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Ensuring Aligned Interests in a Public-Sector Outsourcing Relationship

There are many government agencies and service providers around the world trying to figure out how to create and sustain outstanding public-sector outsourcing relationships. Success depends on all the same things as in private-sector outsourcing arrangements, but success also depends heavily on establishing a mind-set and mechanisms to deal with the inherent conflict between the private sector and public sector.

As Eulala Mills-Diment, Chief Alliance Executive for the Alternative Service Delivery Secretariat in British Columbia, Canada, explains, “Since we’re funded by people’s taxes, the public sector is always going to be focused on getting the best possible value for public dollars. In the private sector, the focus is on satisfying the needs of the shareholders, who are generally looking for the best return on investment. Those two disparate needs come into conflict when you’re talking about what’s in and out of scope in a public-sector entity’s relationship with a private-sector service provider.”

Outsourcing (or Alternative Service Delivery, as it’s referred to in British Columbia) cannot work successfully unless both parties’ interests are aligned and they can manage to overcome inherent conflicts (whether or not a government entity is involved). We at Outsourcing Center studied a highly successful relationship in BC’s government; the client nominated the relationship for an Outsourcing Excellence Award. The parties involved have a relationship built on a framework that established and sustains aligned interests. This article shares their relationship best practices.

Best Practice #1: Expectation Management

Bordering the Pacific Ocean on the western edge of Canada, British Columbia (BC) is the nation’s fourth largest province in area and third largest in population. It is home to such large metropolitan areas as Victoria, Vancouver, Surrey, and New Westminster.

Prior to her current position in Alternative Service Delivery, Mills-Diment served as Executive Director of Workplace Application Services for the Ministry of Labour and Citizens’ Services for the British Columbia provincial government in Canada.

The Ministry is responsible for the delivery of more than 700 government services and programs to British Columbia’s more than four million citizens; e-Government services for individuals, families, businesses, and government suppliers; and B.C. public-sector service entities (such as the Chief Information Office – Corporate Information Management Branch, Shared Services BC – Workplace Technology Services and Accommodation and Real Estate Services).

The Ministry’s Workplace Applications Services division has an Alternative Service Delivery) relationship with Canadian-based TELUS Sourcing Solutions, Inc. for the human resource (HR) payroll information-management system and business processes around payroll, including benefits and pensions monitoring and workers’ compensation for 30,000 direct B.C. government employees.

The Ministry had already completed a process transformation prior to handing the work over to TELUS for stable operation and handling a substantial growth agenda to potentially extend services beyond core government. The goal was to deliver more integrated and deeper value for the sector than could be achieved on an individual basis.

Mills-Diment says BC selected TELUS among the other providers proposing solutions primarily because of its vision for enabling growth in services across B.C. and throughout the country and its relationships with healthcare in Calgary and Hamilton and a school district in Calgary. The provider has a 15-year footprint with large-enterprise government clients throughout Canada. It also has a track record of keeping confidential government information secure and has expertise in dealing with multi-union environments.

TELUS also adopted a partnering approach to the relationship, and partnering is a key component in the concept of B.C.’s Alternative Service Delivery model. Its performance-based contracts and relationships are very much focused on joint outcomes based on the needs and priorities of the client.

In addition to excellence in service as well as enabling growth, the Ministry wanted to cut costs and focus on its core business. An important outcome of outsourcing the HR payroll functions was the goal of freeing up time and capital resources to enable the HR organization to focus on attracting, retaining, and growing talent.

Larry Spagnolo, President, TELUS Sourcing Solutions Inc., explains that the public sector in Canada faces a challenge of managers retiring in the next few years. “Canadian governments will need to seek more creative ways to get the work done,” says Spagnolo. “Unlike the United States, Canada has a relatively small population compared to its land mass, so it will need to partner with external organizations for the work the government needs to do.”

Mills-Diment recalls that the ministry’s relationship with TELUS started with an expectation-management exercise aimed at aligning both parties’ interests. “We did something that we called a ‘relationship launch,’ where we brought all the senior executives from both organizations into a room with a facilitator. We focused on discussing this question: ‘If nothing else happens, what are the things that we need to accomplish to consider this coming year successful?’ And we jointly decided on seven different things.”

Spagnolo agrees this is a key to the relationship’s success and adds: “We spend a lot of time at the beginning of our client relationships understanding why the organization is outsourcing and what is the purpose of the partnering relationship. Many organizations focus up front on just the transaction of outsourcing and how to do it instead of seeking clear mutual understanding of the true drivers and what the client really wants to accomplish.” Spagnolo states that many organizations enter outsourcing relationships without having an overall strategy, but he compliments the Ministry’s Workplace Applications Services division. “They had an overall transformation strategy, of which HR is just a component. When we take time to clearly understand the real drivers, we can customize a solution to meet those needs.”

