Offshoring: How much longer will offshoring be off the table for local government?

Just last month the Department of Health gave permission for 60% of accounting and finance functions in its partnership with Xansa to be outsourced to India. This decision by government could prove to be a watershed in the offshoring of the back office of public services. The joint venture, NHS Shared Business Services, delivers accounting services including payment of invoices, expenses claims and payroll for 142 NHS trusts to the health service. As well as already cutting its back office costs by 32 %, the NHS benefits by getting half the profits of the venture. Over the next decade £224million is planned to be diverted to frontline services.

All major suppliers of business process outsourcing (BPO) services now have significant offshore capabilities. Indeed Capita in its recent results statement to shareholders indicated that by 2009, it plans to have 3,000 people based in India. This is not about offshoring call centres as some critics believe it is much more fundamental than that. It is about back office services involving processing, calculation and reconciliation. It is also not only about a reduction in costs, although these are significant, it is about operational flexibility, raising service quality, and increasing productivity: something we all should be interested in investigating.

Even with this capability available, it still remains the case that any major supplier who offers an offshore solution in bidding for contracts in local government would not be selected. Irrespective of the prospect of budget pressures leading to cuts in front-line services, even to the most radical of political leader or chief executive offshoring would still seem a step too far.

Surely it is time for members and officers to look at offshoring with an open mind and to go and see first hand just what is on offer. Currently, in most organisations back office jobs have a high turnover and many are administered by temporary staff at a high cost with inevitable variable levels of service. If the NHS has recognised the benefits of off-shoring, why is it still off the table in local government?

What is fascinating to watch is that gradually, over time BPO providers, with full support of their public sector clients, consolidate contracts they win, moving them to parts of the country where costs of labour is lower, staff turnover much less and accommodation cheaper. In the current financial climate, how long will it be before conversations start about moving some of these jobs offshore? Equally in the world of globalisation that we live in, Indian outsourcing companies are already winning contracts in the financial services market in the UK giving them the capability here and scale in India. When these companies bid in local government, how will local authorities cope with a price for services that reflects moving all back office jobs offshore and only keeping a few front line jobs in the UK?

Now that’s a real challenge to deal with!