reassessing outsourcing in ict-enabled public management

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Reassessing Outsourcing in Ict-Enabled Public ManagementTino Schuppan aa IfG.CC – The Potsdam eGovernment CompetenceCenter , c/o Universität Potsdam UniversitätskomplexIII Potsdam , GermanyPublished online: 09 Nov 2009.

To cite this article: Tino Schuppan (2009) Reassessing Outsourcing in Ict-Enabled Public Management, Public Management Review, 11:6, 811-831, DOI:10.1080/14719030903318970

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REASSESSINGOUTSOURCING INICT-ENABLED PUBLICMANAGEMENTExamples from the UK

Tino Schuppan

Tino SchuppanIfG.CC – The Potsdam eGovernment CompetenceCenterc/o Universitat Potsdam Universitatskomplex IIIPotsdam

Germany

Abstract

Using Information and Communication Tech-

nology (ICT) in public administration goes

beyond online services, as it also enables

new kinds of work sharing and information

exchange between different agencies. These

can be used to establish new forms of public

service delivery, such as the separation of

service delivery between front and back

offices, which enable better access for

citizens. This new kind of ICT enabled work

sharing will be used as a basis to analyse

whether outsourcing can be reassessed.

First, existing approaches to such deci-

sions will be explored against the backdrop of

public service delivery processes which have

been penetrated by ICT. Next, a framework

will be derived which will be used to

understand better the potential of different

ICT functions to affect outsourcing decisions.

Finally, ICT’s effect upon outsourcing will be

illustrated using examples from the United

Kingdom. The UK findings demonstrate that

new strategic issues are emerging which

are not addressed in existing public manage-

ment literature about outsourcing and

which therefore require further exploration

and examination.

Key wordsFront and back office, ICT, modularization,

network, outsourcing

Vol. 11 Issue 6 2009 811–831

Public Management Review ISSN 1471-9037 print/ISSN 1471-9045 online

� 2009 Taylor & Francis

http://www.tandf.co.uk/journals

DOI: 10.1080/14719030903318970

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INTRODUCTION

In the last decade, there has been much discussion about the potential of Informationand Communication Technology (ICT) to modernize public service delivery (e.g. Lenk2002). However, within the frame of e-government this has often been reduced toonline services. From a public management perspective, this is not particularlysatisfying, because e-government can only be understood in the context of itsrelationship to organizational change. Therefore, questions need to be asked aboutwhether existing modernization approaches, especially their institutional dimensions,can be or have already been affected by e-government. This article will considerwhether outsourcing decisions are affected by the intensive application of ICT in publicadministration. In contrast to privatization, outsourcing does not mean the sale ofpublicly owned assets, but rather the utilization of an external provider, selectedthrough competitive tendering, to provide a public service (Domberger and Jensen1997: 67). Different criteria and approaches for determining if and when a publicservice should or should not be outsourced are discussed in public managementliterature. Because outsourcing, or contracting out, was one of the main modernizationelements of public management reform in the UK in the 1990s (Rhodes 1994: 140;Domberger and Jensen 1997: 68; Klijn 2002: 157), examples from the UK have beenselected to empirically explore the analytical framework developed in this article.

ICT enables new forms of work sharing between organizations. In the context ofe-government these new forms of work sharing can be used to implement a so-called‘front and back office’ model to create a single point of contact for citizens (Lenk 2002:87). The basic idea of this model is that the front office provides a single point ofaccess for the citizen on behalf of different agencies, while the back office makes publicdecisions; each function is assigned to a different organization or organizational unit.Applying this model to outsourcing of public service activities, the question emergeswhether these front or back office functions could be outsourced. This article willfurther explore whether ICT enables new options for outsourcing public service relatedactivities.

To date, the subject of outsourcing of ICT-enabled administrative activities has notbeen addressed in academic literature. Instead, available literature predominantly looksat issues around the outsourcing of IT functions (e.g. Scholl 2006: 74). At the sametime, the outsourcing of public service activities is becoming increasingly important.For instance, an Oxford Economics study refers to a ‘public service industry’ ofoutsourceable public services in the UK, which in the 2007 budget year had anestimated turnover of £79 billion, created 1.2 million jobs and had an annual growthrate of approximately four per cent. Among the outsourceable state services listed areareas such as ‘general public services’ and ‘public order and safety’ (Oxford Economics2008: 10).

This article will first explore existing concepts related to outsourcing decisionsin public management. Second, the validity of these concepts will be assessed from aperspective of ICT-enabled public service processes. An analytical framework will be

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developed and subsequently applied to two UK-based case study examples. Basedon the case study analysis, a further re-conceptualization of outsourcing decisions inICT-enabled public management will be made.

