When failure is not an option

you like it or not, outsourcing is part of a public sector HR professional’s
life – make sure you get it right, warns Nic Paton

improvement of public services will be the defining issue of this Labour
Government. Failure is not an option." Who said this? Tony Blair, Gordon
Brown? No, Mick Connolly, regional secretary for the TUC at a conference on the
relationship between public services and the private sector in March.

speech, which went on to harangue the Government for its "irrational
obsession" with the use of the private sector and, as he saw it,
"constantly threatening" of public sector workers with privatisation,
goes to the heart of the tensions currently consuming the political debate over
public sector outsourcing.

public sector HR professionals, however, like it or not, outsourcing is now an
established way of life and, if anything, becoming ever more so. According to
Paul Masterman, head of local government at TMP Worldwide, whereas two years
ago only one or two local government organisations had embraced outsourcing,
now "a substantial minority" have taken it on board in some shape or
form. "There is no indication that we are really at the end of the road.
We expect to see more of this happening," he says.

deals have been huge and pioneering, such as the 15-year, £180m contract struck
last year by Blackburn with Darwen Council to outsource its HR, property
management and financial services to Capita. Others are smaller and vary in
complexity, structure and even definition. Yet the consistent theme to emerge
is that outsourcing is a key driver in helping to give HR the space to remould
itself from the mandatory ‘pay and rations’ of a few years back into a
strategic, ‘added value’ function at the heart of the organisation.

initial rush to outsource over the past two years has been replaced by a more
mature debate about what can be and cannot be outsourced, argues Terry Gorman,
a former president of Socpo and now an HR consultant. "For an
organisation, it is still vital to have a strategic heart, and HR is still
vital within an organisation. People are now making much more considered
decisions," he says.

deals such as Blackburn with Darwen and Liverpool City Council may catch the
headlines, but many organisations are experimenting with outsourcing or
variations of outsourcing at a smaller level.

Wales Police, for instance, struck a partnership deal a year ago with the
Jobcentre Plus to handle its recruitment advertising and initial application
processing. Jobcentre Plus now places advertisements, handles calls, offers a
24-hour recruitment hotline, collates application forms, logs them and then
hands them over to the force, which then takes over the process from there.
This year it saw about 4,000 people applying for jobs compared with about 1,900
in a normal year.

not pure outsourcing in the sense that no staff have been transferred, the
arrangement has freed the HR department to concentrate on less administrative
areas, says Helen Edwards, HR services manager at North Wales Police.

we had to place the ads ourselves, we would have had the phones glued to our
ears. All that has gone. By outsourcing aspects of HR it means you can focus on
strategic policy aims rather than taking calls from job applicants," she

county council and constabulary have both been innovative on a similar scale.
In March last year, the council outsourced its recruitment function to
Manpower, while an agreement with the Bernard Hodes group has increased
recruitment to the police by 130 per cent. The consultancy has also been
working with Hackney Council to lure teachers back to deprived inner-city

the drift towards outsourcing has meant that public sector HR professionals
have been forced to look at how they are delivering services and reassess what
they are doing, explains Masterman. "Over the past few years, the number
of jobs in the public sector has been increasing, but the number of people
directly employed by the public sector has been slowing down," he says.

going down the outsourcing road must first analyse the quality of their
services, adds Gorman. "It has to be vigorous and honest, and that can be
hard. You sometimes find that a lot of what you are doing is not regarded as
highly as you thought."

this alone can help to slash bureaucracy – a much vaunted benefit of
outsourcing. It is common, once put under the spotlight, for organisations to
discover areas or procedures that have not been rigorously studied or
questioned for years.

Peter Tydie, local government director with Bartlett Scott Edgar, stresses that
by carefully auditing the functions they plan to outsource, organisations will
be able to find the holy grail of ‘best value’.

should be about finding out what was being done well previously and adding a
bit more." He cites the example of the London Borough of Lewisham, which
has been using a call centre for external recruitment calls for the last three
years. "It should be seamless – no one using the service should be aware
that it has been outsourced," he says.

there are HR functions which can only be kept in-house. The strategic role of
HR should never be outsourced, Gorman contends, as it is wrapped up with the
future direction, development and success of an organisation. But transactional
HR processes – payroll, benefits, recruitment selection (if not the final
decision), even training – are a different matter. Areas such as advice,
employment law and grievances tend to be more borderline.

is rarely outsourced unilaterally and is more commonly bundled into, say, a
combined IT, finance and HR outsourcing deal. Deals such as this will be huge,
running into millions of pounds over many years, so authorities have to follow
strict procurement rules and regulations covering areas such as inviting

inevitably, in the case of these big deals, organisations will lean towards
going with a private sector provider – the Capitas, BTs and Hyders of this
world – that has the scale to cope with what is required, suggests Gorman.
Where deals are smaller, there is often more scope of working with different

of the hardest things to do when caught up in the outsourcing process is
plucking up the courage to call the whole thing off. The Civil Service, for
instance, decided to bring its recruitment process back in house after
experimenting with Capita, arguing that using a middle agency made
communication with applicants more difficult.

