Outsourcing and incentives in the public sector

The implosion of Carillion plc in the UK a few weeks ago sparked a brief debate about why outsourcing has proven so popular, and what the future holds. This is ever more relevant given the polls imply that a Corbyn-led, nationalisation-enthused government beckons the next time voters are asked.

One comment that struck home for me was the repeated mantra that outsourcing was not merely about moving liabilities off balance sheet (e.g. PFI) but is also the only way of getting talent, expertise and quality management involved in public sector projects and operations.

The argument however has always been that only the private sector can provide the relevant incentives for talented people to be motivated to work in the public sector, deliver efficiency, and execute with excellence. This however doesn’t make sense. If by outsourcing, the UK plc is offering an opportunity to “profit share” in efficiencies with private companies and individuals, why can that not be done from within the public sector. By this, I do not just mean simplistic bonus schemes, based on obtuse KPIs (“you only manage what you measure…” etc).

My experience in business has shown that you should draw a straight line between the outcome you want, and the incentives you offer talented people. You need to offer a healthy combination of support, delegated authority, but also responsibility. Success should be rewarded, but failure results in performance management and if repeated, eventually dismissal. It’s really that simple.

So, if a private sector company can take a share in the profit yielded from savings through efficiency (subject to a minimum quality of service, one area that PFI and other outsourcing initiatives have failed to define adequately), why can the public sector not do the same? The UK government can borrow more cheaply than the private sector. The UK government has scale for procurement efficiencies the private sector lacks. The UK government also has the potential for becoming a cluster of learning organisations that provides suitable incentives for the talent they attract. I can however say no more than that — it has potential.

The answer to the question “why not?” is that ideologues on both side of the debate believe it is not desirable, as it dilutes their core belief that their philosophy will only work in the purest possible implementation.

Clearly, the past 20 years has shown that the private sector does not have a monopoly on avoiding failure, nor is the panacea for delivery of efficient, high quality services. Nor does a statist approach to delivery of public services have a blemish-free track record.

Centrist, pragmatic politics seem to have taken a back seat in recent years, however the collapse of one of the largest construction and outsourcing firms in the UK demands just that. A thoughtful, accountable, incentive-driven approach to public sector investment and delivery is needed today more than ever.