Outsourcing is big business, demand for which is generated in no small part by governments. In recent years, public sector outsourcing has outstripped private sector outsourcing, with public sector organizations around the world spending $10.3 billion in the third quarter of 2013 on IT outsourcing and business process outsourcing, compared with $6.4 billion in the private sector. The top three spending governments are in the U.S., Britain, and Australia.2 Outsourcing creates business opportunities for commercial firms in a wide range of sectors including IT, defense, security, detention and prison service, healthcare, transport, and shared services.
But public-to-private transactions in government outsourcing are rife with reputational risks for corporations. We consider the following. What has motivated governments to outsource their operations and services? What is the logical limit to government outsourcing, that is, are there things that only governments can do? And how can commercial firms balance the opportunities and challenges of providing services that used to be delivered by the government? Specifically, what are the reputational risks for corporate providers, and how is the management of these risks central to the future of government outsourcing? Answering these questions, and understanding what is similar but also different between public sector and private sector outsourcing, is of enduring importance as many companies encounter governments as their biggest clients.
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