Implementation of Outsourcing Factorforimprovingthe Qualityof Public Services in the Republicof

IMPLEMENTATION OF OUTSOURCING – FACTORFORIMPROVINGTHE QUALITYOF PUBLIC SERVICES IN THE REPUBLICOF BULGARIA

Aleksandra Parashkevova[1]

In today's conditions of fast-changing environment, particularly under conditions of a global economic crisis, the opinion that private sector management with its tools excels in public sector management is becoming more widely spread. Turbulence of external environment poses a number of challenges to public sphere organizations, related not only to improving the quality of public services but to the demand for more flexible and adaptive management models with regard to external changes. External contracting of public services is becoming more often on a global scale, under the influence of the concept of the ‘New public management’ in order to create a flexible and adaptive organizations-providers of public services which use public resources effectively and provide more benefits to society.

The provision of public services through outsourcing schemes is becoming more popular in Bulgaria, although, at the present moment, public sector organizations are still tentative in terms of their implementation. Awareness of the advantages of outsourcing makes it a stimulating factor and a challenge for organizations-providers of public services, providing real opportunities to mitigate impacts of the crisis and to achieve a higher quality of public services in Bulgaria.

This report focuses on analysis and evaluation of activities of public sector organizations in Bulgaria. The author's thesis is that there is a need for a creative transfer of modern management approaches, methods and tools from the business in public management, one of which is outsourcing. Proposals for changes in the practice of using outsourcing have been made.

Objectof study is the contemporary trends in the implementation of outsourcing in organizations-providers of public services in Bulgaria. Concrete examples are presented in various public sector organizations (deconcentrated and decentralized administrations) in Bulgaria.

SubjectofstudyistheextentandmaindirectionsofuseofoutsourcinginthemanagementofpublicsectororganizationsinBulgaria.

Theobjectiveis to assess the fields of application of outsourcing in the public sector and to propose a model for its successful use in the provision of public services.

Inaccordancewiththesetobjective, the statement is made according to the following logic:

Showingtheadvantagesofoutsourcingasatoolofpublicserviceprovision.
Assessmentofriskandlimitersfor the implementation of the outsourcing approach in public sector organizations.
Comparativeanalysisofoutsourcingpracticesamongpublicsectororganizations.
Developingatheoreticalandapplicationmodelforthesuccessfulimplementationofoutsourcingunderconditionsofcrisis.

Researchmethods: the used methods are those of empiric and comparative analysis and synthesis, the complex and systematic approaches, analytical and research methods, qualitative and quantitative ones as well as problematic analysis of the results of the carried out practical and applicable research.

Thedatawhichwillbeanalyzedreferto: thetypesofoutsourcingusedinorganizations-providersofpublicservicesinBulgaria; thecriteriaforselectionofexternalproviders, the systems for reporting, controlling, monitoring and assessment of the outsourcing project.

Targetgroupswhichwillbenefitfromtheresearch:policymakers, managers in organizations-providers of public services, mayors, heads,expertsinthe state and municipaladministration; citizens.

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Outsourcing as an instrument for delivering administrative services

In a world of globalization and European integration, of growing competitiveness and introduction of information and communication technologies in the administrative activities the citizens and the business have constantly increasing expectations about public services. The experience of the public sector organizations in the developed countries has shown that in order to deliver improved public services they often use methods, which are used by business organizations, like benchmarking, total quality management, outsourcing, etc. [2] The complicated social and economic situation poses a number of challenges to the public sector organizations connected with the increase of their effectiveness. The bureaucratic sluggishness, the poor administrative coordination, the doubling of functions, the monopoly on the public resource management, the total discrepancy between the priorities of the administration and of the end users are problems connected with the functionality of the administration itself and these problems nowadays require changes in the dynamics of the relationship between public organizations and society. [7] The public service users impose new requirements on the administrative structures’ functionality, on the public service quality, on the rate at which they are delivered, on the transparency and efficiency of the process, as well as on the ordering of the priorities in financing the needs for public services. The citizens, their organizations and the business as the subject of the public services philosophy are becoming the principal index of the necessity for a particular service.

It was only in 1963 that the company Electronic Data Systems (EDS)[2] laid the foundations of outsourcing as a new managerial approach. [6] Twenty years later it became an object of scientific research interest and nowadays, especially because of the grave economic crisis, the theoreticians and practitioners continue expending efforts on developing an optimum model for the application of outsourcing not only in the activities of the organizations in the private sector but also in the public one[3]. Despite the great number of examples for achieving the objectives of this approach the outsourcing of the administrative activities and services should not be considered a panacea. Many of the organizations do not have yet the necessary theoretical background and knowledge about its nature, advantages, risks (connected with its application) and for this reason its chances whether to achieve the desired results or not are equal.

In the present investigation the author makes an attempt to offer to the general public an overall evaluation of the outsourcing application in the public sector, to identify the successful spheres of employing the outsourcing approach and to offer a model for its successful use in the delivery of public services.

