By Mark Boudreau Introduction   In today's uncertain economy, government
executives increasingly face conflicting social and fiscal challenges. They are
challenged by the requirement to deliver core services and respond to emerging
needs (e.g., security), at a time of declining resources and revenues.
Decision-makers find themselves with a difficult agenda: to reduce expenditures
and streamline operations, even as the cost of improving service delivery
grows. How can they succeed on both counts?
In November of 2001, Accenture conducted research that
examined the organizational priorities of government executives, including
their attitudes and experiences with outsourcing. The study encompassed
interviews with 122 decision-makers from public sector organizations and 182
decision-makers from leading private sector firms in Canada*. Reduced Costs and Increased Citizen Satisfaction
Lead Organizational Priorities When asked to identify their top organizational priorities
for 2002 and 2003, the two most frequent responses from government executives
were reducing costs (79 percent) and improving the satisfaction of their
customers—Canadian citizens (77 percent). In addition, they plan initiatives
intended to increase operational efficiency, including enhancing productivity
(68 percent); recruiting and retaining the best people (65 percent); and
adopting the right technologies (61 percent).
Executives Outsource Non-core Functions in Order
to Cut Costs Government decision-makers frequently turn to outsourcing
relationships to improve their capabilities. The majority of our interviewees:
- View outsourcing favorably.
A full 88 percent of government executives report a "favorable" opinion of
outsourcing relationships, compared to 84 percent of their private sector
peers. They base this perception on first-hand knowledge. Ninety-two percent
assert that they have at least some outsourcing experience.
- Expect cost savings. Seventy percent
of government decision-makers cite cost-cutting as an outsourcing benefit,
compared to just 60 percent of corporate executives. Public sector interviewees
are less likely than their private sector counterparts to identify other
outsourcing advantages, such as gaining additional expertise (27percent
compared to 39 percent) and enabling management to focus on core competencies
(20 percent compared to 24 percent). Eighty-two percent of government
executives say that they would consider outsourcing a specific function even if
cost savings were the only benefit.
- Prefer outsourcing non-core functions. Fifty-six percent
of government decision-makers outsource at least one function within their
information technology (IT) organizations, led by IT networks (47 percent) and
network management and telecommunications (45 percent). Yet they rarely
outsource business processes such as human resources (16 percent) and finance
(13 percent).
Decision-makers Are Receptive to Using Outsourcing
Strategically But Face Obstacles Government executives are beginning to look at outsourcing
as a means to transform their organization. They are attracted to the
opportunity to share risks, but they face certain obstacles, some of which are
unique to the public sector.
- Organizational impediments.
Public sector executives are far more likely to worry about lacking
organizational commitment at all levels (57 percent in the public sector
compared to 48 percent in the private sector) and creating disgruntled
employees (53 percent compared to 41 percent). They also foresee a unique
issue—the political acceptability of their outsourcing relationships (55
percent).
- Minimizing management
complexity. Eighty percent of government executives believe that an
outsourcing environment requires them to adopt a completely different
management style, while 72 percent say that outsourcing some functions
radically changes the nature of an entire organization. This was an impression
shared by their private sector counterparts.
Overcoming the Barriers Recently, Accenture completed an eight-country study of 50
senior-level government executives with direct experience managing outsourcing
initiatives and 11 policy advisers with expertise in public-sector outsourcing.
The survey provided the following key lessons for government executives
interested in pursuing outsourcing:
- Stay actively involved.
Rather than delegating accountability for outsourced activities, public-sector
executives must stay involved by leading strategy and operations.
- Manage expectations. Tasks
that public servants previously completed by asking someone in the next cubicle
may require a new process if outsourced. Clarifying the new work process
beforehand will make the new steps less contentious.
- Involve employees and unions
early. It may not completely eliminate feelings of uncertainty that
most employees' experience during major change, but communicating early and
often will help them navigate the process.
- Look beyond savings. Other benefits include: improving
capabilities, improving executive focus on priority issues and improving
service to citizens.
- Use innovative
business models. Some government executives are applying these
innovative models to outsourcing, such as joint ventures and private finance
initiatives—sometimes even extending public-sector activities into whole new
revenue-generating arenas.
Transforming Service Delivery Rquires a More
Strategic Approach to Outsourcing The increasing pressure to improve service delivery in a
cost-effective manner compels government executives to optimize their resources
more carefully than ever. Following the examples of leaders in the Canadian
public sector and around the world, they should explore strategic outsourcing
relationships that can transform service offerings while controlling costs and
minimizing risks. Four imperatives can guide them:
- Embrace outsourcing as a business
tool, not just as a point solution. Government executives should
recast existing outsourcing relationships and strike new agreements in order to
achieve strategic outcomes. For example, a decade-long relationship between the
Worker's Compensation Board—Alberta (WCB) and Accenture has grown from
application development and maintenance into an arrangement focused on
reinventing the delivery of the WCB's core service—managing the claims of
injured workers. Working as a team, the two organizations are reevaluating the
entire claims process and building a new system to optimize it. Their common
goal: to help case managers deliver the right services at the right time in a
claim, improving their ability to return injured workers to work quickly and
safely.
- Target new levels of
performance by using world-class benchmarks. Government outsourcing
agreements have traditionally settled for incremental performance improvements
based on previous organizational history or public sector best practices. To
enable unprecedented levels of efficiency, outsourcing relationships should
incorporate lessons from public and private sector successes around the world.
For example, Canada Post Corporation and Accenture have worked together to
ensure that their relationship draws on the best practices of many global
industries, and not just those of other postal services.
- Overcome uncertainty by sharing
outsourcing's rewards. Government executives can minimize the risks
of strategic outsourcing relationships by creating incentives that provide both
parties with a greater stake in success. In the United States, the US
Department of Education's Office of Student Financial Assistance (SFA) and
Accenture have initiated a relationship to transform the administration of its
loans on- and off-line. A share-in-savings agreement offers Accenture an
innovative incentive to maximize cost reductions to the SFA as it transforms
service delivery.
- Exploit business
transformation outsourcing (BTO) for radical leaps in performance. A
growing group of executives seeking fast, sweeping improvements in performance
across an organization turn to partners for an emerging kind of
relationship—BTO. These engagements are unique because of the radical nature of
their scope and goals.
Taking Action Leading government executives around the world are using
outsourcing to achieve a dramatic improvement in their agencies, their
governments and their public/private value models. They know that it is a
cost-saving tool which creates better value for taxpayers while holding the
promise of enhanced service performance. They know it relieves fiscal pressures
and provides access to new sources of capital. Finally, they know that in the
area of IT services—it addresses the skills-gap.
These executives are closely examining their operations to
determine what to outsource with an eye to structuring deals and managing
relationships that will launch their governments toward a way of working that
is decidedly more nimble and innovative. As a result, they are improving their
governments' service profiles, expanding their capabilities and transforming
their ability to deliver value. We call this type of outsourcing business
transformation outsourcing.
* - The survey
was conducted in November of 2001 by Northstar Research Partners. To Top |