Business:
The Ultimate Resource
Introduction by Daniel Goleman
Published by Perseus Publishing
August 2002; 0-7382-0242-8
Deciding Whether to Outsource
Definition
Outsourcing is increasingly understood to mean the retention of responsibility
for services by an organization while the day-to-day performance of those
services is devolved to an external organization, usually under a contract with
agreed standards, costs, and conditions.
In this checklist the organization considering outsourcing
some or part of its functions will be called the "Organization"; the external
organization designated to take them on will be called the "Agency."
Advantages
The Organization generally makes the decision to outsource for a number of
reasons, including:
cost and efficiency savings
greater financial flexibility through reduced overhead
operational flexibility and control through contractual
relationships
a wish or need to focus on core activities
access to better management skills for non-core
activities
staffing flexibility
Disadvantages
Outsourcing can:
reduce corporate robustness by changing support
functions;
require considerable care in coordinating information
flow with the Agency;
reduce the Organization's learning capacity by
depleting its skill base;
impair the Organization's ability to integrate
processes;
compromise the Organization's control over the
functions that are outsourced;
damage morale and motivation as jobs appear to be lost;
increase employees' insecurity, whether staff remain in
the Organization or are hired by the Agency.
Action Checklist
1. Create a Project Team Treat the outsourcing proposal like a project. Select a project leader and
team, establish terms of reference, a method of working, and an action plan.
2. Analyze Your Current Position Ideally you should have conducted a radical review of the Organization's
processes -- you don't want to outsource a function that might be better
integrated with one of your core activities. Maintaining a clear vision of where
the business is going, make sure you evaluate:
what advantages you can gain by concentrating on care
services;
the minimum corporate involvement necessary to perform
functions that don't affect the customer;
how much control you require over nondiminishing,
nonproductive overheads;
which functions are more viable operated by an external
agency.
3. Pay Attention to People As the contract stage approaches, your staff will suffer from anxiety and
uncertainty. At best their working life will be transferred from one employer to
another, at worst their job could be lost. Keep your people's welfare at the
forefront of your thinking.
4. Benchmark Someone somewhere is probably doing the same thing that you are in a better
way, or in the same way at lower cost. Identify appropriate organizations to
benchmark against, and establish which activities they are outsourcing.
5. Come to a Decision Identify your core areas -- Tom Peters says, "Do what you do best and
outsource the rest." The principal questions are:
What is core to the business and to the future of the
business?
What can bring competitive advantage?
Then decide whether outsourcing should become
Organization-wide policy for non-core areas or whether it should be used only as
the need arises.
6. Decide What to Outsource Logically, what to outsource follows from the decision process. If you focus
on the core competencies of the Organization, on your uniqueness, then targets
for outsourcing become the support, administration, routine, and internal
services of the company.
Areas that have traditionally been subject to outsourcing
include legal services, transportation, catering, printing, advertising,
accounting, and, especially, auditing and security. More recently these have
been joined by data processing, IT services, information processing, public
relations, buildings management, and training.
7. Tender the Package The tender is an objective document detailing the services, activities, and
targets required as well as a selling document designed to attract Agencies that
can add to the Organization's capability. Outsourcing is not just a matter of
getting rid of problem areas.
Once you have defined an attractive package, send an
outline specification and request for information to the Agencies that are
likeliest to be interested. The outline specification should contain the broad
intention of the outsourcing proposal and the timescales the Organization has in
mind.
The request for information is a questionnaire type
eligibility test intended to establish the Agency's competence and interest. The
second stage is the invitation to tender, a precise document that spells out
exactly what Agencies are required to bid for.
8. Choose a Partner The tender process should be used to evaluate facts, but choosing an
outsourcing partner is much more than choosing a supplier, because the process
involves a customized service, agreement on service levels, and a contract. At
this stage the Organization is looking for an Agency with which it can agree on
objectives and values, hold regular senior management meetings, and share
otherwise confidential information. Harmony of management styles is a key
requisite for success.
9. Introduce Your Staff to the Agency Members of your staff scheduled for transfer to the Agency should meet their
new management before any contracts are signed. Allowing employees to air their
concerns may help to reduce the feeling they are being dumped or cast aside. On
the other hand, glaring conflicts in style and personalities may emerge that
could affect the contractual stage. Address other issues of terms and conditions
of employment including appropriate compensation if Agency employment is not
available or not required.
10. Draw up the Contract If the project team draws up the contract, provide appropriate legal input.
The contract should spell out:
the minimum service levels that the Agency will
provide, checks and controls that these are met and medics or financial
compensation if they are not;
the demarcation of service responsibilities and
boundaries so that both Organization and Agency are clear on who is doing
what;
who owns what in terms of equipment and hardware;
the fate of the staff to be outsourced and details of
their terms and conditions of employment;
flexibility and allowance for change, for example, if
the volume of business changes radically;
a contract term with a review date and a provision for
the outsourced function to revert to the Organization;
a trial period before the contract becomes binding.
11. Test the Contract Make certain that the contract will stand up to the rigors and complexities
of actual operation. A trial period is ideal for making adjustments before the
contract becomes final and for judging the likelihood of the partnership
breaking down.
Dos and Don'ts for Deciding
Whether to Outsource
Do
Have a clear vision of what outsourcing should achieve.
Understand the scope of the services to be outsourced.
Outsource the performance of a function, not the
responsibility for it.
Don't
Don't outsource strategic, customer, or financial
management.
Don't let the goal of cost savings dominate everything
else.
Don't think that outsourcing is the answer to every
problem.
Thought Starters
Have you defined the core areas in which you need to excel?
Do routine and support functions consume an ever larger slice of overhead?
Will outsourcing be an extension of your organization's operations or an
innovation?
From Business: The Ultimate Resource Copyright 2002 - Bloomsbury Publishing
Plc. All Rights Reserved. This [excerpt] may not be reproduced, copied or
distributed in whole or in part, in any manner, or by any means, without the
prior written permission of Perseus Publishing, Cambridge, MA
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Business:
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