EXISTING APPROACHES AND CRITERIA FOR OUTSOURCING DECISIONS INPUBLIC MANAGEMENT

Outsourcing has typically been regarded as an important instrument for publicmanagement reform. For instance, in the 1980s, competitive compulsory tendering(CCT) was implemented in the UK to increase competition in public service delivery.In the 1990s, outsourcing gained in importance and enjoyed widespread acknowl-edgement as an important modernization instrument (Domberger and Jensen 1997: 68;Grimshaw et al. 2002: 476). Furthermore, wider state models related to outsourcingentered the broader discussion, such as the contracting or enabling state, both of whichwere especially prominent in the UK context (Robinson and Le Grand 1995: 27;Deakin and Walsh 1996: 33; Kirkpatrick and Lucio 1996: 1; Lewis et al. 1996: 4;Taylor 2000: 372; Schuppert 2003: 71). These models take the approach that the Stateis ‘the enabling organisation, responsible for ensuring that public services are delivered,rather than producing them directly itself’ (Deakin and Walsh 1996: 33). The concreteimplementation of public services takes place through a purchaser and provider split,which leads to a new principal–agent relationship.

Meanwhile, different approaches and numerous criteria related to outsourcingdecisions have been developed, however without any consideration of the impact of ICT(e.g. Savas 1987; National Research Council 2000; Preker et al. 2000; Young 2007;Farneti and Young 2008). The various outsourcing criteria developed in these approachescan be grouped into three different categories of objectives: cost efficiency; effectiveness;and legitimacy. At the same time, these objectives represent basic principles of goodgovernance required for the public sector in general by international institutions such asthe European Union (Commission of the European Communities 2001: 10).

When considering outsourcing in the public sector as well as in the private sector,the emphasis is often placed on cost efficiency, meaning an appropriate relationshipbetween input and output (e.g. Pollitt and Bouckaert 2004). Taking cost efficiency intoaccount, transaction cost economics (TCE) have gained special importance, not only forthe private but also for the public sector (Picot 1982; Savas 1987: 95; Lane 2000). Thetransaction cost perspective takes the view that outsourcing decisions are not solelydependent upon the production costs of a service, but also upon the costs incurred inthe course of transactions which take place in the exchange of services. This specificallymeans that the cost of preparing, concluding, enforcing and following up on a contractwith a service provider must be taken into account when outsourcing (Lane 2000: 133).However, in order to measure transaction costs, additional variables were introduced inTCE. The most important of these is specificity, as this variable makes it possible todraw strong conclusions about the level of transaction costs (Williamson 1985, 1986).

Schuppan: Reassessing outsourcing in ICT-enabled public management 813

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Williamson argued that transaction-specific assets, such as physical assets or humaninvestments that are specialized and unique to conducting a task, cannot be adapted toanother task. If the asset specificity is high, for example, it is recommended that a firmcontinue to be vertically integrated, i.e. that it avoids outsourcing a service. (Picot1982; Riordan and Williamson 1985: 367; Williamson 1991). In contrast, the lowerthe level of asset specificity, the more the purchase of services should be considered,because low transaction costs are to be expected (Picot 1982). If resources with highasset specificity are outsourced, ‘hidden action’ by the provider may occur aftercontracting for example, reducing the quality of service provision or leading toincreased prices (Arrow 1985: 38).

In addition to the transaction cost perspective, further economically inspired criteriafor outsourcing decisions can be found in the public management literature, such as theability to specify a service, or ‘specifiability’, and a competitive market environment. If aservice cannot be sufficiently specified in advance, it is less suited for outsourcing (Savas1987: 95; Donahue 1989: 97; O’Looney 1998: 37; Arnold 2000: 25; Flynn 2002: 138).Additionally, if the competitive environment is insufficient, that is, if few privatecompanies exist that can provide the service, outsourcing is not recommended (Savas1987: 96; Kettl 1993: 32; O’Looney 1998: 39), because monopolies or oligopolies couldemerge, resulting in increasing prices over the medium and long term.

Nevertheless, this economic perspective alone is considered to be insufficient in theoutsourcing literature, because long-term and strategic issues would be neglected. Takingthis into account, some authors have pointed at the value of considering the concept ofcore competencies in outsourcing decisions (Prahalad and Hamel 1990; Dunleavy andHood 1994: 15; Arnold 2000: 25). Core competences refer to tasks which are relevant tothe survival of a company and should therefore not be outsourced (Picot 1991: 347;Arnold 2000: 25). When applying this concept to the public sector, issues around corecompetencies need to be considered from a different steering or controlling perspectivecompared to the private sector for instance. In the public sector for instance, not onlymechanisms for controlling the output need to be taken into account, but also the abilityto have control over societal objectives, that is, with regard to outcomes. According toNaschold et al. (1996), a task should be considered a core competence, and hence asstrategically relevant, if the state’s ability to exert control within society can no longer beensured after outsourcing the task concerned. The existence of such a situation would bean argument for preferring a public sector contractor over a private sector contractor. Insum, a core competence in the public sector refers to control not only with regard to theimmediate result of a public service production process (the output), but also to thesocietal dimension (the outcome).