In order to clarify the place of outsourcing in the public administration of the Republic of Bulgaria the following questions have to be answered:

Whatis the nature of outsourcing?Which are the most frequently employed types of outsourcing? Who are the participants in the public service outsourcing process and what is the relationship between them? How is the outsourcing regulated as an instrument for delivering public services in the Republic of Bulgaria?
Why is it expedient to delegate public services to external providers? Which public services can be delivered by means of outsourcing? What are the advantages and disadvantages of the outsourcing model which should be taken into account in making decisions for outsourcing public services?
Nature of outsourcing - types, participants, relationship between the parties, normative acts in the Republic of Bulgaria.

The attempts to balance the operational expenses in the public sector with those in the private one have always been a challenge. The purpose of the transformation programmes is to improve the quality of the public services and to make the public sector more flexible in its reactions and strategically better oriented towards outside changes. [9] The new public management calls for an overall change both in the public institutions organization and in the established model of their bureaucratic management. The outsourcing is not only one of the alternatives of achieving this objective but also provides an opportunity for improving the quality of the delivered public services. [4]

The term outsourcing (from the English Outsourcing – Outside Resource Using) should be defined as the transfer to an outside contractor of a function, a combination of functions or part thereof, and/or of organizational processes, as well as of certain tasks with the purpose of reducing the expenses, increasing the specialization and improving the quality of the delivered products (services). For the purpose of the present study we will use the English term due to the lack of a comprehensive equivalent in the Bulgarian language. Nevertheless, the Bulgarian theory and practice have established the below-stated terms as closest to outsourcing, namely: “assigning the execution to an external provider”, “assigning to an external provider” and „external assignment”. We have also adopted the following terminology for the parties participating in outsourcing:

outsourcee – an organization (private or public) which takes steps to assign certain tasks, processes, functions, also called principal, performer, client, buyer;
outsourcer – an external organization (most often private, possibly also an non-governmental organizations(NGO) - performer, provider, contractor, usually specialized in a certain kind of activity, which accepts to perform the assigned activities, and by adapting its experience, equipment and knowledge to the needs of the said principal, obliges to provide the services subject to the outsourcing agreement against payment;
outsourcing agreement – according to the Bulgarian legislation in force it is a mutually binding unnamed contract. The normative regulations of the Public Procurement Law and the general rules of the Law on the Obligations and Contracts are applied. An overview of the regulatory norms in their essence is given below.

A main motive initiating the use of outsourcing is the necessity to reduce the expenses on IT-technologies. Lacity, Willcocks and Feeny (Lacity, Willcocks, & Feeny, 1996) give the following definition: outsourcing is breaking up of in-house IT-services and transferring the stuff, leased spaces and equipment, licenses, etc. to third-party vendors which perform the IT and software functions. However, if until recently the outsourcing was known only to IT specialists, today more and more organizations start using this form of work organization and the market offers a wide range of outsourcing services suitable for various spheres of the client-organizations’ activities: IT and software servicing, accounting services, marketing, human resources management, logistics, project implementation, management of document turnover, etc. The reasons determining the choice of an outsourcing strategy for each organization are different but most often they include some of the following benefits:

reducing the level of expenses;
seeking possibilities for concentrating on the activity’s key aspects by relieving themselves of peripheral, supporting or resource-requiring activities and processes;
increasing the efficiency of the performed activities, the quality of the provided services and improving the flexibility of the public organization in relation to the quickly changing environment;
reducing investments in in-house infrastructure, access to innovations and specialized knowledge.

The possible objectives an organization poses before itself when introducing the outsourcing model of cooperation can be arranged in three main groups – financial, organizational and personnel.

Financial: reducing investments by transforming them into assets which allows financial resources for other purposes, in order to be used for fulfilling major organizational tasks; reducing expenses because the outsourcer performs the functions delegated to him more efficiently and more economically than the client organization (theoutsourcee); modifying the permanent expenses into variable ones;
Organizational: increasing the organization’s efficiency by concentrating all resources on its main activity; responding to the increased user requirements towards the acquired product; access to state-of-the-art professional knowledge, skills, technologies and other resources; implementation of innovations; relieving itself of functions which are difficult to manage;
Personnel: providing new possibilities for professional and career development of the employees of the client organization; enhancing the employees’ interest and motivation in performing some functions in spheres which are not within the range of their main activity.

