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Jobs better done by someone else

Outsourcing is an emotive subject. Take the NHS. Recently the Green Party vowed to end all NHS outsourcing contracts. Green Party leader Natalie Bennett cited an end-of-life care contract which is up for tender to outsourcers, stating to a cheering crowd: “The NHS is a national jewel that must be grabbed back from the jewel thieves, polished and set back again in pride of place. The profit motive has no place in the healthcare system.”

To which we might say: OK then, just try. Ban all products and services currently produced by profit-making firms.

Let’s start with CT scan machines, which produce those breathtaking three dimensional images of the human body. Currently the manufacture of CT machines is done by profit-making third parties such as Philips and GE. Both firms own vast libraries of patents relating to CT machines, putting up legal barriers to the NHS making its own.

The PET variation of the scanner will be even trickier for the NHS to reconstruct. PET stands for positron emission tomography. Positrons are anti-matter. How many NHS employees know how to make an anti-matter scanning machine?

When contracting out is more productive and whether we are talking about making something or servicing something, then it should be done

Put bluntly: the NHS can neither make, nor should it attempt to make or maintain, CT or PET scanners.

We could run similar arguments for umpteen other areas of NHS outsourcing. The NHS needs insulin. It has a contract with Novo Nordisk. The NHS needs stethoscopes. They are made by Littmann.

Ah, but critics might say, are these things really outsourcing? But of course they are. The NHS could make its own CT scanners, insulin and stethoscopes, but the benefit of relying on third-party contractors to supply these goods is so vast no one dreams of doing them in-house.

The same logic should apply to all goods and services, from cleaning to end-of-life care. When contracting out is more productive – according to whatever metrics the buyer thinks relevant and price is only one among many – and whether we are talking about making something or servicing something, then it should be done.

The question is merely when and how to use outsourcers.

To understand the relationship between core functions to be kept in-house and those which should be outsourced, we need to grasp the reasons outsourcing can beat doing it yourself.

This is a conversation about specialisation. As the father of economics, Adam Smith, pointed out, if two people specialise on their own task then productivity will rise. It is because Novo Nordisk is devoted to insulin R&D that it can outperform an unfocused rival. In fact, Novo Nordisk outsources dozens of roles too, again, to specialists.

It is about innovation. A monolith like the NHS would produce one answer to any given problem. Throw the same problem out to the private sector and you’ll get a plethora of answers. In the retail sector firms such as Ann Summers needed help with analysing consumer behaviour. It chose retail IT consultancy PCMS because of its strengths in improving contact centres and checkouts.

It’s about cost. It’s about security. It’s about flexibility. Who wants to blow their entire budget on capital expenditure when an outsourcer can offer the same products as pay-as-you-go, with continuous upgrades and expansion when required?

This isn’t to say that outsourcing is always right or that all deals give value for money.

Ruby McGregor-Smith, chief executive of Mitie, says: “It remains the case that every organisation is different and there is no one-size-fits-all solution. We have to be adaptable and innovative to succeed, continually pushing boundaries and challenging the industry status quo.”

There are clearly problem areas. Graham Beck, of PA Consulting Group, concedes: “Companies pursuing the multiple-sourcing route must recognise and take responsibility for stitching the patch-work quilt of outsourced services together. Despite integration being a hot topic in outsourcing, companies are yet to deal with this successfully – and a lot have yet to even recognise it.”

These are the realities. The answer is to forge ahead and establish the best ways of outsourcing – the best ways of writing contracts, of getting partners to work together, and to ensure deals deliver value and cost sufficiently to silence doubters.

Outsourcing is a vital business tool. To doubt this is to argue that the NHS should cobble together a homemade PET machine. That is a non-starter.

But how should outsourcing be used? Now there is a debate worth having.

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