I recently ran across an article entitled “Insourcing, the new outsourcing…”, when will people learn that knee jerk reactions are not good long term strategies? It should not be an either or question but one of balance. There is no doubt that there are significant benefits to well-run insourced departments, just like there are significant benefits to well-run outsourced departments. Based on that logic however, there are just as many, if not more, poorly run outsourced departments as there are insourced departments. Businesses are held hostage to the limitations each sourcing strategy promotes and the poor management that enforce it. I thought it would be useful to share some of the lessons I have learned over my extensive career in leading outsourcing initiatives and would welcome any additional tips, tricks or corrections you could pass on to the community.
There is WAY too much to cover in one blog post. Even in the three planned, I will only endeavour to describe the tip of the iceberg:
- Part 1: Misconceptions associated to outsourcing
- Part 2: Tips to delivering successful outsourcing arrangements
and finally
- Part 3: Benefits that can be achieved through outsourcing
Please contribute your thoughts to this blog, items you might find obvious may be revolutionary to another reader.
Part 1 of 3: Misconceptions associated to outsourcing
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Outsourcing is cheaper
- This CAN be true, but it is not necessarily so. The last two outsourcing arrangements I led were not driven by a reduction in the operating costs but to quantum leap the current core policies and procedures (processes), and to boost project staff to potentially limitless capabilities. Remember, you get what you pay for skills (including language), process and flexibility.
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Contract negotiations are the most important
- There is no such thing as a win/lose contract. If you think you are winning in the contract negotiations, the other party will only take what they feel they are entitled to later, thus destroying the relationship before it has even begun.
- A good contract can make all the difference when things go bad for both parties. But remember, a supplier contract should be thought of in the same light as an employment contract, the moment you bring out the contract, the relationship is over.
- This relationship, like all relationships, is a long term commitment and requires a conscious effort on both sides every day to ensure it continues to be a success.
- Threatening references to break clauses or penalties in the contract should be avoided at all costs until all other avenues have been exhaustively reviewed and you are willing to exercise those exit clauses permanently.
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Outsourcing sends work to foreign lands
- More often than not, this is not the case, it just happens to be the one that gets the most publicity and recognition by your customers and staff. Most companies use all or some of the following services from an external supplier:
- Gardening
- Facilities
- Catering
- Hospitality
- Security
- Accountancy
- Legal
- IT
- More often than not, this is not the case, it just happens to be the one that gets the most publicity and recognition by your customers and staff. Most companies use all or some of the following services from an external supplier:
The majority of people would not associate these services to be provided by an outsourced service provider as long as they were performed by someone who could potentially be living next door, but in reality, that is exactly what they are. Internationally there is a negative connotation associated to foreign businesses providing outsourcing services with foreign labour, termed as offshoring. In order to continue operating in today’s highly competitive global market and provide comparable products to their customers from their competitors, companies are sometimes forced to look internationally to procure and receive some of their services.
These are my thoughts, do you agree? I, as well as many of the other readers, would be interested to read your opinions. The prospect of Smart Sourcing or outsourcing appropriate levels of services to third parties to achieve the best outcome for your business is something that Willard Enterprises specialise in. If there is something I can do to help your business or someone you know achieve their next challenge, please contact me for more information.
…Next week part 2 of 3, I review some tips to delivering successful outsourcing arrangements.
You have “hit the nail on the head”. Out of the 3 parts that you planned for, the toughest one may be this. And i personally feel that you have penned this one down with a lot of grace.
I am eagerly waiting for the part 2 and part 3. Evolving in an outsourced world, I have something to contribute to those sections. Looking forward
Some data I have gathered over the past couple of decades outsourcing, insourcing, outsourcing and now insourcing in different parts of the world both on the advisory, customer and provider sides: A little crude but maybe a useful start?
Rule 1)
Spend time understanding your current operation, metrics, culture, stakeholders and look to develop:
a) Current Operating Model (People, Process and Technology)
b) Target Operating Model
c) Balanced scorecard of key performance measure tied to both a) an b)
Rule 2)
Think CAREFULLY about outsourcing critical business processes – there a range of models from support, through shared services through onshoring to offshoring – chose the RIGHT construct for the mission criticality of the process.
Rule 3)
Transform before outsourcing – take 15%+ out of your cost base, tidy all the operating procedures and sort out training to maximize benefit and minimize the upside to be delivered through outsourcing.
Rule 4)
Look for performance delta of 10%+ post outsourcing (over time) but expect a dip in the early stages
Rule 5)
Focus on Knowledge Transition – the better you do this, the better the arrangement will be
Rule 6)
Don’t move more than 70-80% of business process offshore – depending on business process there are a number of models but with those that require some degree of customer interface, the need is to make a seamless transition between offshore and onshore. For example our Program Management as a Service offering ranges from 30% to 70% onshore depending on the type of services needed and the degree of mechanization that can be achieved along with the maturity of the client business
Rule 7)
Bring offshore staff onshore before agreeing to offshore. Making them part of the local team, understanding the culture is the KEY area that is often not budgeted for.
Rule 8)
Expect outsourcing to take MUCH more (assume 100%+) effort than you think it will at the early stages – staged benefit release is critical along with ramping up the service levels over time. Most deals I see assume an IMMEDIATE performance and cost improvement – this TAKES TIME and PERFORMANCE is across the BALANCED SCORECARD – not just “cost reduction”
Rule 9)
When choosing an outsourcing partner – look for an organisation that can handle pre-outsourcing transformation as well as the post-outsourcing improvements that has a heavy emphasis on CHANGE MANAGEMENT, KNOWLEDGE ACQUISITION and a BROAD VIEW OF PERFORMANCE with a strong PROGRAM MANAGEMENT capability that can handle the complexities of the people, process, performance and technology issues you will face.
Rule 10)
Look for STRETEGIC ALIGNMENT between your business and the outsourcing provider – are they just a passive partner or will they brig true added value to the relationship to help transform and improve the REST of your business.