After cost efficiency and effectiveness, the third basic requirement for outsourcing islegitimacy – ensuring that public service delivery is in accordance with the law(legality), and ensuring accountability (Domberger and Jensen 1997: 76; Flynn 2002:138). From this perspective, outsourcing public tasks to private sector organizations isonly recommended if the level of legitimacy required for a certain task is not too high


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(see Deakin and Walsh 1996: 42). For example, outsourcing is not recommended inlaw enforcement or another public service area with a high level of discretionary power(O’Looney 1998: 36). Because discretionary public decisions cannot be predetermined,they need to be made by civil servants based upon individual circumstances of the case.Increased legitimacy is required especially when civil rights of third parties are affected,for example in policing or probation services. Therefore, outsourcing of these publictasks is often viewed with scepticism (see, for example, Donahue 1989: 43; Goodsell2007). If a decision in favour of outsourcing has been made, arrangements need to be inplace for appropriate accountability structures and procedures (Rhodes 1997: 52, 22;Mulgan 2002). Some authors argue that, in order to assure accountability towardscitizens, public service activities with direct interfaces with the customer should not beoutsourced (Wegener 2007). Moreover, other legal conditions for outsourcing need tobe taken into account, such as the protection of personal data and public procurementlaws (Wegener 2007: 29).

Table 1 gives a summary of variables and criteria which need to be taken into accountwhen making outsourcing decisions. These variables and criteria are not equallyrelevant when considering outsourcing for different types of administrative work. Forinstance, for certain tasks, such as law enforcement, a high level of legitimacy is morerelevant than achieving a high degree of cost efficiency. Therefore, relevant outsourcingcriteria depend on the public sector task concerned. The following section will explorehow, and to what extent, the application of ICT in public service provision mightchange outsourcing decisions.

ICT-ENABLED OUTSOURCING DECISIONS IN PUBLIC MANAGEMENT

To analyse new ICT-enabled options of outsourcing, the front and back office model, inwhich a new kind of work sharing can be seen, will be used. The central idea of the

Table 1: Overall state model: Enabling state or contracting state

Objective Preferred variables Preferred criteria

Cost Efficiency Especially transaction cost Specificity

Competitive environment

Opportunistic behaviour

Existence of sufficient (private)

providers

Specifiability

Effectiveness Core competencies Improvement in output; improvement

in the direction of the outcome

Legitimacy Legality Discretionary power; rights of third parties

are affected

Accountability E.g. transparency; clear responsibility


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front and back office model is to bundle services at one point (the front office) in orderto create a single access point to different agencies, which then function as back offices(Lenk 2002: 89). This makes it possible to orient services better to specific targetgroups (e.g. elderly people, foreigners or home builders), thereby contributing toincreased effectiveness. This approach has been followed in the UK, as well as in otherCommonwealth countries, under the umbrella of ‘joining up’ government (see Ling2002). One of the main purposes of joined up government is to overcome thefragmentation of service delivery which was strengthened by the creation of agencieswhich took place in the 1990s, especially in the UK. In order to join up public servicedelivery ICT has a crucial role in enabling new forms of collaboration, which in turnrequires new forms of work sharing. For instance, in Australia the Centrelink agencyprovides services on behalf of many other agencies in order to bundle services at thelocal level. One example of this are call centre services for people affected by storms,floods or bush fires, which are provided by Centrelink on behalf of the VictorianDepartment of Sustainability and Environment (Centrelink 2008: 190). Therefore, thefront and back office model requires more than just an intensive use of inter-organizational ICT systems, such as document or workflow management systems. It isalso essential to tailor those service provision activities which were previouslyconducted by one agency and (re-)assign them to the front and back offices, which arethen operated by different agencies. In this scenario, the back office typically makes thedecision and provides data, knowledge and various ICT applications and the front officeexecutes those administrative activities which are necessary for offering one stopgovernment.

In order to analyse whether front and back office functions can be outsourced toprivate providers, a closer look at ICT-enabled work sharing is necessary. In publicmanagement literature, three main aspects of how ICT enables new work sharing andthus front and back office separation can be found: modularization; independence fromgeographic location; and information enrichment (see, for example, Davenport 1993;Picot et al. 2008: 186). As will be substantiated and further explained in the followingsection, all three aspects have a profound impact on work sharing and thus on theoutsourcing of front and back office functions.

Modularization

Modularization is an independent organizational principle related to ICT that originatedin the manufacturing sector and was later adapted to service delivery. Modularizationmeans the restructuring of working activities on the basis of integrated, relatively small,observable elements or segments (Picot et al. 2008: 186). In the computer industry, forexample, different companies produce different components, such as disk drives orprocessors, which are assembled into a computer, with each module manufacturerfollowing certain design and operability standards (Baldwin and Clark 1997: 145). This


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principle is also applicable to public service provision (see Bruggemeier et al. 2006:190; Lenk 2007), in which parts of administrative activities, based on ICT, areencapsulated in modules. Examples of modules in public administration includeconducting payments, receiving an application for a service or checking an applicationfor completeness (Becker et al. 2007: 46; Schroth and Schmid 2008: 309). Thesemodules all have a high degree of standardization, with clearly defined technical andorganizational interfaces (Krafzig et al. 2005: 14). Using modularization in the contextof front and back office separation makes a more precise division of labour possible,because it enables the efficient connection of modules together, in a kind of ‘plug-and-play’, while also enabling a high level of control over them. For instance, moduleswhich require direct contact to citizens can be more easily assigned to a front office.

