9 ms·

G4S is just the latest in a long line of outsourcing disasters

32 points by irv 14y ago

rwmj 14y ago
While I'm no fan of G4S or PFI projects, this article is just empty wind. Where is the evidence that "cash [...] is redirected into shareholders' pockets"? This would be an ideal topic for a scientific study: do outsourced projects cost less for the buyer, or do they cost the same/more and does that extra money go to shareholders? Unfortunately reading this article will not tell you the answer to this or other interesting questions.
- danmaz74 14y ago
  The article is too one-sided for sure, but the fact that the cash that doesn't go to the workers goes to the shareholders' pockets is practically a truism: That cash is called profit, and shareholders (rightfully) expect it from their investment.
  - pbhjpbhj 14y ago
    The problem is that usually the people doing all the work get very little whilst the people who're just being rich get made richer. Yes within the current system a small return on investment should be expected but a commensurably larger wage should be paid before a large return is given to investors. It's by no means a universal truth that an investor deserves profit.
    - danmaz74 14y ago
      I didn't say that an investor deserves (which is a moral judgement) a profit, I said that she rightfully expects to make one - otherwise she simply wouldn't invest.
  - rwmj 14y ago
    It's not a "truism" at all. For a start, companies are going bust taking these contracts[1] -- going bust generally being a good sign that they aren't making a profit. More importantly, the alternative is a state-owned security service (police, army, etc) who are likely to be inefficient, highly unionized with tons of overhanging pension payments. Is that cheaper? I don't know which is why I was saying in my original comment that these things can be studied. [1] http://www.out-law.com/en/articles/2012/july/special-administrator-appointed-to-oversee-potential-restructuring-of-south-london-healthcare-nhs-trust/ http://www.out-law.com/en/articles/2012/july/special-adminis...
    - danmaz74 14y ago
      The article said that "the cash not going to the work force is redirected into shareholders' pockets". I don't read anything in that phrase about the service being cheaper or not. I just read that if the contractor gets X cash, and then gives Y cash to its workforce, the difference goes to the shareholders. If labor is what makes the biggest part of the expenses (and I guess the author is referring to such cases) that is almost a truism.
  - michaelt 14y ago
    I think what rwmj is saying is: State total cost = State front line workers' salaries + State overheads Private sector total cost = Private sector front line workers' salaries + Private sector overheads + Profit. Overheads are everything from paddy wagons to radios to uniforms to back office staff to police horses loaned to Rebekah Brooks to the G4S CEO's £830K/year salary. Private sector firms will presumably only bid on a contract if the profit is positive, I'd agree that's a truism. But is the profit positive because the private sector total cost is higher, or because the private sector front line workers' salaries are lower, or because the private sector overheads are lower? I think that's what rwmj wants evidence of.
- pbhjpbhj 14y ago
  I can't really see how you could spend £21k per person on security for an event lasting a couple of weeks. Do you really think the excess after expenses is going to wages rather than to shareholders? How can they not have enough people if they're paying £8k+ per week. Have they asked TA members if they'd take 3 weeks off work to earn a years wages? [I read in the 'paper' theyre getting 268M for supplying 13,700 staff and that they are using some volunteers in that number]
kiba 14y ago
I can name SpaceX as a successful example of outsourcing. The real reason is probably more akin to "incentive matters".
- andyjohnson0 14y ago
  SpaceX is an excellent example of outsourcing working well. But G4S had the incentive of a £300 million contract, and their CEO gets £830K/year, and they still couldn't get it right.
- alan_cx 14y ago
  Yeah, unlike policing and health, SpaceX's activities are not necessary. Don't get me wrong, what SpaceX is doing is fantastic, even inspirational, but not an essential service. So, if it goes wrong, even badly wrong, it really does not matter.
  - kiba 14y ago
    I don't see how "unnecessary" or "necessary" matters, as long as we're talking excellence.
- danmaz74 14y ago
  I would argue that SpaceX's success is much more tied to the founder's vision than to any kind of monetary incentives from the government.
- SideburnsOfDoom 14y ago
  SpaceX are well-known for not using subcontractors to make their parts etc. They do almost everything in-house. Does spaceX even outsource their security guards?
- willyt 14y ago
  I agree if you mean more than just a financial incentive. Job satisfaction at Space X must be extraordinary. G4S on the other hand is a company whose business plan is to sell 'security theatre'. They hire and train people for the minimum amount possible and resell that for the maximum amount possible, they don't have any incentive to care about their employees. They are just a HR department that processes people applying for and leaving jobs as efficiently as possible and a sales department that sells that time. No one is going to take pride in their work for a company like this. Maybe they made a mistake in assuming that there were an enough desperate unemployed people available to fill these positions? I think that successful organisations, whether they be state run or private companies, depend massively on the character of the individuals that run them. I expect that Space X is successful because Elon Musk is a very rewarding person to work for. And for an example of a state run organisation like this see Frank Pick[1] who, as manager of London Transport, untangled the mess of privately constructed transport systems and made it into the poster child for public transport systems across the world. Pick's organisational values and culture outlasted him for many years, even today new transport projects in London have to be pretty high quality because they are measured against the legacy of all the great stuff the was designed and built in the 40's and 50's. [1] http://en.wikipedia.org/wiki/Frank_Pick http://en.wikipedia.org/wiki/Frank_Pick
