Navigating the road ahead: Why outsourcing public services has never been more important
Edward J E Gallagher, Managing Director Integrated Services, Serco Middle East
As regional governments adapt to the new economic realities of emerging from the COVID-19 pandemic, outsourcing public sector services has never been so relevant.
“Our goal of structural changes today is a government that is faster in decision-making, more up to date with changes and better in seizing opportunities and in dealing with the new stage in our history... a flexible and fast government whose goal is to consolidate the achievements and gains of the country.”
His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai
Public sector services in the Middle East
On Sunday, the UAE became the first regional government to announce sweeping changes in structure and in approach, as nations ready themselves to tackle the ramifications of recent global challenges which have affected the whole economy, but have also led to huge downturns in particularly critical revenue streams such as flights/transfers, hospitality, oil & gas and tourism.
The critical services that the public sector provides are often ignored, but are fundamental to the continued and uninterrupted life of all businesses, citizens and residents. Operating those services in a manner that is efficient, customer-focused and flexible is essential, not just to maintain citizen happiness, but to reduce burdensome costs and to stimulate and support the economy to grow again. Given this refreshed governmental drive to ready for the difficulties ahead, never has it been more timely for the Middle East’s governments to transition away from a traditional reticence to embrace outsourcing large sections of public sector services.
Whilst turnkey government outsourcing has been heavily utilised in the major Western economies, the primary choice in the Middle East has been to in-source the bulk of services, only outsourcing some transactional components such as call centres or IT. The driver has been the perceived benefits of retention of control over government operations, security of information and of course, nationalisation of government jobs has also played an important role. However, with the economic pressures dragging against determined national vision statements that commit to improve citizen happiness, the most forward-thinking nations in the region will now need to seriously weigh the benefits of outsourcing full, end-to-end areas of operation to major private sector organisations, in order to achieve their goals whilst still paring back spend.
Some of the disadvantages of the traditional model of in-housing services have stood out particularly clearly given the recent challenges that COVID-19 has placed on the world. Economies hindered by the restrictions put in place to control the virus have seen forced reduction in expenditure, a wave of salary cuts, redundancies and the private sector has seen a growing number of the expat population returning to their home countries. Where regional organisations have been ahead of the core public sector, having already chosen to strategically outsource major services, they have been spared more severe impacts.
“Dubai Airports operates an outsourcing model, where about 50% of our full-time employee equivalents are on outsourced contracts, so [in the face of dropping revenues from COVID-19] we were able to renegotiate with suppliers and reduce our workforce by 50% and the residual 50% will be redeployed into front line operations to help us recover without incurring the additional cost.”
Paul Griffiths, Chief Executive Officer, Dubai Airports
Traditionally in the Middle East, direct government jobs are prized for their security and benefits. Not only have we seen those benefits diminish and be aligned with the private sector in recent years, but the impact of the pandemic has shown that the public sector is not immune to insecurity: The situation has resulted in many new difficult decisions for government entities, with mandatory or unpaid leave, temporary salary reductions and even redundancies. Contrastingly, in a crisis or in the face of a downturn, due to their scale, the largest outsourced service providers are uniquely able to retain staff and protect national employment by moving individuals between contracts. The COVID-19 pandemic has also seen governments turn to outsourcers to run testing centres, field hospitals, contact tracing services and more, which has only increased the demand for quality employees. Thus, for protecting government service and national jobs, the leading outsourced service providers have a strong capacity for flexibility and staff retention in the face of economic changes or unexpected events. The reality is in stark contrast to the typical misconception around services being outsourced, where people have visions of losing their jobs or having to move to a less secure working environment than being directly employed.
Cost efficiencies
Despite its wide public sector adoption globally (the UK, for example, spends more than a third of all public monies with private suppliers), there remains some regional expectation that outsourced models are ultimately more expensive than keeping a government service in-house: The thinking being that if you deliver services yourself, you have control of the team size, each individual salary and all the overheads, whilst an outsourced company must do this and make a profit for themselves, so how can it be the cheaper method of operating key public services? A report by the Confederation of British Industry identified cost savings generated by the competitive pressure on providers operating these services in an open market was around eleven per cent, which is a conservative estimate; some services such as non/clinical soft FM in healthcare are driving as much as 30% efficiency.
