Government in outsourcing rut despite selective options

Selective sourcing a reprieve, not a solution

The big-bang outsourcing legacy of the past decade has left many federal government departments without a clear path to cost savings or more operational efficiency even with a selective sourcing trend, according to industry analysts.

Deakin University Business School associate professor Anne Rouse, who wrote a thesis on the success factors and risks of outsourcing, believes the problem began 10 years ago when there was "a huge amount of rhetoric" that outsourcing will solve lots of problems and save "megabucks".

"The evidence was never there that this would occur," Rouse said, adding there was a climate among managers that if they did not outsource they were viewed as not making the correct decision.

"The same thing is happening with regard to offshoring but you can only find out if it is beneficial after a lot of analysis."

Many people told Rouse that outsourcing would save money but that conclusion was based on "anecdotal" studies which speculated what might happen in the future.

Rouse's research of over 200 large public and private organizations indicated only one-third view outsourcing as unequivocally satisfactory.

Even if there is a trend towards more selective contracts, Rouse remains sceptical over what impact this shift will have for the departments' ability to improve service levels and value.

"The reality of government outsourcing is it has unique needs only a few companies can supply," she said. "Governments have demands that make their requirements different to others so it's expensive for vendors to service them [and] they want to make sure the vendor is going to be there in 10 to 15 years."

The main "trade off" when departments chose selective contracts is the additional project management required to juggle multiple providers, which also needs analysis.

"My research has shown few business do an effective analysis of the business case," Rouse said. "Federal departments having outsourced have no real option but to continue to outsource."

That said, Rouse believes "virtually nobody" doesn't engage in some form of selective sourcing, but "you need to do your sums and analyse", because the business case is often based on a best case scenario and "that never happens".

"Once you move to selective you won't know if it is better," she said. "South Australia is trying to kill of the EDS contract and it will cost money to break it apart. In the end you take on the risk yourself."

Rouse said one characteristic of outsourcing is there is a lot of "wishful thinking" going on.

"Just when you buy a house nothing ever goes right," she said, adding it is very difficult to save money on outsourcing," she said.

"Having outsourced as a government agency you can't easily bring it back."

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