Kent County Council changed its mind after spending a large part of last year
examining whether to outsource a major part of its back-office operations.

council had been looking to transfer 800 staff to the private sector in a
£250m, 10-year deal, with Accenture and HBSG (formerly Hyder) ending up as the
front-runners. But finally, after much deliberation – and despite having
outsourced its payroll operation to Capita three years ago – the council
decided to pull back.

we had seen some very interesting companies, we decided the deal was not right
for us. The risk and reward was just not going to be viable, but in the end, it
was all very cordial," says Mary Mallett, strategic director of
organisation and development at the council.

council will instead launch its own £10.9m integrated online HR and finance
platform this month.

is absolutely crucial is that people do not do it as a matter of dogma – it has
got to be what is right for the business. People often pursue it for the wrong
reasons and I think the jury is still out on the big deals," says Mallett,
who is also vice-president of Socpo.

advantage of going outside is that you can concentrate on what is left – policy
and service. Someone else sorts out the process arrangements. If it’s in-house,
you have to do it all yourself," she adds.

you are outsourcing anything, you have to be careful how you manage it. People
have to believe there is a bold goal otherwise they just feel like a commodity.
They need to be told why it is a good idea and why you are doing it.

communicated like mad. Staff said they had felt bruised by the uncertainty over
the six months, but said the communication was brilliant," she says.

emphasis on communication is critical, whatever the size of the contract,
suggests Tom Crawford, HR manager at solutions consultancy Bernard Hodes.

in any merger or acquisition, the key is good communication. What are the
objectives of the new function? What is expected of individuals? There should
be as few surprise as possible and, ideally, as much self-selection as possible.

private sector firms by and large accept TUPE as a way of life when bringing
staff over, the expensive final-salary pension schemes common in the public
sector are becoming a stumbling block in these tight economic times, suggests
Mallett. Then there’s the worry that some private sector organisations start to
run two-tier workforces, with those employees brought in later on different
terms and conditions.

sector HR professionals also need to do some constructive navel gazing if they
are going to make outsourcing a success. It’s no good setting yourself up as an
added value function at the heart of the organisation if your skills are not up
to the job and you’re not taken seriously anyway, argues Jeremy Webster, head
of public sector consultancy at Penna.

professionals like the idea of being upgraded, of having a more intellectual
challenge to their role. It is an opportunity for them to throw off the yoke of
being personnel processors," he says. But individuals do not change
overnight from being transactional HR specialists to agents of change
management, he adds. "The image of HR within the organisation takes rather
longer to change than simply transferring an activity from one place to

to where outsourcing is going in the future, Mallett predicts public sector
organisations will increasingly start to strike deals between themselves as
well as with private sector providers – a country council might share services
with a neighbouring district council or an NHS trust.

is also a trend emerging in local government towards regional service centres,
suggests Webster. Two councils in the north of England are currently piloting
running services through a single outsourced operation and a couple of NHS
trusts are testing a shared HR service centre, he says. There is also scope for
cross-service shared centres between local authorities and primary care trusts,
he predicts.

shared centres could also help to take some of the trade union-led heat out of
the arguments over outsourcing. Yes, they would recruit people and expertise
from the private sector, but those people would not be directly employed by the
private sector, Webster suggests.

the unions becoming increasingly agitated about the relationship the private
sector has within public services, this may be no bad thing. For HR, it
appears, the changes wrought by outsourcing may be only just beginning.                                   n

and don’ts of outsourcing


Assess your function – look at what could potentially be outsourced and what is
core and needs to remain in-house

Examine your processes aggressively – can bureaucracy be cut even before going
down the outsourcing route? After all, there’s no point in outsourcing
something that isn’t working anyway

Look at the size and scope of the deal and assess what type of organisation and
contract would suit it best

Assess what your ‘added value’ role will be, whether it’s realistic and whether
you’re up to the job


Rule out a variation on outsourcing – a ‘public-public’ partnership, joint
venture or simple partnership agreement can be just as successful as a pure
outsourcing arrangement

Forget to communicate, communicate, communicate. When workers are worried and
unsure, demotivation can set in. Even silence speaks volumes, so keep them
informed, even if nothing is happening

Be afraid to back out if it doesn’t feel right

in the city

is a telling sign that of the 1,200 staff transferred from Liverpool City
Council to its new joint venture company Liverpool Direct, so far, not one has
asked to be moved back.

part of the transfer operation between July and December last year, staff were
told that if, after six months, they wanted to go back to the council they
could, if they gave three months’ notice.

whole point has been to avoid problems of job insecurity, morale and retention.
The real issue people are interested in when it comes to outsourcing is what is
happening to their jobs. In our case, the fact they would still be city council
employees meant we took that fear away," says Liverpool Direct chief
executive David McElhinney.

are working for Liverpool Direct but they still have the emotional attachment
to the city council," he adds.

10-year, £30.4m contract struck with BT saw the council establish a separate
joint venture company – 80 per cent owned by BT and 20 per cent by the city.
The contract covers providing payroll, revenue, benefits and IT services,
including a 225-seat call centre.

the deal, Liverpool’s HR function was a slightly moribund, bureaucratic
operation with, for instance, four payroll systems, says McElhinney. There has
been a reduction in the HR headcount, from 206 people to 110, but the council
has benefited from a move to a sophisticated information and communi-cations
technology (ICT) infrastructure.

have completely re-engineered the HR function by bringing together payroll,
employee relations, recruitment and training," says McElhinney.

improvements include a 60 per cent reduction in absenteeism, the clearance of a
15-month backlog of revenue and benefit claims and the recovery of £1m in rent
arrears. Bureaucracy has also been slashed by making systems less complicated.

the past, for instance, we had 27 car mileage forms. All those have been
attacked and challenged. Now I can just forward an electronic form to payroll,
which has an electronic signature on it," explains McElhinney.

the end of September, Liverpool Direct began offering its HR software to other
sectors, having begun a similar project with the call centre six months
previously. Deals have already been struck with Sheffield City Council and
other areas of Liverpool City Council, such as the car parking department, and
the joint venture is poised to strike its first commercial deal shortly.

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