Effect of Public Service Outsourcing on Management of Labour - Essay Example

IMPLICATIONS OF THE PUBLIC SERVICES OUTSOURCING FOR THE MANAGEMENT OF LABOUR AND INDUSTRIAL RELATIONS By The Implication of Public Service Outsourcing on Industrial Relations and the Management of Labour Introduction In the modern global business competitive environment, the public sector organisations must adapt and innovate new strategies to sustain revenue and value generation while remaining active. Outsourcing is a new management mantra that came into the existence during the 90s because it was viewed as the most effective tool for the cost cutting (Marsh, 1991). Outsourcing involves the process of the relocation of the public sector’s service inputs to the private sector or the hiring of the relevant business functions from a third party. The implications of the outsourcing as an issue has drawn wide attention from different scholars, mostly those interested in the disentangling the effect of the value chain restructuring in the private firms. Nevertheless, there has been extremely limited systematic comparative research on the topic within the public sector organisations whereby the practitioners and the scholars majorly focus on the economic implications. The adoption of outsourcing strategies in the public sector has significantly impacted on the management of labour and industrial relations. Thus, drawing from the above, this paper aims at filling the gap, discussing the impacts of the outsourcing of the public services on the on the labour and the industrial relations structure in the public sector in the comparative perspective. The goal of this paper is twofold. First, it aims at disentangling the interplay of the restructuring towards the outsourcing of the public services, the terms of the employees and the dynamics and conditions of the employment relations in the various sectors across countries. Secondly, the study is focused on the examination of whether the impacts of the outsourcing cluster to result in the discernable convergent trajectories in any given sector or the country. The Value Chain, Restructuring Process towards Labour Issues and Outsourcing Value chain analysis has been the alternative approach that revises on the thinking about how the outsourcing relationships should be structured and conceived. Outsourcing can be described as the form of the restructuring whereby “one organisation contracts with another for the provision of the particular goods and services” (Asher, 1987) instead of providing the goods or services directly. This inter-firm relationship directly impacts on the employment conditions and work organisation of the public services. The value chain analysis is a fundamental analytical tool for the disentangling how the external restructuring process impacts on the quality of the work and the employment relationships. The position of the organisation, especially in the value chain and the degree of the dependence between the organisations in the power direction and the production network directly, impacts the job terms and the conditions. Indeed, the different forms of the power relations and dependence between the core organisations and their external providers arise in accordance with the different types of the value chain governance and the various inter-firm relationship (Flecker, 2009). Recently, the debate on the concept of the value chain has been shifted from the production to the services activities thus becoming increasingly disintegrated through the outsourcing strategies (Huws and Podro, 2012). To this respect, various research has repeatedly suggested that the outsourcing of the public services has deteriorated the labour and deprives the role of the industrial relations. Outsourcing, indeed, alters the power relations between the labour and the employers thus putting pressure on the core of the workforce in making the concession of their employment conditions (Flecker, 2009). Additionally, contracting out (outsourcing) increases the tendencies towards the deregulation and the fragmented decentralisation bargaining since the collective agreements seldom cover the external providers. Reasons for Outsourcing in the Public Sector Administrative Outsourcing provides room for the more effective and efficient in the operations of the public sector administratively. Sometimes the administration may be faced with the challenges of the technical complexity, difficulties to obtain the suitable staff, and among others. Therefore, contracting out allows the management to concentrating on the core business activities. Cost saving Cost saving is one of the core reasons for outsourcing of the operations in the public sector. This is because the private sector supply equivalent services to those of the public sector but at a relatively reduced cost. The cost saving by the outsourcing is usually carried out through the market contestability through the following ways; through the process of the competitive tendering that forces the costs down for both private and public sectors providers. Secondly, the public sector can contract out the peripheral and the more complex activities and then devote most of the key resources to the