What to look for when outsourcing works.
In my last blog, I went into the details of why a company would decide to outsource. It is very important that you understand the pros and cons of outsourcing (and both) before starting a program to bring in other companies to help drive parts of your business.
It may seem surprising that companies launch in an outsourcing program without understanding why they are doing it, but believe me it's happening.
Earlier, I covered the technical advantages and disadvantages of outsourcing. In this I will cover human and strategic factors. In Part Three, I will explore the economic factors and present with some examples of how outsourcing went wrong, so you can make sure that it does not happen to you.
What are the human factors?
The human factors of outsourcing are often talked about, but in reality they are put in the shadow of the other factors. However, customers are human, outsourcers are human and customers are also human so that this area should be the front and center of any outsourcing decision.
What are the human factors to consider when outsourcing works?
Business Transfer (Employment Protection) Rules or TUPE for Cards
One of the first things to consider is how the law affects employees. In the UK, we have TUPE and in Europe, the directive on the acquisition of rights. Both of these are about rights to employees when transferred from one employer to another, and have a major impact on outsourcing both in economic and manpower.
From a financial side, you must take into account the obligations of accumulated employee rights. From a crew perspective, you must appreciate that even after the function has been outsourced, it can still be delivered by much the same people they will transfer to overall. The acquired rights legislation is aimed at outsourcing, but ultimately, the client is affected. There is nothing you can ignore.
Quality of Staff
There is some argument that outsourcers can recruit and retain better quality personnel. This is mainly due to its specialized business, and the specialization provides a better career path for people with that competence. A cloud computing specialist will find more opportunities to work in that area of an IT outsourcer than they can do in a manufacturing company using cloud computing. The disadvantage of the client in this is that the specialists will move around different customers, rather than being dedicated to a customer during the term of the contract. This dilutes the benefit, but the specialists are still there in the outsourcers organization, so it may be asked for help if necessary. You also do not carry full-time costs.
Keep People Motivated
Similarly, employee motivation may be higher for outsourcing employees, as they work on state-of-the-art technology in strong team with corresponding specialists. A specialist consultant can also afford to invest in better training as the cost is shared across a larger number of employees, and the benefits are more specific to the business.
In addition to specialist knowledge in running a service, an outsourcer can bring specialist skills in implementation and transformation. It can not be something that the client staff has a lot of experience with, but it is a common challenge for outsourcer.
Make sure you have purchases
One of the most ignored people in outsourcing is stakeholder procurement and client engagement. In the first part, resistance to change will be much less if stakeholders are in, and in the latter the change will be much more difficult if the client returns and allows outsourcer to handle everything. As I still remind people, even if you outsource something, it's still your business and your responsibility. The client must manage the provider and assist them in solving any transitions and future issues.
Are you okay to lose control?
One of the disadvantages of outsourcing is the loss of expertise and control. The staff will be transferred to the supplier, will not work directly for the customer and can work from supplier premises. All of this adds barriers between the client and the employees who work with the customer's business.
Is it a tactical or strategic decision?
The whole question of loss of control is a broader issue in outsourcing, and although it is especially related to employees, it affects the strategic goals of outsourcing. One of the things I often tell people is that outsourcing should be part of a strategy to a greater or lesser extent. Less so if the function you outsource is not the key (say office cleaning), but more so if it's the core of your business (which usually covers things like accounting and IT). When the National Rail Inquiries (NRE) launched a multi-sourcing program, it was mainly to provide flexibility. It came out of a strategic goal to move quickly as user requirements were changed from call center to internet, mobile internet, to app etc. Your strategy affects what and how you outsource not the other way.
The key to NRE policy was the goal of a fast "time to market". Outsourcing enables customers to purchase in already developed systems and technologies, reduce development time and take a major risk out of development. It also makes it easier to drop outdated technologies and move on to other vendors.
One of the strategic results I've seen is that the outsourcing process can sometimes give a business a better understanding of their own processes. The entire act of the tender forces a company to document what it does and what outputs it needs from different functions, and which in itself can turn out to be beneficial.
Do you choose a partner or supplier?
Picking straight supplier is an important strategic goal for outsourcing. Not only do you need to satisfy yourself with the supplier's technical, economic, process understanding, resources and record, but you must also think about the future. Is this kind of supplier we can work with? If your business's DNA is about flexibility, you may need a provider that can not only operate in that environment, but also help to get the best out of that approach.
If your business is built around strict compliance with contracts and KPIs, you may want a provider that fits this approach. Outsourcing makes it possible to chop and switch suppliers, but you should do that because your needs change, rather than because you do not go further with the supplier. Make sure you choose the right one time and it's not just a decision based on their offer.
Outsourcing features can also contribute to strategic focus. By removing work to support features in your business, you lose a lot of mess and it allows you to concentrate more on business and business strategies.
Outsourced or not outsourced, it is still your business.
outsourcing increases third party addiction. You become more dependent on others, and it requires a level of managerial resources and skills to handle. Outsourcing is usually not a "fire and forget" process, and you need to maintain a high commitment to how your suppliers provide services.
In my next blog I will cover economic factors to be considered (it's not just cost) and go over some pitfalls and how to avoid them.