Time for the public Sector to get its Act Together?
CIO-Connect, January 2005
How much public money is wasted by government departments not taking up the opportunities generated by the internet? We live in a truly inter-connected world that is revolutionizing the ways in which businesses operate. What was once done in-house can now be outsourced to business partners in India and other countries in Asia. But is this common practice in the private sector being fully adopted by our public sector organisations? The efficiency gains could be enormous.
Peter Gershon, in his review of government spending estimated that there could be savings of at least £21 billion. This could be achieved by improvements in procurement practices through to rationalising departments and improving employee productivity. However, he does not mention the savings that could be achieved through off-shoring a broad range of administrative activities.
Ask any citizen whether they prefer the public sector to be a huge job creation machinery or to offer more efficient and cost effective services, and the chances are that they will choose the former. On a generally accepted estimate that companies save £1million for every 100 jobs shifted off shore and the savings for the public sector could be huge. According to some calculations, there are more than 100,000 public sector call centre jobs. Not one of these has been outsourced to cheaper non-UK locations. It is only when private companies have been given government contracts to provide back office services that the cost savings of off shoring have been realised. But the government seems to be afraid to be directly associated with this activity.
Despite the internationalisation of back office work, administrative work, the approach of this government appears to be in the opposite direction. Since 1997, 1.75 million jobs have been created in the UK economy. Of these, no fewer than 45% have been created in the public sector. Employment in the public sector is now as large as it was when Margaret Thatcher came to power and the economy was dominated by the nationalised industries. Couple this with other structural shifts and we are rapidly becoming a nation of civil servants and bar tenders. There is also emerging skill shortages that will hit government departments over the next few years. The choice will then be to either import labour to do these jobs or to export the jobs overseas. In the longer term, the latter approach is likely to have less political fall out.
But this is probably the crux of the matter. The reason why our tax bills are so high and thee nation is being flooded with civil servants in nice secure jobs is that thee government is scared of the political storm that employing staff would create. It is not difficult to imagine the reaction John Prescott would get from his Hull constituents. Nor for that matter other Northern MPs. Job prospects in the north have already been affected by private sector companies shifting their call centre operations overseas.
Perhaps a little rational analysis needs to prevail. According to McKinsey, the consultancy, the off shoring of US jobs actually creates employment opportunities in the States. The reverse is the outcome for the German economy. The reasons are to do with the more inflexible character of its labour market.
As far as the UK is concerned, the economy is more similar to that of the United States than it is to the Eurozone economies. The likelihood is that a more self-confident approach to off-shoring would actually contribute to the government’s goal of making Britain a highly-paid, wealth creating knowledge economy. Instead, present trends suggest we will continue to have a bloated public sector underwritten by grudging tax payers who are not getting value for their money.
© Professor Richard Scase