Outsourcing is anticipation in companies, a reaction to problems in the public sector

Suvituulia Taponen, a doctoral candidate at the School of Business, and Assistant Professor Katri Kauppi compared service outsourcing decisions in the public and private sectors and, on the basis of this comparison, identified the best practices for making these decisions.

Between these two sectors, there were clear differences in the reasons for initiating the outsourcing process. Private companies aimed to avoid possible problems in service production or quality by anticipating, whereas public sector organisations often did not consider outsourcing until problems were already occurring in their service production.

'We recognised four practices that we can recommend for making outsourcing decisions in the public sector. These are conducting regular service production assessments, utilising potential service providers as sources of information, carrying out a costs analysis and benchmarking as well as allocating adequate resources to the decision-making process,' say Suvituulia Taponen and Katri Kauppi.
 

Including cost accounting in the decision-making process

It was observed in the study that, on some level, the identification of potential service providers and a preliminary survey related to the content of the service were part of every outsourcing process. However, the extent and content of the preliminary survey varied a lot between the organisations. All organisations investigated the costs of the services by the possible service providers, but the level of market and cost awareness was better in the private sector, leading to more efficient outsourcing.

Including cost accounting in the decision-making process is one of the most central development needs in public organisations. Cost awareness is required in determining as well as measuring and managing an efficient production method in service production. Analysing the cost of internal operations also enhances the development of the organisation's own service production.

'The number of people participating in the decision-making process also varied considerably between the sectors. The fact that the preparations for many decisions made in the public sector were the responsibility of one person only cannot be explained by differences in the content of the outsourcing process. One of the main reasons for this is lack of resources in procurement,' Katri Kauppi says.

'The situation in service production must also be evaluated regularly. This way it is possible to prevent situations in which public organisations carry out outsourcing as the only option available to solve problems that have come up. Market surveys and a dialogue with potential service providers was regarded as a key stage in the process by all organisations. As to the aims of the dialogue, there was an emphasis on determining the cost structure and level, identifying the risks involved in outsourcing, and determining the content of the service and its development possibilities,' notes Suvituulia Taponen.

Eight organisations, four from the public and four from the private sector, were compared in the study.

Further information:

Suvituulia Taponen
Doctoral candidate
tel. +358 (0)50 4657 044
suvituulia.taponen@aalto.fi
 

Katri Kauppi
Assistant Professor
Tel. +358 (0)50 401 7112
katri.kauppi@aalto.fi