In regard to outsourcing, modularization in particular could change all three of therationalities used in outsourcing decisions mentioned above, as it changes the objectwhich is being outsourced and therefore has an impact upon outsourcing decisions. Inpublic management literature, the object which is to be outsourced is often poorlydefined and referred to in very general ways, such as ‘public tasks’ or broad managerialprogrammes, such as financing, planning or implementing (see Naschold et al. 1996:36, 56). From a cost efficiency perspective, transaction costs can be reduced whenoutsourcing is based on well-defined modules (Baldwin 2007: 4) In particular, moduleswith low specificity can be separated from those with high specificity. For instance apayment module has low specificity because it is needed for many other governmentservices, such as paying fees online, as well as in e-commerce applications. Additionally,modularization can be used to separate modules with high specifiability from those withlow specifiability. This means that the output of a module can be much better defined,and hence outsourced, than something which is defined as a ‘public task’ or amanagerial programme. To use the example of processing payments, the result ofprocessing a payment can be clearly defined; payments processing can therefore easilybe contracted out.

In addition, modularization also has implications for the effectiveness aspects ofoutsourcing. Normally, as previously stated, core competencies should not beoutsourced. Modularization takes a more detailed approach to this question, because itcan be asked which modules (such as accepting an application, checking an applicationfor completeness, transferring money, etc.) are necessary to ‘produce’ a service. Whenoutsourcing, it must be ensured that the output of each single module can be controlledwith regard to the whole output. This means that a single module is outsourceable if itdoes not have negative consequences for the quality of the output as a whole or forthe outcome. Consequently, the question of the core competence can be answeredfor individual modules instead of improvements in output and outcome.

Regarding legitimacy, modularization allows for a separation between those moduleswhich require a high level of legitimacy from modules which only require lowlegitimacy levels. It means that activities with low legitimacy requirements can be‘peeled out’ through modularization and thus outsourced. For example activities which


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possess a high discretionary power can continue to be conducted in government.However, modules with low levels of discretion can be outsourced as long as they canbe provided more effectively and more cost efficiently through private organizations.

Independence from geographic location

Public service delivery is increasingly independent of geographic location (Frissen 1998:37); for example through websites. The relevance of location for work sharing is alsoaddressed in the front and back office concept, which includes the division of workacross distances (Lenk 2002: 92). This also means that module-based work sharingis not only possible between different agencies, but also between geographicallyseparated ones, as in the above-mentioned Centrelink case. Furthermore, thisincreasing independence from geographic factors enables additional reorganizationoptions. In particular, certain modules (e.g. conducting payments, data management)can be bundled in one spatially separated back office, where they can be used by manygeographically distributed front offices simultaneously.

This independence from geographic location has implications for the assessment of alloutsourcing, because modules such as (electronic) payment may be outsourced withoutconsidering the location of a private service provider. This means that a private providercan provide a single service for many public organizations, resulting in lower prices dueto effects of scale. In addition, the increasing independence from geographic locationmakes it easier for more private providers from many different locations to applyfor public contracts, making the market to provide certain modules much morecompetitive, further reducing prices. Furthermore, this ability to overcome physicaldistance may also improve effectiveness, as the outsourcing of certain front officemodules could contribute to better access to public services. One example of thiswould be the issuance of a birth certificate at a private hospital, rather than at agovernment office.

Information enrichment

An additional potential which facilitates new work sharing is informational enrich-ment (see Davenport 1993: 51). In general, new forms of work sharing increaseco-ordination efforts, which can be compensated for with electronic record systems.These provide tracking-and-tracing information about modules which are carried out bydifferent geographically distributed providers. Furthermore, the ability to queryprocessing states enables better control of the outsourced modules.

In the context of outsourcing, the enrichment of information makes it possible toprovide control information about private providers over a distance. For the publicpurchaser of an outsourced module, informational enrichment reduces information


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asymmetries. Previously, the service provider, using an informational advantage,was able to exploit these asymmetries through actions not immediately visible to thepurchaser, such as reductions in performance. Information enrichment enables bettertracing and measurement of output quality and outcome achievement. Forexample, ICT-based tools to visualize crime are used to check whether putting policeofficers on patrol (output) reduces the crime rate or increases security (outcome) in acertain area (Willis et al. 2003). Now, it may be possible to measure whether privatesecurity services increase security, compared to public security services, in that area ornot. This may indicate that, in the future, through data storage, it will possible todetermine whether outcomes are better achieved by private providers than by publicones.

Information enrichment also changes legitimacy aspects of outsourcing decisions, as itcan be used to increase the transparency of service provision activities, something whichhas previously not been possible to this extent. To use an example, if a private providerconducts a back office function, ICT makes it easier to make this function transparent,contributing to accountability. Furthermore, outsourcing may be possible for moduleswith certain discretionary power, if this power is limited by government-providedcentral information bases which would have to be used by private providers. Solutionssuch as decision support systems and knowledge systems may help to reduce the scopeof a decision and thus make modules outsourceable.

