Outsourcing & commissioning in local government

Commissioning and outsourcing has failed in the public sector, and we need to learn the lessons for next time someone in government thinks they have a good idea

We probably have to thank Margaret Thatcher for creating the space in the public sector to embrace outsourcing and commissioning. The idea was to inject private sector thinking in to a local authority. A very good idea... Local authorities are in sore need of being able to manage and view their organsiations differently, especially when there is no real impetus for change.

Did it work? Was it the right thing to do? Well, introducing elements of the private sector is fine as long as they are the right elements, but what have we been left with? Competition! Thats the method that is used in commissioning and outsourcing to drive down costs and improve service. Thats all very well if we can draw parallels between the private sector customer connsumer ethos. But a council does not providing a consumer service, they do something very different.

So the impact of outsourcing and commissioning in a local authority has been to reduce costs for those services from an accounting perspective. However, the impact of outsourcing in reality is being locked to a fixed agreement: unable to change, being charged for additional work, unwillingness to work across other services, and potentially costs not being reduced in the long term. The woes of a service that has been outsourced are legendary.

Universal Credit has outsourcing at its heart, and despite all attempts to 'fix it' the root cause of the flawed design is at its heart.

Today, councils all over the UK have realised that this appropach has largely failed. And they are rapidly taking most of those same services back in-house.

What is the problem?

Looking at outsourcing systemically, there are two main aspects of this approach that point to inappropriate design.

1. Outcourcing works by designing services functionally. This also meanas that they have to be defined by standard flows and procedures. Many public sector demands require flexibility, continuity of knowledge, and they change over time. Thiese factors cnnot be served by this standardisation.

2. Dealing with complexity using standard transactionally designed services simply will not work. transactions are defined by tame and linear defined workflows. Complexity is defined by dealing with demands as they present themselves according to their context. This confusion in design  will drive up cost and create a very poor outcome.

In both cases an understanding of systems thinking and complexity will point the way to a design that fits people centred services.

Can it work?

Commissioning and outsourcing can work if you can get agreement based around a common systemic purpose. And the agreement is based on true cost (open book). If not, then you get the problems with commissioning that is destroying the NHS.

As an example, Fareham council is redesigning its services using a systems thinking approach. Their managers have alreasy redesigned their own services, and are continuing to refine their effectiveness. Its only by transformation that any organisation can achieve effective reduction in cost. They have also outsourced where appropriate, but in the main, they have decided to get the right sort of management of their services and deal with most things in-house.