Australian Govt does outsourcing well: report

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Australian Govt does outsourcing well: report

The Howard Government's aggressive outsourcing program has cut the federal public sector workforce by one third over the past five years, according to a new report, which holds Australia up as an innovator in this area.

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The Howard Government's aggressive outsourcing program has cut the federal public sector workforce by one third over the past five years, according to a new report, which holds Australia up as an innovator in this area.

'Outsourcing in government: the path to transformation' was produced by Accenture to look at how governments were using outsourcing in response to the growing pressure to perform. The company interviewed eleven policy advisors and 50 senior government executives with direct experience in managing outsourcing initiatives.

They came from Australia, Canada, New Zealand, Singapore, South Africa, Spain, the United Kingdom and United States, countries targeted for the report as having especially high levels of outsourcing. Executives from every country said there was room for improving outsourcing effectiveness.

Another issue was time management, with executives reporting spending just as much time and effort managing with the outsourcing provider after something had been outsourced compared to when it was in-house - costing as much as 8% to 10% of the contract, according to one executive.

While the report found savings through outsourcing of between 20% and 40% where they could be measured, it also found measuring was a major difficulty. Here Australia, along with the UK and NZ, came out ahead of other countries, because it had implemented accrual accounting practices that supported their ability to match investments with the returns generated.

Australia also scored well when it came to good management practice, with big-picture strategies and goals, measures of success to check progress against and capable leaders with the ability to make decisions on implementing programs. It also has sound financial systems 'that tell them how they're doing', and uses flexible procurement practices like expressions of interest, designed to solicit new ideas from private and public sector organisations competing for work.

General findings

Overall, the study found:

  • Results from Government outsourcing are mixed;
  • Outsourcing in the public sector is particularly complicated;
  • The conventional wisdom about outsourcing - leaning on concepts like what is 'non-core' - further restricts executives' views of what's possible;
  • Performance-oriented governments have learned to make outsourcing part of everyday good management;
  • A small number of leaders around the world achieve breakthrough benefits when they leverage outsourcing to transform the way their organisations work.

Outsourcing is growing in the public sector, with governments around the world transferring more than $1 trillion in assets to the private sector. But the report found many government executives and policymakers remain skeptical, because disciplined post-hoc analysis is hard to do. 'Even outsourcing veterans argue that tracking the benefits is extremely difficult,' the report says.

'For all but the simplest processes, business changes interfere and shift baseline metrics within months of even the most carefully written contract. Or more frequently baseline metrics don't exist in the first place.'

More complex outsourcing programs were even more difficult to measure, the report noted, saying while 'most executives would be comfortable measuring whether lawns were mowed on time and well, [they] would have much more difficulty assessing whether their organisation's IT support matched best-in-class levels.'

Some 28% interviewed said measuring results was a substantial obstacle in outsourcing. Workforce and union opposition and internal resistance to change were seen as the most significant hurdles.

Blueprint for business transformation

Australia was held up in the report as an innovator because it institutionalised choice. Government departments and agencies are allowed to choose any supplier; they regularly measure the Government's unit cost for producing its outputs; and publicise that information.

It quotes an Australian executive as saying: 'When services were in-house, costs were not explicit. When you outsource, you get a market signal about true costs. It revealed to us that government had been over-investing for generations in areas that were marginal.'

The report also examines the South Australian Government, which was identified by Outsourcing Journal as having the best government outsourcing relationship in 2000, by using outsourcing to drive economic development

The report advises that to make outsourcing work, a government needs to:

  • Match the outsourcing approach to the situation;
  • Execute the process 'masterfully' - that is, identify and empower the leader; get and keep key stakeholders on board, including employees and unions from an early stage; stay actively involved.

The report is available on the Accenture website

 

 
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