Outsourcing and off-shoring are widely used terms and aspects where many companies are dealing with. Yet it is still a challenge to implement an outsourcing project. Many of them fail or stop at the preliminary level. To contribute to the discussion this article shows some basic aspects that you should be aware of before you start such a movement.
To define outsourcing we could say that it is removing part of an activity that has been done internally to a third party. The best outsourcing deals are those where both parties benefit; The outsourcer benefits because of the energy that could be focused on elements that the company is better equipped for. The in-sourcer benefits because of the economies of scale. There are many other aspects, but this is one of them.
What many companies forget is that if you outsource some activities you will insource others. If you company has not dealt before with outsourcing, it also has not been dealing with insourcing of new activities. This insourcing comes from doing things differently. When you previously have been self-producing – autonomously – after the outsourcing, you let someone else do these activities.
This means:
- You should change the culture from DIY (Do it yourself) to LFO (Lend from others): Concentrate only on activities where you think you are the better than others. The resistance you can encounter is from the people who have been engaged in these activities. The question is how you objectively know that others are better (in terms of quality-price-ratio).
- In line with the first point the insourcer will never produce the same your own companu has been doing. You will move to a market-conform situation where the insourcing company defines how they serve other companies in the market. You just have to settle with this functionality or in a few case you will be able to tailor your request. This, however, will present the problem that the cost of the outsourcing activities will rise.
- Change your management approach. Where you have been managing on output in the first case, you should manage on service-levels in the second case. Defining such service-levels is difficult if you do not have them in the current situation. Normally when you have an internal service level agreement you should be able to translate this to a third party. If your internal management approach has been to manage on best effort, you will have a problem setting the right metrics for the insourcing company. If you set the service level too low the insourcing company is profiting on your expense, if it is too high you will not be able to keep up with the former quality.
- You must train, coach and control people on the quality of controlling others rather than execute a specific job themselves. This is a different quality that requires different competences. You should examine beforehand how many role-changes this will bring.
Altogether the effect on the style of your organization is big. You cannot do different things without doing things differently. This impact on style is often overlooked.
Outsourcing is a very complex project. You can overcome the above problems if you start with a high-level overview of your business (capabilities) and presenting an overview of the effect the outsourcing will load the company with. If you take a well over-thought decision with figures that support the change you will save yourself a lot of problems on the way.
A first good step to outsourcing would be to treat the specific organization as would it be the sourcing company. Once this provides a beneficial result, a next step could be considered. In the mean time check whether the style 'move' is credible.
H.J.Bool www.astorwhite.com