andyjohnson0 14y ago
Here in the UK, a lot of activities that were traditionally the responsibility of the state (health, education, policing) are increasingly being outsourced. Conventional wisdom is that the private sector is just much more efficient than the state can ever be, but I have never been able to find evidence-based studies for or against this. It always seems to taken as axiomatic. Can anyone point me to unbiased work that has been done on outcomes in outsourcing of state functions? As someone who works in the private sector, I find the idea that it is just intrinsically more efficient than modern state organisations to be pretty hard to believe. But thats just anecdotal, and I'd like to know more and maybe have my opinion modified.
- gaius 14y ago
  It's the same as buying any other sort of goods and services. Do you think the NHS makes its own paperclips and grows its own potatoes? No, the private sector really is massively more efficient, for two absolutely crucial reasons: 1) there are actually many sellers with interchangeable products and 2) paperwork and catering aren't actually core to the NHS mission. If 1 and 2 aren't true, if there are a limited number of sellers of the service, and the service is core to the mission, then outsourcing will certainly fail.
  - excuse-me 14y ago
    The majority of government outsourcing deals are ideology or to hide the numbers. Take PFI, if I offered to take over the rest of your mortgage on your house. But you had to pay me equivalent of the mortgage payment for 100years and you had to buy my services for any cleaning or maintenance of your house for the 100year term - then even though you were now mortgage free (ie. you had reduced your deficit) - you would be mad to take the deal. If however your only interest was being able to claim that you had reduced your deficit going into the next election - and it wasn't your money anyway - you might look at it differently
- elviejo 14y ago
  During my time in the USA, I saw that most people think the private sector is inherently more efficient than the government. As you said it seems like an axiom. However, I disagree it's people+procedures+technology that make a great organization and none of those concepts are exclusive of either private or public sector.
aes256 14y ago
Sometimes outsourcing works, sometimes it doesn't. Highlighting a few examples in which it has failed does not lead to the conclusion that it never works. So the author seeks to bridge the gap by identifying a fundamental flaw in the concept of outsourcing, in this case by noting the divergence of objectives between the two parties. Although true, this isn't the fundamental flaw the author is looking for. It simply identifies the importance, for outsourcers, of making their suppliers' objectives coincide with their own. I wouldn't say the G4S case is one in which the government has failed in making objectives coincide. G4S will, in all probability, be found in breach of contract for failure to fulfil their obligations, and the government have already stated they will be seeking to recover costs from G4S, such that there will be no additional cost to the taxpayer for this debacle.
- ktizo 14y ago
  Recovering costs from G4S will only make G4S recover the recovered costs from other areas of their business, so I expect we will see more escaped prisoners and more security lapses at nuclear facilities, etc.
  - aes256 14y ago
    G4S isn't a non-profit. Besides, the firm will have contractual obligations in other areas of the business (e.g. prisoner transportation and security at nuclear facilities), and if it reneges on those, it will face similar consequences.
    - azundo 14y ago
      Which could eventually lead to bankruptcy and still stick the taxpayer with the bill and poor service provision. In any case I agree with your OP that these types of cut and dry presentations are never helpful, and we should be seeking to understand the appropriate context for different solutions instead of generalising.
      - aes256 14y ago
edoloughlin 14y ago
I completely agree with the thesis of the article; that outsourcing leads to inflexibility is performed by a staff that is not necessarily invested in the goals of the organisation. However, how does this apply to providing security for the Olympics, a once-off event that may not return to London for another 50 years? A city can't be expected to constantly maintain a police force capable of covering an event of this size.
lstroud 14y ago
The problem is not outsourcing, it's thinking that you can outsource (or delegate) and important task and not pay attention to it's execution. Good management breaks outsourced projects down into replaceable, manageable chunks. This is important for oversight and for competition. If you size an outsourced chunk of work correctly, then you should be able to increase competition for that contract. If you structure the contract correctly, your oversight should be able to identify and replace problemed contractors. These guys are all smart enough to know that. It's just that they are also all smart to know that it is easier to avoid political responsibility for failures when it can be blamed on an outside contractor.