To sum up, ICT could enable outsourcing of public services in many ways.Modularization based on ICT has the potential to separate administrative activitiesaccording to their specificity, specifiability and legitimacy requirements, leading toincreasing outsourcing options. Thus, the transacted module becomes smaller, andwhile this may increase co-ordination efforts, this can be compensated for by bettercontrol through information enrichment. The possibility of overcoming geographicaldistances provides further options to involve private organizations, for example, to becloser to citizens through outsourcing of front office activities. If and to what extent thistheoretical analysis could be empirically proved will be clarified and illustrated below.

EMPIRICAL FINDINGS: EXAMPLES FROM THE UK

In the following section two cases representing new forms of outsourcing on the basis ofICT are described and analysed. These cases help to explore further the theoreticalconsiderations from the previous section. Cases from the United Kingdom wereselected because the outsourcing of administrative activities has been particularly far-reaching in the UK, for example, compared to continental European countries with astrong law culture, such as Germany.

The first selected case is about outsourcing of call centre activities in the provision ofpassport services, something which represents front office functions. The second case,described in more detail in Lips et al. (2008), relates to the authentication process when


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applying for a provisional driving licence online and represents a back office function.Both cases refer to administrative activities, and therefore are well suited for analysingoutsourcing in ICT-enabled public management.

The case descriptions are based on document analysis, a review of literature, theevaluation of policy papers and the execution of semi-standardized interviews withemployees and involved advisers. The cases are structured as follows: first the initialsituation and the trigger for the outsourcing are described; afterwards the outsourcedprocesses as well as the results are shown. In the final step an analysis is conducted witha focus on new possibilities of outsourcing based on ICT.

OUTSOURCING IN THE UK PASSPORT SERVICE

Initial situation

The UK Identity and Passport Service (IPS) is responsible for passport affairs in the UKand is organized as an agency subordinated to the British Home Office. Beginning in the1990s, activities related to the application for and issuance of passports were transferredto private actors without using specialized IT support, such as performing checks forcompleteness and the acceptance of applications by the privatized postal service. Afurther outsourcing of process steps to a private organization took place at the end ofthe 1990s. The trigger for this was less the enabling potential of ICT than the fact thatIPS call centre employees were not able to respond adequately to citizens’ inquiries,meaning that a majority of the phone calls went unanswered.

Outsourced processes

In order to respond to the increasing inquiries, it was decided to outsource call centreactivities, on the basis of service level agreements. This meant not only that the ICTprovider for the call centre was outsourced to the private sector, but that theadministrative activities in the call centre were also outsourced. These are typical frontoffice functions, primarily answering telephone inquiries about passport applications.The most important call centre activities which were outsourced are:

. assisting citizens in completing passport applications;

. providing information about the status of a submitted application; and

. making interview appointments for citizens with IPS employees.

To provide these services, the employees in the call centre use a Customer RelationshipManagement (CRM) solution which combines phone, web, e-mail as well as otherfunctions. Using the CRM solution, the call centre employees of the private company


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have read-only access to the internal Passport Application Support System (PASS) ofthe IPS. PASS itself is an electronic workflow system used to process passportapplications, whereby the digitalization of the passport application is conducted byanother private company. This provides IPS employees with the application inelectronic form, which they then process, including making the ultimate decisionabout the issuance of the passport. At the same time, the private provider’scall centre employees can track the status of this process electronically, so that theycan provide passport applicants with accurate and individual information. Furthermore,the private provider’s call centre employees have the ability to insert data forappointments with IPS employees into PASS. If applicants pose more complicatedquestions, the call centre employees can obtain support directly from employees ofthe IPS.

Outcome

The first call centre was put into operation in 2000; by 2008 this was expanded tothree call centres. In 2007, 4.1 million phone calls for the IPS were accepted(Teleperformance Ltd 2007). The capacity of the call centre can be adapted to currentdemand; thus up to 450 employees can answer phone calls in peak times; during timesof low demand as few as 180 workers may man the phones.

The IPS itself is satisfied with the results of the outsourcing. The leader of theservice department of the IPS has even tied the satisfaction of IPS customers (i.e.passport applicants) to the performance of the private call centre employees(Teleperformance Ltd 2007), leading to the renewal of the contract with the IPS in2007. In 2008 the call centre answered more than 3.8 million (or about ninety percent) of all phone calls within twenty seconds, meeting the target performance goalset by the IPS (Home Office – Identity & Passport Service 2008). Ninety-eight percent of the callers who arranged one-on-one appointments with the IPS weresatisfied with the call centre (FDS International Ltd 2007), compared to satisfactionrates of less than fifty per cent in May and June 1999, before the outsourcing(National Audit Office 1999: 45). This means that the objectives of the outsourcinghave been achieved, namely the improvement of accessibility to the IPS andtherefore increased citizen satisfaction.

Analysis

The outsourced call centre activities are based on a new ICT-enabled work sharing,using the PASS and CRM systems. The decision about the passport application isconducted in the back office by civil servants whereby call centre agents of the privateprovider set appointments for meetings or provide information based on databases from


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the IPS’s back office. Specifically, a high degree of modularization of the outsourcedactivities can be observed. The call centre activities are highly standardized and defined.Furthermore, it can be seen that the specificity of the outsourced call centre modules,such as making appointments by phone, is rather low, because those modules are alsowidely used in other private as well as public organizations. Therefore, because of thehigh degree of modularization, in combination with the use of PASS and the CRMsystem, as well as low specificity, low transaction costs can be assumed. Furthermore,the case verifies a high degree of specifiability, because parameters such as the numberof calls taken number and time needed to take a call are easy to trace and measure andtherefore can be well specified in the contract, through service level agreements.Moreover, it can be seen that the call centre functions are conducted withoutany consideration of geographic factors, meaning that the front office modules areexecuted completely independent from the back office and physically separated fromthe citizens. Thus from a cost efficiency perspective, the front office functions seemoutsourceable.

