Chapter 11: Managing Transformational Outsourcing in the Public Sector

Overview

Increasing demand for services, global fiscal pressures, and a public-sector capability crisis add up to irresistible pressure for governments to do more with less. In response, some government executives are turning to outsourcing. Through outsourcing, they save money, extend their capabilities, and improve the services they provide to citizens and businesses, and many government executives are eyeing these potential benefits hungrily. In the UK, agency and department heads must include an analysis of private finance alternatives for every major investment. If anything, the liberal administrations in New Zealand and Australia have pushed outsourcing even more strongly than their Whitehall cousins. And as one of his top five priorities, President Bush has set escalating targets for agencies to market-test noninherently governmental jobs.

But outsourcing also generates controversy. The results are mixed— some outsourcing initiatives fail to produce the expected results—and many executives see it as a means of indiscriminate government downsizing, an abdication of accountability, or simply a risky financial maneuver. Labor unions feel particularly threatened by it.

Some government organizations have even wiped the word outsourcing from their lexicon. For example, several states have laws that prohibit outsourcing. These states still hire private companies to do public-sector work, but they don’t call it outsourcing. And federal executives would rather talk about ‘‘competing’’ jobs rather than outsourcing them. The terminology implies that government employees and private companies have equal opportunities to win the work. British Commonwealth countries ‘‘market-test’’ or ‘‘contest’’ functions to convey the same message.

Process constraints and political exigencies unique to government make outsourcing especially challenging in the public sector. For many, outsourcing works more like a political football than a sensible management tool. One executive wonders, ‘‘Why is it so hard to do the right thing?’’ However, a small number of standout executives are using outsourcing to truly transform the way their governments operate. These executives have achieved dramatic improvements in public-sector performance. This chapter talks about how.