32 points by irv 14y ago

rwmj 14y ago

While I'm no fan of G4S or PFI projects, this article is just empty wind. Where is the evidence that "cash [...] is redirected into shareholders' pockets"? This would be an ideal topic for a scientific study: do outsourced projects cost less for the buyer, or do they cost the same/more and does that extra money go to shareholders? Unfortunately reading this article will not tell you the answer to this or other interesting questions.

danmaz74 14y ago
The article is too one-sided for sure, but the fact that the cash that doesn't go to the workers goes to the shareholders' pockets is practically a truism: That cash is called profit, and shareholders (rightfully) expect it from their investment.
- pbhjpbhj 14y ago
  The problem is that usually the people doing all the work get very little whilst the people who're just being rich get made richer. Yes within the current system a small return on investment should be expected but a commensurably larger wage should be paid before a large return is given to investors. It's by no means a universal truth that an investor deserves profit.
  - danmaz74 14y ago
    I didn't say that an investor deserves (which is a moral judgement) a profit, I said that she rightfully expects to make one - otherwise she simply wouldn't invest.
- rwmj 14y ago
  It's not a "truism" at all. For a start, companies are going bust taking these contracts[1] -- going bust generally being a good sign that they aren't making a profit. More importantly, the alternative is a state-owned security service (police, army, etc) who are likely to be inefficient, highly unionized with tons of overhanging pension payments. Is that cheaper? I don't know which is why I was saying in my original comment that these things can be studied. [1] http://www.out-law.com/en/articles/2012/july/special-administrator-appointed-to-oversee-potential-restructuring-of-south-london-healthcare-nhs-trust/ http://www.out-law.com/en/articles/2012/july/special-adminis...
  - danmaz74 14y ago
    The article said that "the cash not going to the work force is redirected into shareholders' pockets". I don't read anything in that phrase about the service being cheaper or not. I just read that if the contractor gets X cash, and then gives Y cash to its workforce, the difference goes to the shareholders. If labor is what makes the biggest part of the expenses (and I guess the author is referring to such cases) that is almost a truism.
- michaelt 14y ago
  I think what rwmj is saying is: State total cost = State front line workers' salaries + State overheads Private sector total cost = Private sector front line workers' salaries + Private sector overheads + Profit. Overheads are everything from paddy wagons to radios to uniforms to back office staff to police horses loaned to Rebekah Brooks to the G4S CEO's £830K/year salary. Private sector firms will presumably only bid on a contract if the profit is positive, I'd agree that's a truism. But is the profit positive because the private sector total cost is higher, or because the private sector front line workers' salaries are lower, or because the private sector overheads are lower? I think that's what rwmj wants evidence of.
pbhjpbhj 14y ago
I can't really see how you could spend £21k per person on security for an event lasting a couple of weeks. Do you really think the excess after expenses is going to wages rather than to shareholders? How can they not have enough people if they're paying £8k+ per week. Have they asked TA members if they'd take 3 weeks off work to earn a years wages? [I read in the 'paper' theyre getting 268M for supplying 13,700 staff and that they are using some volunteers in that number]

kiba 14y ago

I can name SpaceX as a successful example of outsourcing. The real reason is probably more akin to "incentive matters".

andyjohnson0 14y ago
SpaceX is an excellent example of outsourcing working well. But G4S had the incentive of a £300 million contract, and their CEO gets £830K/year, and they still couldn't get it right.
alan_cx 14y ago
Yeah, unlike policing and health, SpaceX's activities are not necessary. Don't get me wrong, what SpaceX is doing is fantastic, even inspirational, but not an essential service. So, if it goes wrong, even badly wrong, it really does not matter.
- kiba 14y ago
  I don't see how "unnecessary" or "necessary" matters, as long as we're talking excellence.
danmaz74 14y ago
I would argue that SpaceX's success is much more tied to the founder's vision than to any kind of monetary incentives from the government.
SideburnsOfDoom 14y ago
SpaceX are well-known for not using subcontractors to make their parts etc. They do almost everything in-house. Does spaceX even outsource their security guards?
willyt 14y ago
I agree if you mean more than just a financial incentive. Job satisfaction at Space X must be extraordinary. G4S on the other hand is a company whose business plan is to sell 'security theatre'. They hire and train people for the minimum amount possible and resell that for the maximum amount possible, they don't have any incentive to care about their employees. They are just a HR department that processes people applying for and leaving jobs as efficiently as possible and a sales department that sells that time. No one is going to take pride in their work for a company like this. Maybe they made a mistake in assuming that there were an enough desperate unemployed people available to fill these positions? I think that successful organisations, whether they be state run or private companies, depend massively on the character of the individuals that run them. I expect that Space X is successful because Elon Musk is a very rewarding person to work for. And for an example of a state run organisation like this see Frank Pick[1] who, as manager of London Transport, untangled the mess of privately constructed transport systems and made it into the poster child for public transport systems across the world. Pick's organisational values and culture outlasted him for many years, even today new transport projects in London have to be pretty high quality because they are measured against the legacy of all the great stuff the was designed and built in the 40's and 50's. [1] http://en.wikipedia.org/wiki/Frank_Pick http://en.wikipedia.org/wiki/Frank_Pick

