Offshoring may be one way for the government to reduce costs, but it’s fraught with political controversy – as Joshua Chambers learnt at our recent round table discussion

In these straitened times, the potential savings available by ‘offshoring’ work – sending it overseas – are increasingly attractive to public sector organisations. But while outsourcing is now common in the public sector, offshoring has to date been seen as politically toxic. Has its time now come?

Civil Service World hosted a round table, sponsored by specialist sourcing firm TPI, to debate the pros and cons of a process that has achieved big savings in the private sector. Boosted by canapés and coffee, the participants set out to examine the realities of the task within a long, tall room in Church House, the windows looking out onto the quiet quandrangle of Westminster School. It was a very English setting in which to discuss moving jobs far away.

David Howie, senior adviser to TPI, started off by outlining the difference between two similar-sounding ideas. “A lot of people use the words offshoring and outsourcing synonymously,” he said, “when of course offshoring doesn’t necessarily mean the same as outsourcing. Many organisations have wholly owned delivery centres in different parts of the world,” an example of offshoring without outsourcing. Equally, many outsourced jobs remain within the UK.

In public services, however, jobs could only be offshored if also outsourced. “We would be talking about outsourcing and offshoring, because we wouldn’t be sending civil servants out to India,” said Peter Groves, commercial delivery manager of postal and courier services at the Office of Government Commerce.

Any experience?

There is limited experience of offshoring in the public sector, but there are tentative signs of it being tested. HMRC is piloting an offshoring scheme, according to the assistant director of ICT strategy and policy in the Cabinet Office, Carol Gokce. “They’ve had approval to take a particular set of data offshore,” she said.

There are also cases of government procuring services from contractors which offshore part of the work. Groves highlighted translation services as an example. “We all buy a lot of translation services and the company that provides the translation may send it abroad to be translated as long as there are no security implications,” he said.

Before offshoring any services, it has to be clear that the service is still required, said Bernard Quinn, the channels lead on the digital delivery team in the Cabinet Office. This echoes points made in recent weeks by the head of the central teams in the Efficiency and Reform Group, Ben Jupp.

The capability gap

The problem is partly one of capability – is there the expertise to determine whether offshoring will deliver more savings than existing arrangements? Collette Stone is the head of leadership and management capability in the UK Border Agency, and suspects the public sector may not have the resources to assess all the options. “I’m worried about the fact that, certainly in the bit I know best, I don’t think we have a great understanding of what’s involved,” she says. Quinn agreed, saying that one of the risks “is that government ends up paying more as a result”.

The problem of capability goes further than assessing ventures; it also means that the public sector may struggle to manage an offshored contract once that service has been established. “Even with the best contract in the world,” Howie said, “the sourcing relationship is going to live or die depending on whether you can manage that service.” In his experience, “A lot of our partners believe they’re being taken for a ride by the service providers, but what’s actually happening is they’re not properly managing the company relationships. It’s tough enough if you’re experienced but if you’re not experienced, it’s a nightmare. To be frank: offshoring makes [service management] harder.”

The management problem can be alleviated in part by an intelligent decision on where to locate an offshored service. “Germany tends to offshore to Austria and Poland,” noted Groves, “because their language is spoken there widely, and also you only have to go across the border [to visit offshored sites] so you have lower travel costs.” When offshoring is considered, both the language and distance barriers should be borne in mind; while offshoring can mean sending work to India or South Africa, it could also be brought somewhere closer to home like Ireland.

Human hedging

Although the offshoring of projects tests departments’ management capability in the short term, it has the same potential benefits as outsourcing over the medium and long term for those working in human resources. Carl du Plessis is the head of resourcing at the Department for Work and Pensions – a department which has to expand and contract with changes in unemployment levels. “Over the next two years I may recruit a lot of people to deliver a service and then have to get rid of them,” he said.

He argued that offshoring can reduce the costs brought on by fluctuations in the number of employees required because it reduces the “costs of getting rid of and redeploying people”. Instead of the public sector having to take on these costs, the offshorer or outsourcer has to do it – and still provide the required level of service.

