Two seemingly unrelated subjects were brought to my attention recently that have an underlying connection.
The first story was China’s near monopoly on rare earth elements and its recent imposition of export quotas. The second was the coalition government’s spend data and the observation from one journalist that Capita, one of the largest outsourcing groups, “has accrued unrivalled expertise and economies of scale”.In the case of China, debate is raging as to why it has tightened up its rare earth exports. It claims it is an environmental concern (extraction is a messy business), while other sources believe it is a play to move up the value chain by forcing companies to manufacture more finished products in China rather than shipping raw materials for others to reap the profits.
There is also disagreement over how much of a threat this is; with several other viable mines available to re-open around the globe, many commentators think alternatives will spring up. However an astute comment made was that the problem won’t be finding the mines, but the skilled people who know what to do with it. Once a skill base has been allowed to disperse, reconstructing it is an uphill battle – mining and chemical engineers with 20 years’ experience don’t just grow on trees and ones with 20 years’ recent experience may prove a bigger challenge.
In the case of the government outsourcing provider it was the statement about “unrivalled expertise” that caught my attention. It’s likely now that extracting these services from their warm embrace would be a challenge because there may be no alternative either in-house or through another provider. This supplier knows the systems and processes better than the government because they’ve become, in effect, the supplier’s processes. In which case, what happens if they decide it’s not cost-effective for them to provide a service? It is hoped the contract will make adequate provision for transfer of key personnel and knowledge.
So how does the client organisation know if it has everything it requires at the end of the contract without the process expertise? What happens if key personnel aren’t interested in coming to work in the client organisation?
With outsourcing many companies have cut junior and training posts within their own organisations. The focus has been on keeping relatively senior people to manage the contractual relationship with the outsourced partner. The onus on training has moved to the outsourced partner, who see people and knowledge of process as their key assets. They will do what they can to keep their people and the tug of war begins at the point the contract ends.
What strikes a chord now is that events are conspiring to bring the shortage of skills and knowledge to the fore. Over the past 10 years many organisations have lost internal expertise. Organisations are expected to move quickly and flexibly in response to the market; this, together with failure to deliver the anticipated transformation and savings may mean that even existing outsourcing arrangements are less attractive.
It is up to us to ensure we consider these risks in our contracts, mitigate them where possible and raise them within our organisations when additional action is required.