andyjohnson0 14y ago

Here in the UK, a lot of activities that were traditionally the responsibility of the state (health, education, policing) are increasingly being outsourced. Conventional wisdom is that the private sector is just much more efficient than the state can ever be, but I have never been able to find evidence-based studies for or against this. It always seems to taken as axiomatic. Can anyone point me to unbiased work that has been done on outcomes in outsourcing of state functions? As someone who works in the private sector, I find the idea that it is just intrinsically more efficient than modern state organisations to be pretty hard to believe. But thats just anecdotal, and I'd like to know more and maybe have my opinion modified.

gaius 14y ago
It's the same as buying any other sort of goods and services. Do you think the NHS makes its own paperclips and grows its own potatoes? No, the private sector really is massively more efficient, for two absolutely crucial reasons: 1) there are actually many sellers with interchangeable products and 2) paperwork and catering aren't actually core to the NHS mission. If 1 and 2 aren't true, if there are a limited number of sellers of the service, and the service is core to the mission, then outsourcing will certainly fail.
- excuse-me 14y ago
  The majority of government outsourcing deals are ideology or to hide the numbers. Take PFI, if I offered to take over the rest of your mortgage on your house. But you had to pay me equivalent of the mortgage payment for 100years and you had to buy my services for any cleaning or maintenance of your house for the 100year term - then even though you were now mortgage free (ie. you had reduced your deficit) - you would be mad to take the deal. If however your only interest was being able to claim that you had reduced your deficit going into the next election - and it wasn't your money anyway - you might look at it differently
elviejo 14y ago
During my time in the USA, I saw that most people think the private sector is inherently more efficient than the government. As you said it seems like an axiom. However, I disagree it's people+procedures+technology that make a great organization and none of those concepts are exclusive of either private or public sector.

aes256 14y ago

Sometimes outsourcing works, sometimes it doesn't. Highlighting a few examples in which it has failed does not lead to the conclusion that it never works. So the author seeks to bridge the gap by identifying a fundamental flaw in the concept of outsourcing, in this case by noting the divergence of objectives between the two parties. Although true, this isn't the fundamental flaw the author is looking for. It simply identifies the importance, for outsourcers, of making their suppliers' objectives coincide with their own. I wouldn't say the G4S case is one in which the government has failed in making objectives coincide. G4S will, in all probability, be found in breach of contract for failure to fulfil their obligations, and the government have already stated they will be seeking to recover costs from G4S, such that there will be no additional cost to the taxpayer for this debacle.

ktizo 14y ago
Recovering costs from G4S will only make G4S recover the recovered costs from other areas of their business, so I expect we will see more escaped prisoners and more security lapses at nuclear facilities, etc.
- aes256 14y ago
  G4S isn't a non-profit. Besides, the firm will have contractual obligations in other areas of the business (e.g. prisoner transportation and security at nuclear facilities), and if it reneges on those, it will face similar consequences.
  - azundo 14y ago
    Which could eventually lead to bankruptcy and still stick the taxpayer with the bill and poor service provision. In any case I agree with your OP that these types of cut and dry presentations are never helpful, and we should be seeking to understand the appropriate context for different solutions instead of generalising.
    - aes256 14y ago

edoloughlin 14y ago

I completely agree with the thesis of the article; that outsourcing leads to inflexibility is performed by a staff that is not necessarily invested in the goals of the organisation. However, how does this apply to providing security for the Olympics, a once-off event that may not return to London for another 50 years? A city can't be expected to constantly maintain a police force capable of covering an event of this size.

lstroud 14y ago

The problem is not outsourcing, it's thinking that you can outsource (or delegate) and important task and not pay attention to it's execution. Good management breaks outsourced projects down into replaceable, manageable chunks. This is important for oversight and for competition. If you size an outsourced chunk of work correctly, then you should be able to increase competition for that contract. If you structure the contract correctly, your oversight should be able to identify and replace problemed contractors. These guys are all smart enough to know that. It's just that they are also all smart to know that it is easier to avoid political responsibility for failures when it can be blamed on an outside contractor.