Public sector outsourcing continues to be big business.
The outsourcing of public services is not going to go away. Certainly not in the current political climate. With this in mind, this makes it even more important that we understand the psychological impact of outsourcing on employees. By understanding the impact, organisations and HR professionals can better support employees and thereby, ease any transition.
The researchers, Ivan Mitchell and Phil James, were concerned at how past studies tended to focus on the impact of material changes to employment conditions, rather than the lived experiences and responses to changes by employees. They also found that such studies tended not to look at the impact of a move from one context (i.e. public sector) to another (i.e. private sector).
The main critique, at the heart of Mitchell’s and James’ research is that, “Outsourcing is often conceptualised as an event rather than an ongoing process…”
The researchers used a longitudinal approach to explore the experiences of employees being outsourced from council leisure services to a privately run leisure trust. They interviewed 85 managers and employees from three UK councils (one district, one borough and one unitary). Two sets of interviews took place – the first was three months after the outsourcing contract started; the second between 10 and 12 months after transfer to the new provider.
One study Mitchell and James cite looked at the range of factors which influenced employee responses to a move from a large NHS Trust and a London Borough council in to private sector organisations. The study found that prior work ethos, what material changes were made and how they were made, along with the extent to which an individual personally benefited from the transfer all influenced how positively or negatively a person would report on the changes.
With this in mind, they used a three-phase analytical framework within which to explore the experiences of employees, namely:
- The employee experience from the moment they discover work is likely to be outsourced through to actual award of the contract to a new provider;
- The initial, early employee reactions to the transfer experience; and
- Employee reactions and reports once things have settled down, becoming firmer and clearer.
Key theories and concepts
Social exchange theory: This was developed by Peter Blau in 1964 and differentiates between the economic and socio-emotional aspects of the employment relationship.
Temporal transition framework: Developed by Lynn Isabella in 1990, this framework suggests there are four phases employees go through during change. These are (i) anticipation (ii) confirmation (iii) culmination and (iv) aftermath. Access the original research here.
Three-stage model of change: Developed by Kurt Lewin in 1951, in his book ‘Field theory in social science’, this is one of the most well-known models. It suggests three phases of change, (i) unfreezing the current context (ii) changing to a new context and (iii) freezing the new context.
Transition cycle: A concept developed by Nigel Nicholson, and detailed in the book ‘On the move: The psychology of change and transition’. It suggests there are four phase in the transition cycle which are (i) preparing for changes (ii) encountering the changes (iii) adjusting to the changes and (iv) stabilising the changes.
Transition model: Developed by William Bridges, this model suggests three phases of change (i) ending the old ways (ii) the neutral phase and (iii) new beginnings. If you’re involved in leading change then Bridges’ book is a must to invest in.
Findings in the pre-transfer phase
- Communication was often felt to have been insufficient which led to increased feelings of uncertainty among employees.
- The information provided was not always understood by staff.
- People tended to be worried about how they would fit in to any new structure. This was exacerbated by feeling that the local authority no longer wanted or valued them.
- Wider organisational changes impacted feelings of insecurity and morale. For example, changes to structures and pay.
- Employees perceived that line managers did not put enough support measures in place.
- Majority of respondents felt that outsourcing would offer better career prospects, training and development opportunities and a greater likelihood of internal progression.
The researchers go on to say, “The long-term implications of outsourcing for employees will be influenced by the events and changes experienced during the initial outsourcing process”.
Findings in the post-transfer phase
- Employees reported stricter performance standards by the new employer. There were mixed reactions to these tougher processes, targets and expectations. Some employees saw it as a positive, with a shift toward increased professionalism and prestige; and others seeing it as a negative, although this was often based on how these changes were implemented.
- The nature of the work intensified, with additional responsibilities for both managers and non-managers. This was sometimes perceived as arduous and unfair.
- There were reports of increased tensions between management and employees in the initial months after transfer. This was to do with the ‘how’ changes were implemented and people were managed, with a ‘carrot and stick’ approach in place leading to a culture of fear in some instances.
- Managers reported that changes to culture and the employment relationship were necessary in order to improve performance and service delivery.
Longer-term post-transfer phase
- Lots of employees reported that things had not quite transpired as they originally expected or wanted. For example, career development and training and development had not happened quite in the way that was foreseen.
- Some interviewees were positive about what the future might hold. This optimism stemmed from a belief that there had been an increase in support and professionalism.
- The employment relationship was more emotionally based during the post-transfer phase for a number of staff, suggesting a shift in identity and attachment from the old (council) to the new (commercial provider).
- Managers from the leisure trusts, i.e. who had not originated from the local authority context, were seen as more supportive, consistent and professional. They were also seen as taking more time to engage with employees.
- Those employees who embraced the new ways of working had a more positive psychological transition toward the leisure trust’s management approach.
Suggestions for organisations and practitioners
Communication and engagement strategy needed for each phase of outsourcing. Suggested phases would be (i) initial – from announcement of possible outsourcing to securing vendor (ii) pre-move – in the months running up to move from old organisation to new (iii) new world – the first six months after move and (iv) settling in – the six to 12 months after move. The approaches used will vary at different stages.
Involve employees more in the decision to outsource. Part of the reason that people kick back at outsourcing announcements is fear. This is about feeling a lack of control over what happens to them and their lives. By inviting discussion and ideas about new possibilities as early as possible, organisations are less likely to experience some of the hurdles associated with employee resistance to change. I know of one public sector organisation who invited some staff to be part of the tender process. This had a significant impact on employees feeling like they had a stake in their future.
Build relationships between the new organisation and employees early on. Sites like Glass Door will fill the vacuum if you don’t proactively put things in place. This should really be in the months from the vendor being chosen through to employees moving to new organisation. Approaches that work include:
- Site visits to facilities already run by the new vendor elsewhere.
- Forums and presentations with staff and managers from the new vendor.
- Buddying, where a public sector employee is paired up with someone who already works in the new organisation.
Ensure line managers have skills needed to help deliver all phases of change. This is about managers having a deep understanding of motivation and morale; being able to have difficult discussions in a constructive way; and really listening to their staff. The researchers state that “Increased levels of support, appreciation and consistency provided by line managers appeared to aid employee acceptance of new performance approach”. I’ve always found that middle managers, in particular, can make or break change. Investing time and effort with them so that they, in turn, can invest time and effort in their staff is crucial.
What have been your experiences of outsourcing? What are the approaches you’ve found have helped employees experience an easier, less painful transition from the old to the new?