Over recent decades, governments have experienced very different results when pursuing outsourcing as a solution to the delivery of public services. So much so that in many regions there are growing calls (among citizen groups and within government itself) to reject outsourcing in favor of insourcing and with it a return to in-house operations with direct control and accountability.
And yet, in a moment in time marked by economic uncertainty, budgetary restraint and growing citizen concern, where the public sector and its service provision have never felt more stretched or scrutinized, outsourcing could still be the key to striking the right balance between fiscal responsibility and citizens’ expectations.
However, until there is a perception and expectation reset within governments — not to mention recognition of past errors — the services delivered by the BPO industry will never be able to deliver sufficient benefits to achieve or maintain that balance.
Dispelling outsourcing misconceptions
When governments first started to outsource services, the overriding motivation was cost reduction. And while it is true that business process outsourcing can lead to immediate financial relief, viewing an outsourcing engagement simply as a means of saving money means missing the bigger picture.
The BPO industry has evolved significantly; today’s leading firms offer far more than basic administrative support, access to contact center operations or back-office functions. They deliver data-driven services, advanced analytics, AI solutions and business transformation strategies designed to meet contemporary challenges.
Unfortunately, many government agencies have failed to keep up with these changes in capabilities and this narrow focus has created several issues. When the overriding focus is on saving money, the resulting business relationship becomes transactional rather than reciprocal. This not only limits each party’s view or understanding of the wider challenges or opportunities within a department or service, but it also stifles innovation. And that means government departments or agencies are missing out on opportunities to elevate services, harness technologies or tools, or develop new solutions that more closely align with citizen needs and expectations.
A competitive disadvantage
As previously mentioned, experiences with and the results of working with outsourcers have delivered very mixed results for government, and the blame for these inconsistencies of outcome can’t all be attributed to the public sector. Some organizations bidding for government contracts deliberately reduce service quality or consistency to cut costs. By doing so, they offer prices so low that competitors who prioritize quality cannot match them with the same budget. As well as stifling competition, these types of practices have enabled certain companies to remain locked in as the incumbent service provider.
Government need for outsourced services has also contributed to the emergence and growth of companies that position themselves as specialists in public sector service delivery.
While many of these organizations excel at delivering quality services forged from direct experience working with government and serving citizens rather than customers, they often leave themselves vulnerable to market volatility. Their client portfolios may lack sufficient diversification to buffer them during challenging times.
Market engagement
To learn from these past errors and fully harness the potential of outsourcing, government agencies must engage in open dialogue with the BPO industry. This collaboration not only enhances understanding of what current BPOs can deliver but also helps to dispel misconceptions among all parties that may deter effective partnerships. Through consistent communication with BPOs, government leaders can identify which operations are most suitable for outsourcing and gain insights into market trends and innovations.
Engagement also fosters competition among potential partners, which is critical for achieving genuine value. The more informed government agencies are about the variety of providers and their offerings, the better equipped they will be to optimize procurement and tendering processes and assess which partners align with their strategic goals. This relationship-building sets the stage for more fruitful collaborations and enhances the likelihood of favorable service outcomes.
Recognizing risk
One area where government needs to work harder in relation to fostering collaborative partnerships with BPOs is in its understanding and allocation of risk. Historically, government has struggled to identify, quantify, and allocate these risks effectively, leading to increased hesitancy among BPOs to bid on public sector contracts. When governments overly focus on initial costs or parameters like time and materials during the procurement process, they inadvertently shift additional risk to suppliers, potentially undermining long-term solutions and innovations.
To mitigate these issues, governments should collect data from previous projects and engage with the market to gain insights for identifying and quantifying potential risks. This proactive approach enables a better understanding of which party is best equipped to manage various risks and allows for appropriate risk allocation. The ultimate objective should be to focus on outcomes, negotiating agreements based on long-term goals.
By adopting pricing models that prioritize delivery and results, governments can foster better risk sharing, enhance protection and ultimately create more productive partnerships with BPOs. This outcome-based approach not only strengthens relationships but also enables the integration of advanced tools and processes that provide invaluable protection and performance benefits.
Moving forward
Before government can actively explore outsourcing as a strategic long-term solution to current challenges, it needs to better understand the current state of the BPO industry, the depth and breadth of its capabilities and the optimum approach to building partnerships with fair risk allocation.
Critically, it needs to know how to use that understanding to assess which current operations are suitable candidates for outsourcing and how to develop a procurement process that simplifies the task of identifying the best potential BPO partner.
To support government agencies and departments in these endeavors, we have produced a best practice guide that covers everything from operational assessments to governance structures and overseeing pilot phases and solutions testing to help public sector clients get the most from their partnerships with BPO organizations.
So, to learn more about how to assess and select the right partner for your outsourcing needs, read: “From misconceptions to mastery: A government guide to identifying the best outsourcing partner.”