To achieve these efficiencies, big global players are driving the deployment of leading-edge technology and will bring more digital government best practice from around the world in this next generation of outsourcing. On the Obamacare (Affordable Care Act) programme in America, which tests eligibility and connects citizens to healthcare insurance, by outsourcing the service and in turn bringing world-class AI decision-making tools and Robotic Process Automation [RPA], they have eliminated the need for much of the human intervention and so have reduced full time processing staff from 5,000 to just 2,100, subsequently recouping those savings for the government. Also in the US, outsourcing the Patent and Trademark Office’s service which included the implementation of proprietary patent search algorithms and advanced automated screening software, all in a military grade cyber-secure environment, has allowed an increase in applications of over 300% with no extra costs, increased classification accuracy to over 95% and ultimately has helped support the nation efficiently achieve dynamic growth. US Congressman Bob Goodlatte recently congratulated the outsourcing firm for their support of the USPTO, saying: “The strength of our economy and American jobs rely on a strong patent system that fosters an environment of innovation. Congratulations to Serco on continuing to help make America more competitive.”
As we face the uncertain future head on, the appeal of less expensive government and the inherent flexibilities of outsourcing are clear. However, quality of service has to be the equal starting place and nowhere in the world is the focus so high on citizen satisfaction and citizen happiness than in the Middle East’s largest economies: Where Vision 2030 values being “Effectively Governed”, it also assures of “Fulfilling lives” and “Empowering Our Society”. His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai equally recognises that “government services are citizens’ windows to their governments and improving and developing services will remain a major priority”. He goes on to highlight that “providing high-quality services is a flexible and changing goal. People’s expectations today are different than they were 5 or 10 years ago. A successful government adapts to and meets changing expectations”.
Digitisation and customer experience
Whilst smart technology does drive efficiency and omni-channel access to services 24/7 is indeed what citizens and businesses expect from their governments today, digitalisation and “e-everything” without a deep understanding of the customer; their journey, their expectations and what improvements they want or need, can lead to these expensive efforts having minimal positive or sometimes detrimental impact to customer satisfaction. Putting the end-user at the heart of service transformation and the compelling, enhanced impact it can have on existing or new outsourced services is why leading firms are now investing in business units wholly dedicated to Customer Experience [CX]. Whether interactions are face to face, over the telephone, or via digital media, businesses such as ExperienceLab analyse all aspects of the customer journey and experience – they are a major differentiator and fundamental evolution for the industry when compared with old-fashioned outsourcing, where cost-based decisions were made and outsourced providers were chosen for cut-price access to manpower, call centres or IT. As the Middle East moves on to the next phase of outsourcing quality, demand will not be for independent digitalisation, one-off CX reviews of current operations, nor access to stand-alone resources, but an amalgamation of those into a world-class integrated offer which delivers the streamlined efficiencies of leading-edge technology, high quality nationalised resources and a focus on enhancing citizen experience at the service’s core.
What does the future hold for outsourcing?
Progressive regional leadership had already been in serious dialogue around the outsourcing of large government operations before the crisis took hold, with the likes of The Ministerial Development Council in the UAE reviewing a significant proposal for outsourcing federal work to drive efficiencies in September 2019. In turn, the expectation now is of more proactive moves, like the ones seen in the UAE on Sunday merging 50 percent of government ministries and shutting half of all government customer service centres (converting them to digital within 24 months). Across the region, particularly in Saudi Arabia and the UAE, governments may now press on and drive competition amongst world-class private sector firms to design innovative solutions and agree contracts to transform and long-term operate the likes of tax, pensions, judicial and healthcare systems.
This may all theoretically paint a rosy picture for outsourcing firms in the times ahead. However, a very high bar will be set for private companies wishing to compete, with contracts demanding everything the outsourcing vision promises; enhanced citizen experience, heavily reduced costs, data transparency and advanced analytics, world-class technology including security, all whilst maintaining high levels of nationalisation. In an industry of single digit margins and with businesses striving to survive and grow, competition may drive the wrong behaviours from some: The global outsourcing road is littered with poorly financed collapses, over-promised disappointments and low-priced bids destined to fail. In turn, for governments, choosing the right partner with the right financial, technical and operational track record is absolutely pivotal to success. Encouragingly, in this new wave of Middle East contracts, government is expected to follow leading advice towards the creation of win-win structures, with thinking from the likes of McKinsey & Company guiding government to; “promote competition from the right mix of suppliers”, “align objectives with incentive mechanisms” and “ensure efficient data transparency and ensure it is used well”. In turn, with regional leaders’ wisdom and some learning from other governments’ experiences elsewhere in the world, there is a tangible opportunity to make outsourcing one of the big success stories in the post-COVID world for Middle East governments, businesses, citizens and residents alike.