A regular attendee of conferences on outsourcing, Norman Haighton, one of the directors of the Benefits Agency at the Department of Social Security in the UK, wants to learn as much as possible about outsourcing in the private sector. But the fairly modest outsourcing arrangements that are discussed at the conferences are nothing compared to what his agency is accomplishing. His agency’s outsourcing of almost every non-core function and the transition of 5,400 government workers to the private sector is quite a pioneering effort in Europe. In fact, Haighton could probably teach the private sector a thing or two about innovation, instead of the reverse.
In the United Kingdom the Department of Social Security is the second largest government department after the Ministry of Defense. The Benefits Agency, which is one of four executive agencies, represents 85 percent of the department. The other 15 percent is made up of three other agencies that deal with child support, war pensions and IT (information technology) services. The Benefits Agency provides a range of services and welfare for the entire UK population of about 50 million, that include disability benefits, sickness and unemployment benefits, child benefits, and retirement and widow benefits.
Lending a Hand
Until a couple of years ago when the Labour Party was voted into parliament, the Conservative Party headed the government. The ministers of the Conservative Party had strong views on the benefits of using the private sector for government business. Contrary to the name that describes the party, the conservatives were willing to accept change in this particular area. They set up a number of market testing programs where government departments were expected to run some exercises to get the private sector involved in a range of services. But the drive by the ministers was only a context to initiate the process, Haighton says. Much of what the Benefits Agency has done wasn’t just a result of government policy.
“Because we are a government department, clearly we take our lead from our ministers. And it is important to have that government policy there to support what you do,” Haighton says. “But in most cases we recognized that we were dealing with many business processes that we are not experts in and that there are many companies that do have that experience. We also had a strong belief that we could get lower costs and higher quality service by arranging for the private sector to ultimately provide these services for us.”
Basically, almost everything that is not core to the agency is outsourced, Haighton says. The core functions include benefits advice, assessment and calculation processes. Functions that aren’t core and are outsourced include IT development and operations, desktop and network support, and building-related functions like security guards, messengers and cleaners. Haighton explains that a lot of benefits are based on the effects of medical conditions and many people are subject to medical examinations and advice. So the Agency outsources all of its medical services. The real estate is also outsourced. The agency sold the agency’s buildings to a facilities management company and it now buys the service from them. And the business support processes are also outsourced, from the phones to the receptionists who use them. The Agency uses several large outsourcers that include EDS, Sema, ICL, Trillium, and Andersen Consulting..
Regulations in the UK make the process of finding and implementing an outsourcer longer and more costly for the public sector, Haighton says, but they provide a blueprint that makes the process somewhat less complicated.
One of the regulations is called TUPE (transfer of undertaking (protection of employment)), which helps protect employees who have been transferred to another employer because of an outsourcing arrangement or other similar engagement. The policy is part of the workers rights directives of the European community. What the policy states is that a company must transfer its people to the outsourcer with all of their employment terms and conditions intact. Because some government employees earn more and may receive a better benefits plan than their private sector equivalents, the outsourcing deal might be more expensive than usual.
During the selection of a private sector company the agency is subject to government procurement rules. Haighton says the rules require a large amount of effort in documenting the services that are being sought. There is an approved procedure that governs everything from how the bid process is done to how the contracts are drawn. “It is almost impossible to do a major outsourcing in less than a year,” he says. “Normally it takes 18 months to implement the process and sometimes longer.”
How the Process is Working
Managing the contracts of several outsourcers is not easy, Haighton says, especially when ones hopes and aspirations for outsourcing are not always met by reality. One of the lessons that Haighton says he has learned in recent years is that the overall benefits and values from outsourcing are good, but to not expect improvements right away.
“Expect the quality of service to worsen in the few months following the change over,” he says. “You can expect it to get worse because new managers come in and introduce new systems and new ways of doing things. It typically takes three to six months to get the services back where they started, and then you typically start seeing very significant improvements.”
Overall, he says the running costs have gone down significantly and that service quality has increased. “We have seen a number of other major benefits like flexibility and responsiveness, as well. So we believe, overall, that there have been significant advantages. The counter to that is that there is always a range of unseen disadvantages. The things that you thought the vendors were going to do and they aren’t doing them.”
So what is next? The Labour Party that now governs has somewhat different policies than the Conservative Party. They believe that the private sector can play a role in government administration, but in a less overt outsourcing role and more of a partnership. So the policy has been modified a bit. “It doesn’t make too much difference though, because if we outsource much further we would begin biting into what we believe to be our core and vital work,” he says. “So we have accomplished most of our outsourcing goals.”
Lessons From the Outsourcing Primer:
- The Department of Social Security in the United Kingdom is the second largest government department behind the Ministry of Defense.
- The Benefits Agency of the Department of Social Security in the United Kingdom represents 85 percent of the total department.
- While the Conservative Party was in Parliament, the ministers set up a number of market testing programs to assess the practice of using the private sector as outsourcers.
- Almost everything that is not a core function at the benefits agency is outsourced.
- A director at the Benefits Agency said that the overall benefits and values from outsourcing are good, but to not expect improvements right away.