A big concern with offshoring is the security of personal data, Gokce warned. “We have to be aware of data protection, we have to be aware of freedom of information, and we also have to think of commercial data and its confidentiality,” she says. “Certainly, for any consideration of offshoring personal data, it is probably a disincentive that [any problem] may well end up in the newspapers.”

On these issues, TPI’s Danny Jones was more “sanguine”. He noted that “There are ways of avoiding those issues – first and foremost by avoiding sending personal data offshore.” The concern he has is one highlighted by most of the participants, and probably the biggest obstacle to offshoring in the public sector: the effect on UK citizens of moving jobs to other countries.

Political costs

Offshoring works for commercial organisations, but the government has a broader responsibility to minimise the level of UK unemployment. Jones asked: “Does that bust the business case?”

Steve Meacher is the head of the demand and programme office at the Ministry of Justice. He highlighted the “huge political challenge” presented by this. “We talk about the public sector shrinking and the private sector expanding, but what happens if we offshore the [new public sector] contracts that would have been won by the private sector?” The government would be seen to be depriving UK citizens of work in favour of foreign companies.

Gokce noted that an impact assessment has to be made to BIS if such schemes have implications for jobs; and further, offshoring projects need ministerial sign-off from within the department considering them. This could quickly lead to some ministers being blamed directly for the loss of hundreds of jobs, a toll that no minister is likely to want to bear.

The political problems are further compounded by the location of many of the jobs that would be vulnerable if projects were offshored. David Greensmith, a procurement specialist at the Department for Work and Pensions, noted that “The civil service has typically been located in areas of high unemployment where there are a lack of other industries to work in.”

Therefore, he said, offshoring would have “wider social costs in areas in this country where there will not be fruitful means for people to support themselves”. The social costs would compound a problem identified by Du Plessis: “Unfortunately, [outsourcing] has to be the lower jobs, because you need to retain the senior jobs.”

Morale

Not only should the people who lose their jobs be considered; offshoring would also affect those employees who remain. Collette Stone of UK Border Agency is nervous about staff morale. She argued that unless offshoring is managed sensitively, it could potentially agitate staff and lead to industrial relations problems – which in turn would negate any savings.

This doesn’t totally write off outsourcing, but she believes that the case must be exceptionally sound if civil servants are to be persuaded by it. “If the decision-makers are absolutely sold on the rationale for offshoring, then it’s a job of managing,” she said, “but if we can’t square off the management issues, the cultural issues, and the reputational damage issues, I would think it would be very difficult to persuade thousands of civil servants to buy it as well.” From this discussion, it appears very unlikely that civil service jobs will be offshored.

A preference for outsourcing

The discussion of offshoring highlighted the appeals of more traditional outsourcing to some participants. Quinn pointed out that: “At a very constrained financial time, when there is a lot of change and a lot of jobs going, offshoring makes outsourcing look more attractive because at least the jobs stay within the bounds of the country.”

It may be that existing outsourcers want to offshore some of their current work to make savings for the public sector. Howie noted that “If one of the places where the axe is going to swing is where the service providers reduce their costs, what happens when they say: ‘We can do that, as long as you allow us to reduce our costs by globalising our footprint?’ It’s less brutal than directly moving [civil service] jobs offshore, but it still has an effect [on Britain’s economy.]”

And so two questions arose: first, is this possible under existing contracts; and second, could contracts be changed to prevent this from happening? It appeared that the answer to both was yes. As Penelope Forsyth, director of performance at the UK Border Agency, said. “Surely it depends on what’s in your evaluation criteria? As long as you’ve made the criteria public anyway, you can put whatever you like in them.”

Participants agreed there would be economic and political implications to offshoring public services – and offshoring work currently done by civil servants is a no-go, at least at this stage in the economic cycle. So there’s only one way through: departments may be willing to allow outsourcing contractors to move some of their existing workload offshore. Where there’s a strong financial argument for offering this flexibility, officials may put the case to their ministers. Judging from the views around the table, though, they will have little faith that even such modest moves will win the support of ministers – let alone local MPs.

Written by Joshua Chambers