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ChangingMinds Blog! > Blog Archive > 19-Mar-19

 


Sunday 17 March 2019

Cost pressure, outsourcing, diffusion of responsibility and ultimate catastrophe

There is a common pattern that starts with the pressure to save money and ends in catastrophe. In the UK, in 2017, this was highlighted in the Grenfell Tower disaster, where an apartment block in a poor area went up in flames, killing around 100 people and ruining many more lives. I have seen the underlying dangerous pattern happen before, and know it will keep happening.

The first step is cost pressure and the consequent search for savings. In public service, politicians seek the vote-winning double act of reduced tax and better services. In business, voters are replaced with shareholders who want increased returns at lower risk.

This is followed by an assumption of incompetence. The boss looks around and sees laziness, foolishness and failure. They blame others, not the system, and certainly not themselves.

And then the idea of outsourcing arrives, where the underlying assumption is that others can do it better than us. Give it to the experts. Save huge headcount costs. And, subtly, let them take the blame.

And so the tendering and contracting game begins. Lawyers take charge (though of course they ensure they are never responsible). Outside firms make glossy presentations and clever offers. Though, like the flammable cladding on the Grenfell tower, it is all show to hide the grim interior. Checks and penalties may be written in, but so also are loopholes. Maybe the lowest offer is not taken, yet cost is still the key and the outsource companies bid low to get taken seriously.

Then the rubber hits the road. Initially, things often go well as the outsourcer works to build confidence. There is a novelty effect with new implementations and initial contract work designed to show what a good decision it was to outsource. At the very least a new lick of paint is added or, as in the case of Grenfell, a layer of external cladding.

But then there are extra demands on the outsourcer. Can you just do this? And that? But having bid low to get the contract, they cannot afford to do (or even pay others to do). The honeymoon is over and some kind of conflict sets in. Contracting managers may be a bit confused as when things were in house, it cost nothing to ask for a bit more. Outsourcers also have internal pressures. They also are told by their management to make savings and increase profits. So they seek to charge more or, if the contract does not allow for this, to cut costs.

I have worked in outsource environments, including for the government. Indeed, I've been in meetings where almost everyone was a contractor, and when things went wrong, the fingers all pointed at one another and away from the pointers. With little or no ideological desire to serve the ultimate customers, suppliers simply looked to contract renewal and constantly tried to avoid blame or additional cost.

The signs from Grenfell were manifold. Experts were ignored. Inspectors were deceived (apparently the lower floors did have fireproof cladding). An exposed gas pipe ran up the central stairway. Complaints were ignored by a council that were politically disinterested in the poorer classes. And so things that should have happened did not happen, and disaster eventually ensued. And in the manner of public enquiries, the investigations are still ongoing and will drag out for years. This week it has been decided to sue a soldier who took part in the Bloody Sunday shootings in Northern Ireland in 1972. There are various views on this, but the point here is that investigations can go on for an inordinately long time.

Ultimately, the promise of outsourcing often leads to dissatisfaction and sometimes to disaster. It is typically driven by optimism and success is regularly declared too soon. If those who would outsource took greater note of human psychology, perhaps there would be fewer catastrophes.


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