Serco Group plc – Offender Tagging Scandal 2013/14
Analysis of Serco Group’s current situation and factors leading to the misconduct of the “offender tagging” contract with the UK government.
Introduction and Current Company Situation
An audit was conducted on Serco Group plc in the first half of 20131 and through this audit, the UK government has concluded that Serco and security company competitor, G4S, have been invoicing and overcharging on their offender tagging service contracts with the government. Serco has agreed to repay over £68m as retribution. The Serious Fraud Office (SFO) opened a criminal investigation into the outsourcing company in late 2013 and is still investigating the scandal.2
Since then, the government has received £68 million from Serco, including VAT, and costs incurred from the investigation. 2013 and 2014 are looking like the toughest years for the company in 25 years. Profits have collapsed by 62%, more than 400 employees have been laid-off3 and the government froze the ability to proceed with or sign any new contracts in addition to substituting the company’s services with UK competitor, Capita.4
In addition, two Chief Executives from Serco left the board of directors in October 2013. The first was Chris Hyman claiming that stepping back from his 11 years would “allow relations with the government to be rebuilt,” and immediately after was Jeremy Stafford, claiming he left the company to “pursue other opportunities outside.” The Cabinet welcomed both their resignations.5
In effect from March 2014, there will be three new non-executive directors appointed; former Bank of England Governor Rachel Lomax, Mike Clasper, and Tamara Ignam. In addition, Lomax will chair Serco’s CSR committee in order to restructure the firm’s internal ethics. 6
Analysis and Causes of Scandal*
*Analysis of the scandal will be viewed as results from poor management and the company not working properly as a whole. Until Serco is convicted for running a scam with lucrative purposes, there is no evidence to conclude that Serco’s actions were taken willingly.
In order to have a detailed and most informative analysis on the root of the problem, it is important to consider every primary & support activity within the firm. Michal Porter’s value chain framework will be the key analytical tool in this report.
In the past 20 years, Serco has rapidly grown by 1200%7. A “majority of growth has come by being seen to deliver results and building long term partnerships with customers” in particular with the UK government, which is also our number one and largest customer8. Serco has always satisfied its customers by performing and delivering excellent services. This is what the company has been known for and where corporate pride has come from. Clearly this most recent “hiccup” isn’t a permanent trait of Serco’s and can certainly be adjusted and avoided in the future. However, in recent years, Serco has suffered a variety of experiences which have damaged the company’s image and reputation. This has also made the public and government question Serco’s Corporate Social Responsibility (CSR) and their business ethics that were adopted by the work force and promoted by highly ranked shareholders.
Serco’s most recent issue has been claimed by the Ministry of Justice to be with the “delivery, invoicing and performance”9 of their tagging service, therefore we can already proclaim that the problems undoubtedly arose from one specific primary organizational activity, Outbound Logistics. This is the primary activity which focuses on the order handling, (in this case, a service and not a good), dispatch, delivery and invoicing. However, within this activity, what support was needed but denied or what support activities failed to fulfil their role?
First and foremost, we have been investigating the technological aspects of the tagging devices and ensuring the quality of our product. Why would the tracking devices still be
