NJM Consulting | Outsourcing: Its Costing Us All & We need To Talk About It
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Outsourcing: Its Costing Us All & We need To Talk About It

Outsourcing: Its Costing Us All & We need To Talk About It

OUTSOURCING – What we are not talking about.

Introduction

In the years that I have been working I have seen a great many changes sweep like waves though industry and while I appreciate that we must always progress forward there are times I wonder at the miasma we have created for ourselves.

I have interests in many areas such as IT, architecture, healthcare and transport and have watched as these respective industries have been subjected to the relentless drive of one of the modern changes – outsourcing.

Living as I do between two countries, the Netherlands and the UK, and making much use of trains and ferries to facilitate my movement back and forth during some fifty years I have had a lot of time for observation. I have always taken the time to follow up observation with research and with attending industry Expos and events. As a result, there is much that bothers me about the economics of outsourcing.

 

British Rail Was Not the Lumbering Leviathan!

To illustrate I am going to talk about the national rail network in the UK. Up until 1948 the railways were in the hands of “The Big Four” rail companies. The London Midland Scottish (LMS), London North Eastern (LNER), the Southern and the Great Western Railway (GWR – also known as “God’s Wonderful Railway”). World War Two had left the railways exhausted, damaged and in much disrepair. It had also left the British Government with a huge financial debt to the railways for all of their war work and the government could not afford to pay that debt, so it nationalised the railways into British Rail (BR). BR did everything in-house from looking after the rails, the signalling, the rolling stock, stations, catering, you name it.

Now while many saw BR as a behemouth that was inefficient, ineffective and a waste of money it was in fact none of those things when one takes into account the social obligations they were burdened with. For a start they were by act of parliament “common carriers” which is to say if you had a cargo to be moved they HAD to move it regardless of cost to BR and the rate they could charge was capped. Many rural lines had never in their histories been profit making and yet BR was obliged to still run them. When rationalisation of the railways came in 1965 the cuts made by government were often arbitrary and irrational leading to the loss of lines that today could provide relief to congested commuter routes.

 

Sectorisation, The Birth of Outsourcing

Then in the 1980s came what were the most crippling blows. BR was chopped up into “Business Units” and in 1993 came full privatisation. While trains services were put into the hands of private rail operators the tracks were put into a company called Railtrack. Railtrack’s ethos was to outsource all track, signal and permanent way infrastructure maintenance to private companies. It must be said that railways and their operation are quite unlike anything else. They cannot be equated to roads, building offices, or laying electric cables, they are an experience all their own. These sub-contractors often came from industries with no experience of rail operations, and while they often picked up ex-BR employees there were never enough of those people available as age and attrition took their toll on the work force pool. Added to this was the fact that these service companies had shareholders to pay, quarterly results to meet so they were never able to run a pool of staff, they staffed only to the business they had at that time and ruthlessly cut everyone else. This is all very well but a major project comes along how do you then staff it with the skills you need

Research and Development died altogether at the hands of accountants. This was most tragic of all because BR led the way in many rail technologies and was always innovating. The irony is that many of the patents they owned were sold off at rock bottom prices to other countries by the UK government but now British companies are paying to use the innovations that sprung from those patents! Training was also the victim of accountant’s keen to make quarterly results and their own bonuses. Trained staff with the unique skills needed for railway signaling technologies that spanned some 150 years melted away. In the past BR could have projects running which would then be set to simmer when skills were needed elsewhere for a time or when a pot of money became available for some improvement work but under privatisation all this went. In BR days when more signal engineers were needed for a project on the Southern Region calls were made nationally and the regions sent staff to assist so projects were completed on time and to cost but under privatisation private companies did not want to employ staff who were not directly revenue generating 100% of the time. The result was a complete fracturing of skilled resources at the hands of quarterly company results, whether they were sub-contractors or RailTrack.

The Chickens Come Home To Roost

It is said within the UK rail industry that the Hatfield Crash of 2000 was where all the chickens came home to roost. There were so many layers of sub-contractors many of whom were drawn from general construction industries and thus little real rail experience led rail maintenance teams. This lack of experience resulted in the sort of thinking that left bolts out of points that high speed trains ran over because of a lack of appreciation of the sheer scale of the physical forces involves. Metal fatigue set it at an increased rate and metal failed. This risk was known well before the accident happened but checks were not in place. An intercity train heading north at 185KM/h derailed south of the station and where the forces involved meant the InterCity train carried on for nearly a kilometer before coming to rest. Four people died and seventy were hurt. If it were not for the superb design of the British Rail Engineering (by then defunct and factory closed) Mark 4 coaches many more would have died but as every coach remained intact a great many lives were saved.

Layer Upon Layer Equals Poor Control

The impact on RailTrack was more profound as investigations uncovered failings and then yet more failings. While checks have increased, the bottom line is that track renewals remain with the private sector under a public sector body that continues to NOT directly employ its railhead staff, in other words they are still outsourcing. The private sector has  shareholders to pay and so will not carry a pool of skilled staff and training of new staff remains perfunctory at best, governed only by the bottom line. This means delays to project, delays to projects mean increased costs on top of unrealistic pricing in the first place. A recent trip along the Great Western Mainline to Bristol gave me pause for thought as I read the Railway Gazette on route. Here is a project that had been budgeted at £874million in 2012 and was now at an eye watering £2.8 billion and still climbing with work getting increasingly late. It was really so predictable, a lack of skilled resources no longer honed by decades of work on the national rail network, a lack of understanding of rail projects and railways as a whole as engineers from other industrial disciplines badly designed, poorly planned, poorly executed and then badly corrected work. Layer after layer of contracting companies each of whom have shareholders to feed with profits and who refuse to carry labour pools while still wanting tax payer funded contracts and expecting tax payers to pick up the tab when they fail to deliver to contract.

 

The bitter truth is that outsourcing does not work anywhere near as well as its proponents want us to think, and THINK we must because the result is costing everyone, including taxpayers, a great deal of money in the long term. I stated earlier that I wondered at the economics of outsourcing, while it is no doubt making a lot of money for some where is that money coming from because it has to come from somewhere. The answer is it is coming from you and I either from the taxes we pay or the cost of services we pay for and it is time we all started asking for justification for these costs because over the long term they cannot make sense, we all instinctively know this.

 

So Why Bring In PMOs?

So why am I, the owner of a small service company advocating something that could effectively reduce the demand for parts of the services we offer? Quite simply I am one of those paying for all those layers of outsourcing, so are you.

I want Project Management Offices to be part and parcel of any company that runs projects once again because they add value by ontrol and oversight. They bring in a pool of consistent historical knowledge to the project management industry which otherwise has a high degree of turnover and thus knowledge loss. They bring rigor to reporting, they can standardise processes including Earned Value Management methodology which I suspect is something missing in a big way on the Great Western Mainline Electrification project, The national Audit Office Report certainly makes this point**. I want those PMOs to be effective and adaptable enough to evolve with changes in technology.

In short I would like NJMC help build new PMO capabilities within companies. We will provide the PMO facility for the interim, longer if you wish, but we will always be looking to help you establish an effective PMO for yourselves, train and mentor the staff and then we will move on.  Do we want it to be defined by “Supportive”, “Controlling” or “Directive”? Why can’t we be the best of all three?

I want companies to provide real, full-time PMO jobs with some history and wisdom to them because I live in this society and people with those jobs feel more valued and if you feel more valued you make a better citizen.

Einstein once said “Insanity: doing the same thing over and over again and expecting different results.” Let’s stop doing the same thing over and over again, let’s think, lets question and let’s do it now.

 

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