur across procurement more widely. It is perhaps symptomatic of many senior executives not appreciating procurement's true purpose nor what to expect from their procurement functions. Procurement remains an under-invested in, despite the ROI procurement can generate being orders of magnitude greater than most other investment opportunities. Until this changes, the problems will persist.
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Why do you think procurement is failing to convince senior executives to invest more in the commercial management of their cost base? Put it another way, why are other functions more successful in getting that investment?
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