The practitioners claim that the success of each outsourcing project depends on the correct determination of the process objectives and on the quality of the contract management but of substantial importance are also the knowledge of the main organizational processes, as well as the identification of the possibilities for the scope of functions liable to be assigned to a third party. Consequently, the main types of outsourcing[4] can be executed as follows:

Complete outsourcing cooperation in which the employees and sometimes the assets are consigned to a service provider for the term of the agreement;
Partial/selective outsourcing only part of the functions are outsourced and the others remain under the control of the principal;
Joint outsourcing it is based on the established system of partnership relations between the parties. It is used in cases when several suppliers jointly providing a certain service subcontract together a third party/-ies for outsourcing;
Transitional outsourcing it is used in cases when an organization which has developed a team of highly qualified specialists hands over the management of part of its divisions to an outside company;
Transformational outsourcing it presupposes that the outsourcer, by substituting the in-house divisions, manufactures a given product and hands it over to the client. The transformational outsourcing means a temporary transfer of employees and assets to the outsourcer which, after the completion of the outsourcing project, go back again under the client’s full control. In this case the outsourcing services are identical to the services of the usual consultants. The difference is only in the fact that with the transformational outsourcing the provider operates independently of the client’s staff.
Joint venture outsourcing it presupposes the creation of a new company for developing the partners’ future possibilities, the client’s assets being transferred to the joint company and not to the outsourcing service provider. The purpose of the outsourcing scheme is not only to improve the operational quality of the transferred division but also to manufacture products which will be sold to external clients. At a later stage the provider and the outsourcing service clients can use their resources for creating new products and the principals can share the expenses connected with its development. The joint venture gains some advantage because of the client’s specialized knowledge about the market.

Today in Bulgaria, as well as worldwide, the tendency of widely using the outsourcing in all fields and divisions of economy is gradually establishing itself. The main application trends of outsourcing are business process outsourcing, IT outsourcing and task outsourcing:

Business process outsourcing (BPO)  this is a concept based on specific tasks (for example: issuing of payroll sheets). BPO presupposesoutsourcing of processes which are not central, e.g. human resource management, accounting, marketing, advertising, logistics. This form of organization features the most dynamically developing trend in which the outsourcing of administrative functions and the financial and accounting outsourcing demonstrate maximum growth.
Back office outsourcing  in-house organizational functions like invoicing, purchase of goods
Front office outsourcing  servicing and dealing with clients, marketing, technical maintenance
Information technology outsourcing – (ITO)
Knowledge process outsourcing – (KPО)

In practice the outsourcing in the Republic of Bulgaria is considered a special type of a public-private partnership (PPP) whose objective is to create a partnership between representatives of the central/local authorities and the private sector which enters the contractual relationship as a service provider or as a source of their co-financing. The introduction of the PPP and the outsourcing as mechanisms for more efficient management and application of the principle of partnership between the private and the public sector has been defined as a state policy priority which has also been proved by the formulation of the priority axes in the Operational Programme “Administrative Capacity”. This programme is a strategic document for modernizing the Bulgarian administration within the period 2007-2013. The history of practicing the PPP in Bulgaria started only at the beginning of the 1990-ies since it was then that the private sector was born and started to develop. The Commission has assigned the private sector some key functions within the PPP framework:

providing additional capital;
providing alternative and specialized managerial and performance skills;
providing added value to users;
optimal use of resources.

A specific element determining the nature of public service outsourcing is the problem with the responsibility for the quality of the end product provided for public use. The leading opinion is that the public administration does not abdicate from its obligations although it transfers some of its services and activities to an external provider. The civil society and the business do not hold responsible the engaged private partners but usually place their expectations, requirements and criticism on the public institutions themselves. Practice has shown that most public services in the Republic of Bulgaria are provided to the end user (the citizens and the business) by the municipality administration. This is the reason why the various application aspects of the public service outsourcing are generally concentrated at municipality level.

The limited budget financing, inherent to public organizations, presupposes no possibilities for investments and respectively – provision of public services with quality which does not meet the expectations of the citizens and the business. The inability of the public sector to perform public services in general or with the expected quality, as well as the existent obvious shortcomings in the infrastructure of the Republic of Bulgaria engender the clear need for cooperation between the public sector and the business. The transfer of control of public property to the private sector presupposes an increase of competitiveness, economy of public resources and improvement of the public service quality as a whole. The partnership between the state and the municipality administrations and the business is achieved through the application of cooperation models aiming at improving the management of the public infrastructure and at providing services of public interest. Figure 2presents schematically the participants in the public service outsourcing process (considered as a variety of PPP) and describes the relationship between them.

The subjects of public service outsourcing are municipalities, tradesmen and trading organizations, cooperative societies, non-profit organizations.

The public service outsourcing is a contractual relationship between the public administration and private sector representatives. The specificity of the public services provision process though outsourcing is that the assignment is supported by public financing and the contract is concluded in a situation of competitiveness and transparency (Figure 1). Thus the skills and assets of the parties concerned are united in providing facilities and services for satisfying the society’s needs. Besides distributing resources, each of the contracting parties takes potential risks (whose weight is heavily drawn to the private sector) and remuneration in providing services and facilities. The assignment of public services to external providers does not mean abdication of the municipal administrations from delivering them. On the contrary, they continue to be responsible for the public services rendered on the municipality territory but their role has changed from the engagement to provide them directly towards exercising control and working out policies and managerial strategies for developing these services. The most important moment in the contractual relationship is that the cooperation serves for providing services by private partners to the society as a whole.