key business activities. Improved Quality of the Services This is because the private sector delivers a relatively quality products as compared to the public sector. This is due to the advantages in the managerial and the technical expertise through the employment of the better qualified staff at the market rate and the administrative advantages that are associated with the operating outside of the public sector bureaucratic frameworks. Reduced Financial Risk and the Increased Financial Control Outsourcing allows the public sector’s agencies to set the contractual terms for the provision of the range of the services. Once the establishment of the contracts has been made, the private sectors providers are tasked with the role of fulfilling the contract conditions. However, the public agency retains some control and confidence concerning the costs into the future while the unexpected costs increase are usually shifted to the private sector. Effective strategic management The outsourcing allows the management in not only providing the long-term view and plan, but also the introduction of the flexibilities in the resource deployment. The limitations that are associated with the award conditions, the working hours and setting of the wages can be overcome through the relocation of the functions into private sector thus allowing effective strategic management. Benefits and Costs of the Public Sector Outsourcing The debate on whether contracting out leads to both qualitative, and efficiency improvements in the public sector provision is not an easy one. Many services are difficult and complex to evaluate regardless of the quality of the delivery and the costs. This is because its hard to obtain the comprehensive data, more specifically in situations where it is in confidence because it takes a time to evaluating the effectiveness of the contract, the associated costs, and the monitoring need. Many researchers have found out that outsourcing ensures the cost saving of between 10-15% in terms of the service delivery (Hodge, 1999). According to Freebairn (1998), the industry review of 1996 had found out that the outsourcing leads to an improvement in accountability, costs and quality by 75%. However, studies about the outsourcing should be qualified in three vital aspects. First, the claims for the substantial efficiency gains mostly comes from the outsourcing consultants. The outsourcing consultants have vested significant interest in the outsourcing and therefore not surprisingly proclaim the effectiveness and benefits of the outsourcing. Second, the existence of the commercial ‘in confidence’ arrangements that are associated with the outsourcing contracts make it hard for one to establish the exact terms and costs of the contract (Palley, 2008). This is due to lack of the sufficient information in regard to the outsourcing contract. Third, the indirect costs of the outsourcing contract such as evaluation by the public sector managers, the time devoted to the contract supervision, and the consultancy advice costs may be part of the whole analysis of the effectiveness and efficiency of impact of the outsourcing. Lawson (1999) asserted that it is hard to say whether outsourcing as the management technique had been disadvantageous or advantageous to the industry as a whole. The qualitative aspects of the service provision through outsourcing are even more difficult to evaluate. However, outsourcing can be self-fulfilling. The fiscal squeeze that is imposed on the public sector conditions and wages means that it’s hard for the public sector to retaining the experienced and qualified staff in the professional occupations. The pressure of the increasingly growing job security, the work intensification and the imposed ceilings on the wage increases may be an evidence that better staff leave out due to the frustrations, disillusionment or even the lure of the better wages in the private sector (Lawson, 1999). Therefore, contracting out can be the only available means for the covering of such staff losses. In essence, there is a very clear evidence that outsourcing leads to the cost savings and the efficiency of the basic services like garbage collection, cleaning and the maintenance of roads in the local government (Hodge, 1999). However, there are some issues of the community obligations, equity and the public propriety that are often outside the confines of the outsourcing contract. For instance, the access to the public services and the employment is one of the factors to consider. The rural areas could not benefit due to the loosing of the services due to the market principles or even lose the jobs as the service provisions are usually contracted out to the large urban-based enterprises. Another cost of the outsourcing is the corruption and the conflict of the interest. The secrecy provisions that underlines the contracts make the service provisions to be potentially less accountable and to be less subject to the public scrutiny. The exchanges between the public and private sector management placement lead to compromise of the senior managers in reference to their past posts or even being lured by the private companies that are seeking the outsourcing