The case indicates that by outsourcing, the whole product, that is, the provision ofpassport services, and hence effectiveness, was able to be improved. Each moduleconducted in the call centre contributes to better citizen orientation. In regard to theprivate provider who was chosen, the provider already had experience with callcentre activities, which further contributed to increased effectiveness. Informationenrichment also shows additional improvement with respect to each outsourcedmodule and hence the output as a whole, because service provision in the frontoffice is based upon centrally stored information which contributes to bettercontrollability and quality of service in the call centre. This confirms that informationenrichment functions enable effective control and quality of service delivery whenoutsourcing.

In regard to legitimacy aspects of outsourcing, it could be seen that the call centrefunctions are less critical to legitimacy, as no decision about issuing the passport ismade. In fact, modularization has been used to separate those activities of the passportservice with high and low levels of discretion from each other. Hence, only activitieswith lower discretion were outsourced, such as providing information about the statusof the application. Additionally, the front office activities are based upon informationcentrally provided by the IPS, so that also these call centre services can bepredetermined. Despite the low levels of discretion in the outsourced call centreactivities, from an accountability perspective they must be transparent for citizens.This is something which could not be fully proven in this case, because citizens arenot even aware that they are calling a private call centre. The outsourcing of the callcentre function has been carried out without much public discussion and has sought toavoid public attention. Although the outsourced activities can be widely consideredto be not important to legitimacy, the employees of the private company weresubject to a special security check. This is because the employees also have access tocitizen data which offers possibilities for abuse. The check of the private employees


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in the call centre shows that the outsourcing authority has a certain degree of sensibilityto this.

OUTSOURCING IN THE UK DRIVER AND VEHICLE LICENSING AGENCY

Initial situation

Within the scope of a large-scale project PACT (‘Partnership Achieving ChangeTogether’) administrative activities in the area of vehicle registration and drivinglicence application of the Driver and Vehicle Licensing Agency (DVLA) werereorganized. PACT itself is an e-Government initiative which was initiated in 2002with the goal of providing public services in the UK online, including thereorganization of processes, by 2005 (Office of the e-Envoy – Cabinet Office 2001).Within the scope of PACT, not only were DVLA processes supported electronically,but also private organizations were integrated into them. This was done toguarantee the authentication related to the online application of a provisional drivinglicence.

Outsourced processes

In order to attend a driving school British citizens need a provisional drivinglicence. Until 2005, it was only possible to apply for such a driving licence throughmail or in person; the citizen had to prove their identity by providing their passportto the DVLA. When the decision was made to enable online application for atemporary driving licence, it also became necessary to develop an electronicauthentication system. This is not an easy problem to solve in the UK, as thecountry has no citizen register like in other EU states. Therefore, a multistageprocedure for online authentication was introduced in which the applicant’s personaldata (name, date of birth, address) are matched with databases of other authoritiesby the DLVA, that is, the authority itself (Lips et al. 2008; Taylor et al. 2009). Ifthis does not produce a result or leads to discrepancies, a private company conductsan additional check. This means that the DLVA has outsourced a secondary phase ofverification when a citizen applies for a provisional driving licence. For this purpose,the DLVA transfers the applicant’s data to the private company which then matchesit with other public databases (such as the publicly available electoral register) andprivate databases (Lips et al. 2008). If the data are classified as plausible by theprivate company, the driving licence can be applied for online. Thereafter, furtherdata and documents can be also added, including for example a required passportphoto, which is requested electronically directly from the UK Identity and PassportService (IPS). The entire verification process, which is also called ‘biographical


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footprint’, takes place completely electronically and is automated within a fewseconds, so that an immediate online application is possible. If the reliability of thedata provided by the citizen is classified as insufficient, he or she must provideproof of their identity in person with the DVLA.

Outcome

At the time of the introduction of the online application procedure in November 2005,the Government had already abandoned their objective to offer all services online.Nevertheless, this new online procedure has found great acceptance. In the first half-year of 2008, about 2,000 provisional driving licences were applied for online everyweek, which corresponds to seventeen per cent of all applications.1 The DVLA is nowconsidered to be one of the forerunners in e-Government in the UK.

Analysis

Out of the entire online application process, a subsequent identify verification service, atypical back office task, was modularized, making it possible to separate it out efficientlyfrom the rest of the service provision. The subsequent verification instance which wasoutsourced represents a very small element, which it would not be efficient or not evenpossible to outsource without ICT. Furthermore, the outsourced verification service hasa low specificity, as verification services are also used in the private sector, including bybanks, and can be used for any other government online services. Similarly, the servicecan be specified to a high degree and is highly measurable. It is possible to checkelectronically exactly how often and with which results a verification was carried out,and even an exact case-by-case accounting is possible. In addition, for such a verificationservice, a sufficient number of private actors exist, so that a competitive environmentwith competitive and appropriate prices can be assumed. Thus, from a cost efficiencyperspective, little doubt exists about outsourcing, even over geographic distance andeven though the outsourced object is very small.

