Part equity models for mutuals could revive outsourcing sector

By Robert Morgan

Few can be in any doubt of the coalition government commitment to worker inclusive mutuals and the potential for not only smaller government as a result but a revival of the outsourcing services industry.  This model acts as a template to appease European workers councils who have long held back the greater use of outsourcing in country like France and Germany.

Headline grabbers like ““Ministers are poised to launch one of the biggest experiments in public sector reform … a John Lewis-style mutual – the first to be created in central government”, and “… three or four more Mutuals THIS year …” and “…1,000,000 public sector workers in Mutuals by 2015” in the Financial Times this week has not been picked by the bulk of the popular press. But they and the continental press soon will.

Francis Maude, Mutualisation’s marketing guru has said of the MyCSP mutual ““I don’t … view this as the ultimate model … we have learnt … The next one should be easier to do”. The award of the MyCSP contract, rumoured to be ten years with a break clause at year seven, will administer 1.5m government pensions, transfer 500 DWP staff into the SPV, see CEO compensation capped at 8% above average employee salary, net profits shared with the supplier but only after 1% going to charity and 1% going to apprenticeships, and employees interests will be represented by an externally advertised director. So part of the model are clear – a new form of privatisation with Jon Lewis style employee participation and share ownership and a “caring” social charter.

But has government learnt from Labour’s disasters in PFI / PPP – you know the £120 to change a light bulb stories. Key questions need answers:

  • To what extent will the mutual be given freedom to operate?
  • At least in the short-term, a mutual remains tied to its public sector background and delivery and is therefore subject to the rigours and constraints of regulation, OJEU and accountability to the Auditor General. Will these restrictions be “officially loosened” any time soon?
  • Everyone agrees that the public sector will continue to shrink and by definition therefore, so will a dependent mutual’s service revenues, this throws up questions on it’s ability to survive – and to attract external revenues, and so …
  • … will the choice of partner be heavily dependent on their demonstrated ability or commitment to develop such services?
  • What penalties are there for NOT securing external business?
  • How might the Mutual formula vary and evolve between different circumstances?

More importantly for the outsourcing industry is, are more commercial models going to spring up and be accepted. The consensus of clients I have spoken to is “yes”, but this needs to be balanced with the fact that there was not a single tier one outsourcer (IBM, CSC, HP) in the short-list for MyCSP.  Demand says “yes” and Supply says “yawn”. 

Robert Morgan, formerly the founder of Morgan Chambers and now director of outsourcing advisory Burnt Oak Partners, is delivering a speech on Part Equity models for commerce on Wednesday 8th February 2012 at Berwin Leighton Paisner – the event is free and tickets can be coordinated via  shan,murad@blplaw.com  – yes it is a comma!

Robert also writes the influential Outsourcing Lex column at

http://www.burntoak-partners.com/viewpoint/outsourcings-lex-column/

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One response to “Part equity models for mutuals could revive outsourcing sector

  1. Robert – in response to:

    there was not a single tier one outsourcer (IBM, CSC, HP) in the short-list for MyCSP. Demand says “yes” and Supply says “yawn”.

    is pretty simple….MyCSP is about the provision of pension services and is a relatively small c. £40M contract – none of IBM, CSC or HP provide pensions capability per se whereas, the 4 shortlisted suppliers do and can comfortably manage a £40M TCV contract.
    As Keynes said…when the facts change, I change my mind…worth bearing in mind!

    Like

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