Public Services Reform: Alf Asks for an Expert View from China

As you will know if you are a regular reader of my blog, I am a big fan of Shared Services and have been involved in many Shared Services programmes, covering the full life cycle. Shared Services in the Public Sector has always been especially challenging, yet many Local Authorities currently seem to be looking to Shared Services as a cost cutting measure. I have repeatedly argued that the complexities of the Transformation Risk continue to be seriously underestimated. If the risks materialise, then the benefits case is completely wiped out.

Obviously, stakeholders can turn to heavy-weight transformation specialists to help them mitigate the risks, operating client-side, but I fear that at the moment too much dependency is being placed on consultants who talk a good case but have moved on by the time the benefits case is measured post facto. Public Sector procurement practices and Catch 22 initiatives are favouring branded consultancies, at the expense of professional interims – yet the professional interim is the true transformation expert, hardened with years of delivery and implementation expertise.

In order to gain another perspective, I asked the advise of a leading outsourcing specialist,  Haitao Qi 齐海涛, in China. According to the authoritative AT Kearney surveys on outsourcing, China and India remain by far the most attractive locations for outsourcing.

I posed the following challenge to Hatao Qi :

” As you probably know the UK Coalition Government has taken drastic steps to reduce UK borrowing, including seeking 30%+ cost-cutting in both Central and Local
Government. Many Public Sector organisations are looking to Shared Services for
cost-cutting to avoid cutting front-line services. Unfortunately, the risks for
achieving enduring savings of circa 30% from Shared Services programmes are very high. It is often argued  that the best alternative to Shared Services is Outsourcing and perhaps even Off-shoring to countries like China or India. Also many believe that enduring cost reduction is achieved more quickly from Outsourcing than with Shared Services. What would be your advice?”

Hateo Qi’s response was:

“The UK should choose to outsource, including offshoring to China or India because:

  • Outsourcing creates long-term relationship rather than Shared Service.
    Eg. Lump-sum personnel Model (See note 1)
  • Outsourcing restructures business processes, in better way to avoid
    bureaucratic costs
  • Outsourcing seeks companies with EOS (See note 2)
  • Outsourcing keeps spending in certain level with model as reverse BOT (see note 3)
  • Outsourcing invests in plans, but not as needed changes from internal structure”

Over the coming weeks, this blog will be reflecting on the Shared Services Vs. Outsourcing choice.

Notes:

  1. Lump-sum personnel Model is the offshore outsourcing model with service providers use all resources to serve outsourcing buyers
  2. “EOS” is Economic of Scale, to reach that means the value chain get most Efficiency
  3. “BOT” is Building-Operate-Transfer Model, which means private companies
    invest in certain infrastructure and take profits from that in a contracted
    time. After contract end, the buyer takes infrastructure ownership back