Capita chief executive welcomes outsourcing competition but says bigger providers offer better scale

Speaking at a lecture in a series organised by Pinsent Masons, the law firm behind Out-Law.com, Paul Pindar said he "welcomed" increased rivalry for public sector contracts, but questioned whether the Government's desire to  engage with SME outsourcing providers would offer the same level of efficiencies and benefits that large outsourcing service providers can offer. However he recognised that SMEs could certainly play a valuable role in some outsourcing supply chains.
 
Outsourcing is currently a £10 billion market in the UK, but the potential market is in the region of £120bn, Pindar said. He called on the Government and public sector bodies in general to engage in greater levels of outsourcing in an effort to boost the country's economy.
 
"The UK economy is in a really bad place," Pindar said. "The size of our public sector relative to our GDP is too high. I think there is a genuine opportunity to create a massive degree of economic good for the country as a whole through outsourcing."
 
"There are opportunities for outsourcing providers to broaden their capability and widen their UK markets. I've never been afraid of competition – in fact it would be good for the market and drive the best value for taxpayers – but the best savings, benefits and solutions are generally provided by companies that offer scale," he added.
 
"I understand why the Government wants to involve SMEs more in outsourcing arrangements, but the reality is that you need scale in order to provide the level of resources needed to deliver on major contracts," Pindar said. "Scale also provides lower unit costs associated to delivering those services. And it is a reality that in some cases the solution to problems encountered in outsourcing contracts is to throw money at it. Sometimes it is just easier to put a bigger company in there to provide that scale."
 
Pindar said that the public sector had grown "far too big and far too inefficient" over the past 10 years. He said that cultural and leadership issues within the sector prevent necessary cuts being made to UK public expenditure.
 
"Public sector cultures do not naturally encourage accountability, pace or risk-taking," Pindar said. "There are also too many layers of management. There are a lot of very good people in the public sector but they need to be empowered.”
 
The Capita chief executive said that Government departments and public sector bodies that elect to provide services in-house, can only expect to receive the "best endeavours" of staff towards completing business processes. However, he said outsourcing arrangements provide "contractual commitment" to do so.
 
Pindar said that outsourcing was not just about reducing the number of staff needed to undertake tasks - although he said the private sector was "well placed” to redeploy staff to ensure skilled workers could find new jobs. He said that as well as offering "immediate contractually secure cost savings" to those procuring services, outsourcing arrangements can also deliver "accountable customer services" too.
 
Capita "puts metrics in place" to allow for there to be a definitive assessment of whether their service delivery meets set targets, he said. The company "contractually commits to meeting them" to ensure there is a built-in level of accountability within the arrangements.
 
Pindar also cited "wider benefits" that outsourcing can provide to contracting parties. He said Capita had immediately cut the cost of the recruiting of soldiers for the army to the Ministry of Defence (MOD) by approximately half, but that it has also found other ways of "adding value". Capita has engaged in new marketing and IT strategies in a bid to attract "soldiers that stay" and ensure that the number of army dropouts from training is reduced, he said. This will allow the MOD to make significant savings to the separate budget that it spends on training recruits, Pindar added. 
 
In addition, Pindar said Capita had helped the BBC make savings to the operation of its TV licensing regime by transforming a "paper-based" process into one which was now largely "self-serving" online.
 
"At Capita we're into the geeky stuff – looking at the number of processes undertaken to get something done," Pindar said. "We review how many processes add value [to the completion of the task] and cut those that don't. We then look to streamline the processes that do add value and, where possible, add in other efficiencies through the use of IT."
 
Paul Pindar was speaking at Pinsent Masons' Horizon 2013 lecture series.