Also, few doubts can be found in regard to the effectiveness of outsourcing, becausethe control of the verification module in regard to the output as a whole was improved.By outsourcing the verification step, online services become possible for citizens,something which could not otherwise have been achieved. This meant improvements incitizen orientation and therefore increased effectiveness.

Taking the legitimacy perspective of outsourcing into account, the verificationmodule includes only a very small level of discretion and is highly automated, so that ineffect no human is involved in its execution. The programming of the verificationsoftware alone determines the working steps, so that – as long as the software code iscorrect – effectively no mistakes are possible in its execution. Furthermore, the


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possibility of a negative impact upon third parties is low, because, in the end, thecitizens still have the possibility to apply for the licence in person. However, the factthat a private enterprise is involved in the verification process is barely known in theBritish general public and is not transparent to the online applicant. So transparency andmaybe accountability problems to the public are apparent, which have to becompensated for. From a legitimacy perspective citizens have to know when a privateactor is involved in verification. However, data security issues might arise whenoutsourcing verification, something which is an underestimated problem. Who canensure that the private provider does not use the citizens’ personal data for otherpurposes? It might be an option to give citizens the online possibility to decide forthemselves whether to use the verification service of the private company. In regard tothe trust level of a private provider, it must also be taken into account that the privatecompany is already active in the banking sector, so that a certain level of institutionaltrust can be assumed, even if a private company is concerned.

CASE COMPARISON

In each case, the triggers for outsourcing are different. While in the UK PassportService the low performance of the existing public call centre was the reason foroutsourcing, in the DVLA case the reason for outsourcing was to authenticate theapplicant’s data to enable an online transaction. However in both cases, ICT was not theimmediate trigger for the outsourcing decision. Rather, the triggers were concreteproblems which were solved by the enabling potential of ICT.

In both cases, modularization was used to create small outsourceable objects which ingeneral contribute to more cost efficiency. Also in both cases, specificity was relativelylow and specifiability was high; leading to a recommendation in favour of outsourcing ifproduction costs by the private companies are lower than the public agencies’ costs ofproduction. Furthermore, both cases indicate higher levels of effectiveness, becauseoutsourcing of the call centre activities and verification functions contributed to asubstantial improvement in citizen orientation and thus to better outcomes. From alegitimacy perspective, the two cases indicate some weaknesses. In both cases, theoutsourced activities seem well suited to being outsourced, as the modules involve lowdiscretionary decision making. However, transparency and hence accountabilityproblems arise when the public does not know that private providers are involved.Additionally, in both cases the private providers have access to citizen data, somethingwhich may stand in the way of outsourcing from a legitimacy point of view. The casesare comparatively summarized in Table 2.

Although it has been broadly confirmed that ICT provides new potential foroutsourcing, limitations have been shown by the cases in regard to transparency andtherefore accountability. Further limitations might arise when ICT is used for serviceprovision in a more networked manner, something which is discussed below.


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FURTHER OUTSOURCING CONSIDERATIONS IN NETWORKED PUBLIC SERVICEPROVISION

So far in this article, outsourcing has been mainly examined from a bilateral purchaser–provider perspective. However, the cases above also demonstrate that varying modulesare carried out by different providers, which leads to networked forms of servicedelivery with multiple principal–agent relationships. Therefore it may be thinkablethat, in a particular case, when viewed from a bilateral perspective, outsourcing isan appropriate, viable option. Yet, when the same case is viewed from a networkperspective, outsourcing could prove to be problematic. This additional networkperspective should be considered in order to address important issues around whether aprivate actor can be included in an existing public service network and how inclusion ofthis actor would affect the network as a whole in regard to cost efficiency, effectivenessand legitimacy.

As has been shown from a cost efficiency perspective, transaction costs are one of themost important variables in outsourcing decisions. However, if a service provisionnetwork already exists, no further transaction costs emerge when a private organizationtakes over the provision of a module from a public organization. In other words, theinclusion of a private actor in an existing public service network may only rarely lead tohigher transaction costs, because the service is already being provided by anotherprovider. On the other hand, a networking perspective increasingly generates moreopportunities for sharing services between different government agencies, as one back

Table 2: Comparison of the UK Passport Service and the UK Driver and Vehicle Licensing cases

Case UK Passport Service UK Driver and Vehicle Licensing

Trigger Low efficiency of the previous

public-run call centre

Need to conduct driving licence

application online

Processes Consultation/information

by telephone, appointment setting

Additional verification service

by private database

Result Better customer orientation,

esp. through quicker response times

Enables online application

when verification in public

database is not successful

Assessment Efficiency: Modularization of the

outsourcing object

Efficiency: Modularization and

automation of the outsourcing object

Effectiveness: better customer orientation,

availability, responsiveness; good control

capabilities, etc.