contracts. Impact of the Outsourcing Employment and Employment Conditions (Management of Labour) Outsourcing is fundamental for the management of labour in the following ways; the reduction of the number of the workers that are required to perform the tasks, reduction of the costs of the workers that are required to perform the tasks, avoiding of the wage on the penalty rates and the costs that are associated with the award conditions, work intensification and the imposing of the discipline. Therefore, as evidenced from above, it’s true that outsourcing offers labour flexibility. A major trend that is associated with the outsourcing and the management of labour is the increasing diversification of the contractual forms and the working hours. The outsourcing is bringing about the reconfiguration of the employment and the labour management. In some large establishments like the universities and the hospitals, there might be employees from different companies that are employed under different terms and the conditions as a result of the outsourcing (Pollitt, and Bouckaert, 2004). This can lead to some degree of the parity in terms of the conditions and terms of the employment relations. Therefore, outsourcing can negatively impact on the management of the labour. Industrial Relations Implications of the Outsourcing The impact of the outsourcing on the industrial relations structure and the union’s roles and the strategies have been the subject to the increasing scrutiny. The strategies that involve the outsourcing involve a more proactive engagement with the outsourcing process, searching for the innovative and flexible policies in order to address the new challenges in the labour market: from the growth of the non-standard forms of the employments to the dispersion of the workers outside the organisational boundaries (Anner et al., 2006). However, some scholars consider the process of the outsourcing to facilitate the greater use of the subcontractors and the legitimised process of the restructuring. These are issues that directly impacts the outsourcing in regard to the industrial relations. In respect to the outsourcing and the industrial relations implications, two main issues arise. First, it is hard to separate the impact of the outsourcing from the other industrial relationship development. Second, outsourcing has a fundamental effect on the traditional commitment of the government to the roles of the ‘model employer’. Various studies have suggested that the outsourcing has weakened the unionism and led to the decline in the proportion of the workforce. Additionally, there is a cumulative effect or the interaction between outsourcing and the declining unionisation. The less active unionism can translate to the less outsourcing that can in turn lead to the relatively lower proportion of the workforce that is unionised. While it’s not clear what levels of the unionisation that exist in the firms that have taken up relevant contracts because there is no longer any necessities for this. Additionally, once underway, the outsourcing has immensely contributed to the reduction of the unionisation in the industry. For instance, the extent of the job security that is caused partially by the possibility of the more outsourcing appears to have made the union members to be even more reluctant into taking the position of the delegate (Grimshaw and MiozzoM, 2006). Outsourcing has also made the union members to take the actions that may attract the unfavorable attention from the management. The maintenance workers in specific have felt vulnerable, and they have as a result contributed to the lack of the union activists in their ranks. In the assessment of the various implications of the outsourcing for the employment relationship in the public sector services, Small (1996) refers to the manner in which it constitutes the abdication of the traditional ‘model employer’ role of the government. The public sector’s adoption of the market-driven reforms reducing the employment levels, job security and career opportunities (Lansbury and Macdonald, 1999). The outsourcing has reduced the responsibilities of the state as the employer. Impact of the Outsourcing in England The popularity of the contracting out in England as the alternative tool to the provision of the public services has been there since 1980s. The restructuring in England’s public services towards the outsourcing has raised the additional challenges to the trade unions because they have to cope with the multi-level relationships. This includes the local level and the national level restructuring processes. Several trade unions in England have opposed outsourcing backed by the pragmatic responses so as to recognise and maintain the collective bargaining in the outsourced companies. Generally, the issue of the outsourcing has led to the unions experiencing a decrease in the rate of the membership in England. This is due to the difficulties in the representing workers that are in a disintegrated value chain through the organisational structure that is shaped by the traditional public sector structures (Vrangbæk, Petersen, and Hjelmar, 2013). At the outset of the outsourcing in England, the unions in the health