What to look out for when outsourcing jobs.
In my last blog I went into the details of why a company would decide to outsource. It is really important that you understand the advantages and disadvantages of outsourcing (and there are both) before embarking on a program to bring in other companies to help run parts of your business.
It may sound astonishing that companies launch into an outsourcing program without really understanding why they are doing it but believe me, it happens.
Previously I covered the technical advantages and disadvantages of outsourcing. In this one, I will cover off human and strategic factors. In part three, I’ll explore the financial factors and present with some examples of how outsourcing went wrong, so you can make sure it doesn’t happen to you.
What are the human factors?
The human factors to outsourcing are often talked about, but in reality, are put in the shade by the other factors. However, clients are human, outsourcers are human and customers are human too so this area should be front and centre of any outsourcing decision.
What are the human factors to take into consideration when outsourcing jobs?
Transfer of Undertakings (Protection of Employment) Regulations or TUPE for short
One of the first things to take into account is how legislation impacts on staff. In the UK we have TUPE and in Europe, the Acquired Rights Directive. Both of these relate to the rights of staff when transferred from one employer to another and have a huge impact on outsourcing both from a financial and from a staffing perspective.
From a financial perspective, you need to take into account the liabilities for accumulated employee rights. From a staffing perspective, you need to appreciate that even after the function is outsourced, it may still be provided by much the same people as they will have transferred over to the outsourcer. The acquired rights legislation is aimed at the outsourcer but ultimately impacts on the client. It isn’t something you can ignore.
Quality of staff
There is some argument that outsourcers can recruit and retain better quality staff. This is mainly due to the specialised nature of their business and that specialisation offers a better career path for people with that expertise. A specialist in cloud computing will find more opportunity to work in that area in an IT outsourcer than they may do in a manufacturing company that uses cloud computing. The downside for the client in this is that the specialists will move around different clients rather than staying dedicated to one client for the duration of a contract. This does dilute the benefit but the specialists are still there in the outsourcers organisation so can be called on for assistance if needed. You are also not bearing the full-time cost.
Keeping people motivated
In a similar vein, staff motivation can be higher for staff in outsourcing as they are working on cutting-edge technology in strong teams of similar specialists. A specialist outsourcer can also afford to invest in better training as the cost is split over a larger number of employees and the benefit is more specific to the business.
As well as specialist skills in running a service, an outsourcer can bring specialist skills in implementation and transformation. That may not be something that the client staff have much experience of but it is a regular challenge for the outsourcer.
Make sure you have buy-in
One of the much overlooked human areas in outsourcing is stakeholder buy-in and client engagement. In the first part the resistance to change will be much less if stakeholders are inside and in the latter, the change will be much harder if the client steps back and lets the outsourcer handle everything. As I am constantly reminding people, even if you outsource something, it is still your business and your responsibility. The client needs to manage the supplier and help back them up with help to smooth any transition and any future issues.
Are you ok with losing control?
One of the downsides to outsourcing is the client loss of expertise and control. Staff will be transferred out to the supplier, will not be working directly for the client and may be working from supplier premises. This all adds up to barriers between the client and the staff working on the client’s business.
Is it a tactical or strategic decision?
The whole issue of loss of control is a wider issue in outsourcing and, although it can specifically relate to staff, it impacts the strategic goals of outsourcing. One of the things I am often telling people is that outsourcing should be part of a strategy to a greater or lesser degree. Less so if the function you are outsourcing isn’t key (say office cleaning) but more so if it is core to your business (which usually covers things such as accounting and IT). When National Rail Enquiries (NRE) embarked on a program of multi-sourcing it was principally to give it flexibility. That came out of a strategic goal to be able to move quickly as user requirements changed from the call centre to internet, to mobile internet, to app etc. Your strategy impacts on what and how you outsource not the other way round.
Key to the NRE policy was the goal of a quick “time to market”. Outsourcing allows clients to buy in already developed systems and technologies, reducing development time and taking a good deal of risk out of the development. It also makes it easier to drop out of date technologies and move on to other suppliers.
One of the strategic outcomes I have seen is that the outsourcing process can sometimes give a business a better understanding of their own processes. The whole act of going to tender forces a company to document what it does and what outputs it needs from various functions and that, in itself, can prove beneficial.
Are you picking a partner or a supplier?
Picking the right supplier is a key strategic goal of outsourcing. Not only do you need to satisfy yourself on the technical, financial, process understanding, resources and track record of the supplier but you also need to think of the future. Is this the type of supplier we can work with? If your business DNA is about flexibility you may need a supplier that can not only operate in that environment but also help bring the best out of that approach.
If your business is built around strict adherence to contracts and KPIs then you may want a supplier who fits that approach. Outsourcing allows you to chop and change suppliers but you should be doing that because your needs change rather than because you don’t get on with the supplier. Make sure you pick the right one first time and that isn’t just a decision based on their tender.
Outsourcing functions can also help with strategic focus. By taking away the work to support functions of your business you lose a lot of the clutter and that allows you to concentrate more on your business and business strategy.
Outsourced or not outsourced it is still your business.
However, outsourcing does increase third-party dependency. You become more reliant on others and that requires a level of management resource and expertise to manage. Outsourcing is generally not a “fire and forget” process and you do need to maintain a high level of involvement in how your suppliers are delivering services.
In my next blog, I will cover off financial factors to be considered (it isn’t just cost) and go over some of the pitfalls and how to avoid them.