In addition to understanding the client’s drivers, Spagnolo says there must be clarity around the benefits both organizations will gain from such a relationship. “The client is not just buying a service; we’re entering into a partnering relationship together,” he says. “There must be mutual benefit and there can’t be a win-lose approach to anything. This is not like buying a commodity where the next day you both go off in your separate directions. You’re actually going to work together the next day, and you must have joint objectives.”

Mills-Diment echoes this advice, carrying it further than the initial stages of the relationship. “As a general philosophy, there simply must be an ever-present mindfulness about the importance of the strength of the relationship. The parties to these kinds of relationships are continually going to deal with expectation-management issues. No matter how clear you are about communicating your expectations, they get misaligned. It just happens. So you can never let the relationship float or simply coast.”

She continues: “We both keep our eyes solidly on making sure the relationship is protected and growing so that we can work our way through the tough stuff and come up with solutions that meet both our needs.” Their approach is based on the Harvard Interest Based Negotiation Model with questions such as “Help us understand what the challenges are for you,” “How can we get to a ‘yesable’ proposition?” and “How can we get to a shared-interest solution?”

Their expectation-setting management continues in an annual joint planning session where they repeat their relationship-launch exercise of reviewing what’s on their plates, setting their objectives, and also deciding the things they must accomplish together in the coming year to consider it a successful year. “We find this to be very beneficial,” states Spagnolo.

Best Practice #2: Flexibility

According to Mills-Diment, even expectation management, open and ongoing communications, effective service levels, clear roles/responsibilities and accountabilities for each party, and an effective governance structure “won’t make a relationship work if there isn’t a relationship.”

They encountered challenges in the transition phase. Understandably, taking 97 percent of the buyer’s unionized public-sector employees who had been doing the work in house and moving them to the provider’s private-sector way of doing things was not simple–let alone getting the government to adjust to the cultural challenge of services being delivered in a different way. It required substantial change management and leadership support. At the same time, the ministry was undertaking a major implementation of a time-and-leave-capture system. Getting everything to work together and ensuring all employees knew what they needed to do to support the transition was “challenging.”

In addition to transition challenges, the reality in any long-term relationship is that things change over time from what the parties envision when they write their contract. A crucial key to success is the willingness and the mechanisms that allow both the provider and client to be flexible in adapting to evolving change and yet maintain the spirit and intent of their original joint vision. Without a strong foundation for a relationship approach, the parties won’t be willing to be flexible.

“There have been changes to the government’s business environment since we signed the contract three years ago, and our business is evolving as well,” says Spagnolo. “To be successful, you have to build a contract and the relationship to be elastic and adapt to change. Otherwise it will be difficult to work together.”

In addition to establishing new objectives at their joint annual meetings, he says they talk about how things have changed during the prior year and whether they need to execute on the contract differently, as some things become more (or less) important over time. These discussions require open, candid communications. The relationship won’t work if either party feels threatened by putting things on the table.

Summing up the way of dealing with change and with problems in this relationship, Mills-Diment comments: “Like everyone, we’ve had some problems, and things have gone sideways from time to time. But we have never lost sight of the importance of the relationship or stepped aside from the commitment we have to one another to be strong partners and to be advocates for each other through this process.”

Lessons from Outsourcing Journal:

  • Understanding and managing each other’s expectations on an ongoing basis is essential for success in outsourcing. It is particularly crucial in government outsourcing arrangements where there is a disparity between the public sector’s need to get the best value for public dollars and the private sector’s (provider’s) need for return on investment to satisfy shareholders.
  • When choosing an outsourcing service provider for a government client, three important selection criteria are: a significant footprint and successful track record with government clients, track record of keeping confidential government information secure and, often, expertise in dealing with union environments.
  • Establishing a performance-based contract and relationship helps outsourcing buyers and providers focus on joint outcomes based on the needs and priorities of the client.
  • A best practice for success in outsourcing is for the buyer and provider to come up with solutions that meet both parties’ needs. An approach to ensuring this happens is to ask each other questions such as: “Help us understand what the challenges are for you” and “How can we get to a shared-interest solution?”
  • A crucial key to success in outsourcing is the willingness and mechanisms that allow both the provider and client to be flexible in adapting to change as the relationship evolves over time yet maintain the spirit and intent of their original joint vision. Without first establishing a strong foundation for a relationship approach to change, the parties won’t be willing to be flexible.


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