sector strongly opposed the contracting out of the ancillary services thus exposing the chipping out effect on the working conditions of the workers and the progressive deterioration of the wages. Additionally, the workers often reported an erosion of the engagement and motivation due to the definition of the responsibilities in terms of the contractual arrangements. Just like in the local government in England, the unions adopted the two-track means of the approach as the major strategy (Prowse, and Prowse, 2007). One of them include the campaign against outsourcing in the health sector that was backed up by the pragmatic responses to organising and maintaining the recognition of the collective bargaining in the outsourced companies. Some of the frameworks agreement was signed with the private contractors. The union membership experienced the general decline in common with the other sectors. The Future of Outsourcing and Management of Labour and Industrial Relations Outsourcing is clearly expanding in the public sectors. Indeed, the practice has been embraced by all tiers of the governments as the means of the reduction of the costs and dealing with the complex delivery of certain services. The evidence suggests that the outsourcing; reduces the employment in the public sector while expanding the employment in the private sector, places the pressures on the public sector’s conditions and wages, increases the power of the public sector managers, compliments on the decentralisation of the industrial relations, places pressure on the public sectors, and among others (Adaman, Bugra, and Insel, 2009). This is, therefore, a clear indication that outsourcing will continue to be there owing to its strong influences on both the public and private sectors. Conclusion The public services have over the past decade been subject to the continuous process of reformation. This paper has tried to fill the gap by carrying out investigation on how the outsourcing of the public services impacts on the employment relations and the working conditions structure in the different sectors, the healthcare, and the local government sectors. The outsourcing is indeed unleashing the twofold dynamic in its effects; the remarkable divergence across different countries and the considerable convergence of the sectors across the national confines that are driven by the sector-specific features. In theory, many of the public services can be outsourced. Even the management roles can be outsourced to the management consultants. Presently, the contracting out functions tends to be largely concentrated in the professional fields (accounting, IT, HRM) and the lower skilled fields (cleaning, maintenance, clerical, transport). The upper tiers of the public services and the managerial functions have been largely been very immune to the outsourcing. Bibliography Adaman, F., Bugra, A. and Insel. A. (2009) SClciNal Context of labour Union Strategy: The Case of Turkey. Labour Studies Journal 34(2): 1 68-188. Anner, M., Greer, L, Hauptmeier, M., Lillie, N. and Winchester, N. (2006) The Industrial Determinants of Transnational Solidarity: Globallnterunion Politics in Three Sectors: European loumal of Industrial ReJatiOf/5 12:(1): 7-27. Ascher K. (1987) “The Politics of Privatisation. Contracting Out Public Services”, London: \MacMillan Education Ltd. Flecker J. (2009) “Outsourcing, Spatial Relocation and the Fragmentation of Employment”, Competition & Change13 (3): 251-266. Freebairn, J. (1998) Where and Why Government Should be Involved: A Perspective from Economies, Australian Journal of Public Administration, 57, 4, 66-74. Hodge, G. (1997) Contracting Out: Just Another Fad, or Fundamental Reform?, Journal of Economic and Social Policy, 2, 1, 54-67. Grimshaw D. and MiozzoM. (2006) "Institutional Effects on the IT Outsourcing Market: Analysing Clients, Suppliers and Staff Transfer in Germany and the UK", Organisation Studies 27(9):1229-59. Huws U. and Podro S. (2012) "Outsourcing and the Fragmentation of Employment Relations: the Challenges Ahead", Acas Future of Workplace Relations Discussion Paper. Lawson, M. (1999) Handing Over the Right Slice of Business. Australian Financial Review. March, 15. Marsh, D. (1991) Prlvatisation under Mrs Thatcher: a Reviev-: of the Literature Public Administration 69(4): 459-4BO. Palley, T. (2008) The Economics of Outsourdng: How should Policy Respond? Review ofSocial Economy 66(3): 279·795. Pollitt, C. and Bouckaert, G. (2004) Public Management Reform: A Comparative Analysis. Oxford: OU? Prowse:, P. and Prowse, J. (2007} Is There Still a Public Sector Model of Employment Relations in the United Kingdom? IrItemational ) our/1il1 of Public Sector Management 20(1): 48~62, Small, R. (1996) Contracting Labour: The Impact of Competitive Tendering and Contracting Out on Workers, Thesis submitted in partial fulfilment of the requirements for the Bachelor of Commerce (Hons) School of Industrial Relations and Organisational Behaviour, University of NSW, November, 1996. Vrangbæk K., Petersen O.H. and Hjelmar U. (2013) “Is Contracting Out Good or Bad for Employees? A Review of International Experience”, Review of Public personnel Administration20 (10):1-21. Read More