Effectiveness: enables online application;

additional service, good control

capabilities, etc.

Legitimacy: lacking transparency, data protection Legitimacy: lacking transparency,

data protection


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office can offer the same module to many different front office agencies, for example, inorder to achieve scale effects. Thus, that means outsourcing could be a less attractiveoption economically, and even insourcing is possible. For example, in the case of theUK provisional driving licence, the outsourced verification module is also needed formany other online government services. It might be cheaper for government toinsource this service and, subsequently, for many different agencies to use this oneinternal service provider than for these agencies to purchase the verification servicefrom a private provider.

Addressing the matter of effectiveness, in a service network arrangement,questions related to public control of all service providers in a network becomecritical. Control over the network must consider and include the output and outcomeof the network as a whole (Bruggemeier 2007). It must also be determined whetherinclusion of private actors as module providers in the network raises the quality ofthe output as a whole, in interaction with other single providers. Furthermore,regarding effectiveness, as the number of providers involved in producing an outputincreases, the vulnerability of the service network increases too. In the passport case,several different private providers were involved, such as the provider for the callcentre ICT system, the provider which scanned the applications and the documentsand the provider who actually took the calls. A high degree of interdependencecould already be observed, with the implication that, if one private provider in thenetwork fails, the entire output is endangered. This, in turn, leads to the issue ofbackup structures, as an effective provision of services must also take the resilience ofstructures into account (for resilience see Hood 1991). To compensate for this,resilience management becomes necessary, which leads to increased network costs,however. In both cases, it could be seen that the private providers already enjoyed acertain level of trust, because they had developed strong reputations in the market.Nevertheless, in the passport case, it would become very difficult to providepassports if the private call centre were to fail.

Legitimacy questions also differ to some degree in a service network situation. Newaccountability mechanisms are required which address the entire network, in additionto the individual modules. First, it must be assured that each provider is accountable forthe output of its module (such as identity verification or application checking). Inaddition to this, someone must be accountable for the output and outcome of thenetwork as a whole. This is the purchaser of the services. In respect to outsourcing, itmust be ensured that private providers of a module can be made accountable to thepublic for each module that they provide, with accountability for the output as awhole being held by the purchasing government unit. To consider the online drivinglicence application case, the private provider of the verification module must be madeaccountable to the public for the module which he provides, and someone must bemade accountable for the output as whole, meaning the provisional driving licence. Inpublic service networks, the issue of accountability becomes especially blurred. Lookingat the passport case, if the call centre provides incorrect information about how to


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apply for a passport, the decision on the passport application could be affected. Thisdemonstrates that high interdependence between modules (modules which themselvesare, from a legitimacy perspective, unproblematic in regard to outsourcing) could beproblematic when examined from a service network perspective.

It thus appears that a public service network perspective has further implications foroutsourcing decisions. Transaction costs lose their decisive relevance, while networkingbrings new criteria such as security against failure, trustworthiness or interdependencyof modules, into play. In the network context, control capabilities must also be assesseddifferently, because partial services must be adjusted and fine-tuned to improve theoverall output. Hence an outsourcing event which may be considered appropriate whenviewed from a bilateral perspective, may, in a public service network context, have tobe regarded more sceptically after all.

CONCLUSION: REASSESSMENT OF OUTSOURCING

This reassessment of outsourcing decisions in the context of ICT-enabled publicmanagement has left us with an ambivalent result. On the one hand, it can be said withcertainty that ICT enables new options for outsourcing. In particular, modularization,the ability to overcome geographic distance and information enrichment enable newoutsourcing options; options which can already be observed in practice. Throughmodularization, it becomes possible to separate out those activities with low legitimacyrequirements and to perform them in more efficient and more effective arrangements.These activities can also be very well controlled from a public management point ofview, reducing asymmetries of information. These findings, as well as other potentialsof ICT, have been clearly confirmed in the case studies.

However, it also appears that ICT-enabled public service provision is increasinglymoving in the direction of public service network arrangements, which will requireadditional criteria when making outsourcing decisions. Transaction costs will thenhardly play a role. In respect to a service network, new criteria come into play,such as institutional stability and robustness. At the same time, it becomes obviousthat the production costs of a service, public control, accountability and trust,become more relevant for decisions about whether to outsource a module to privateproviders.

Finally in regard to outsourcing, there is a certain tension between cost efficiencyand, to some degree, effectiveness on the one hand and legitimacy, especiallyaccountability and transparency, on the other hand. This tension cannot be fullyaddressed through the abstract criteria which were used and discussed here. Thequestion of whether a module is outsourceable or not is, in the end, subject to politicalrationalities and public expectations and perceptions, as well as culture of the respectivestate. Questions of the retention of knowledge and competence within the state willalso have to be considered.


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In conclusion, increasing ICT-enabled forms of work sharing and the networking ofpublic service provision mean that outsourcing decisions can be reassessed – whichnevertheless does not necessarily imply more outsourcing.

NOTE1 Answer to a Freedom of Information Request to the DVLA. http://www.dvla.gov.uk/media/pdf/foi/

foi_020608.pdf

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reassessing outsourcing in ict-enabled public management

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