Outsourcing and its cousin outtasking have become both dirty words and "Holy Grail" in business today. The difference is brought about primarily by the approach senior management chooses to follow in the study and implementation of outsourcing.
The truth is that both have been with us for a long time and both can be useful devices for reducing costs and focusing on core business functions. Both management and employees can benefit from an outsourcing program that is both properly studied and implemented in an open and honest fashion. Too often, however, management studies this in secret and then "springs" their decision on the hapless employees who have no choice but to leave or surrender.
Benefits and Losses to Each Side Could Be:
Management
1. Positive: increased focus on the core business
2. Positive: reduced service costs
3. Positive: greater flexibility in staffing levels
4. Positive: possible increased levels of professionalism in the service functions
5. Positive: in some firms, this provides an opportunity to remove some "overpriced/underworked" employees that should have been dealt with years ago
6. Negative: loss of company staff competency in the service function
7. Negative: bad impact on employee morale in the firm
8. Negative: regardless of the quality of outsource firm management, there will be a shift in loyalties of the employees from that of being loyal to the client firm to that of the outsource firm
9. Negative: new need to focus on contract management, especially the supplier tendency to "low ball" initial bids and later raise rates, once client dependency is assured
Employees
1. Positive: better advancement potential within the service function (in the outsource firm and its other clients)
2. Positive: increased training and recognition opportunities
3. Positive: employees who understand the needs and dynamics of the client's business will be valuable to the outsource firm
4. Positive: employees in the client company are now able to focus on the core business and advance arena
5. Negative: probable immediate reduction in salary and benefits with the outsource firm
6. Negative: probable reduction in number of positions remaining at the client location
HOW DO YOU STAY AHEAD OF THIS POTENTIAL PROBLEM?
Remember that the "management view" usually means: the focus is on the core business and that business support and support services are "not integral" to the core business; cost control is most important, especially those related to employee costs and benefits; senior management will always do what it wants to do; often choosing to believe an outsource supplier salesperson rather than the inside manager. This is especially true if the inside manager has no track record of cost control, improvements or innovation.
The services manager must work to influence management perceptions before an outsourcing proposal is made. You want to take actions which will reduce you (and your firm) as a target for outsourcers. Here are some things you can do:
UNDERSTAND THE OUTSOURCE SUPPLIERS
Some of these are generalists, who take large-scale functions and essentially trade their (lower paid) employees for yours. When these guys arrive, whole departments disappear. They usually do not introduce or provide new technology or improved operations. Others are specialists who have become experts in certain functions and provide the needed equipment, training and services to clients.
Stay abreast of developments in your services industry. Learn about the outsource suppliers. Seek out and talk with their clients. Generally, if you buy specialist services (where appropriate), you reduce the opportunity of the generalist outsourcers to use their larger scale advantages against your company. And you will have improved services in the selected functions at reduced costs.
WHAT DO YOU DO IF AN OUTSOURCE STUDY IS INITIATED?
Don't panic... be positive and be involved! Even if it hurts. Be sure that senior management clearly defines the core business and understands the role of the business support function to that. Sometimes, the support function is very "mission critical" to the basic core business and should remain within the firm. This would retain needed skills, protect company assets and information and ensure inclusion in the company planning process.
Clearly identify the objectives and scope of the study. Try to have a balanced study task force established, which will investigate the situation. Include knowledgeable financial staff, representatives from your major clients and staff from your department.
Be sure to check credentials, qualifications and references of the outsource firm(s) and management. All outsource firms should supply a customer list, an ex-customer list, an explanation of their metrics (customer satisfaction, average length of engagement, average employee tenure, salaries and grades of employees, employee training programs, employee benefits).
Find out what happened when it didn't work! That is, talk with the ex-clients of the outsource firms. (No company keeps 100% of its customers). Be sure that your task force interviews the outsourcer's clients who no longer retain them. Find out what attracted them in the first place; did the outsource firm live up to its claims, when the arrangement came apart and was the separation handled professionally; did the client firm help restart an internal department or help select another outsource firm; what were the impacts of the separation on operating costs, customer impact, service levels?
Clarify specific (and measurable) operational differences/improvements, which are being proposed by the outsource supplier. Advise your employees of the study! They will find out anyway, so be open and above board about this. The study may show that outsourcing is NOT a good choice. You may also identify some areas for continued improvement and benefit from the dialogue with senior management.
WHAT DO YOU DO WHEN THE OUTSOURCING DECISION HAS BEEN MADE?
Once again, keep your cool and be positive. If you do have to implement outsource operations, the key is management. Define goals and measurements, then monitor and manage! Encourage both an open and honest process. Encourage senior management to devise policies, which will "keep the employees whole" and be generous. This will pay dividends with the morale of remaining employees. Advise the employees that the change is being planned.
Develop policies and procedures to identify employees who wish to remain with the firm in other jobs. Work with the human resources group to transfer them to appropriate positions whenever possible. Set generous deadlines for this. For those employees who wish to remain in the service function, after transfer to the outsource firm, develop a job and salary protection plan for them.
Identify employees who would be good candidates for promotion or transfer within the outsource firm and work with the firm to achieve this, hopefully as a part of the contract requirement.
Be prepared to deal with those employees who develop a negative or even combative, disruptive attitude. These employees should be dealt with quickly. Work with the outsource firm to develop a solid transition plan. Include jobs and tasks covered, training for employees, the physical conversion, equipment ownership, etc.
Ensure that adequate cost and performance measures are included in the outsource contract, as well as frequent service reviews. Be sure that you manage and report the supplier performance on their "promises made." Always remember, if you do nothing and wait until the outsourcers show up, you will see "the kiss of death."
David Borck has over 25 years of management experience. He may be contacted by e-mail at davidborck@aol.com.
