outsourcing

How to Make Outsourcing Work

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Moving non-core activities performed in-house to specialists outside the company helping the  business to focus on core competencies and improve performance standards is the main premis of outsourcing. The growth and rewards of this practice can be quite high but the downsides are daunting.

So what are the pros and cons of outsourcing?

The potential from outsourcing and BPO related activities:

  • Savings in terms of cost from labour arbitrage
  • Productivity improvements from access to experienced and up-to-date skills
  • The potential to focus on the core business without the distractions of a difficult function in-house
  • Enhanced access to expertise (but at a cost)
  • Operational cost control as the cost becomes very transparent and controlled
  • Improved accountabilityas you know who is responsible for what service
  • Flexibility to reallocate resources and meet company goals
  • Improved Human Relations management in terms of career development potential for peripheral functions.

As for the downside of outsourcing  the list would include the creation of a dependency mentality coupled with a  lack of innovation and integration with the core business – along with a loss of competitive edge. Outsourcing can garner these ill-effects mainly when used as a short term technique to reduce costs.  To avoid this Outsourcing has to be planned carefully going beyond mere cost control and with carefully thought-out strategies and logistics in place to ensure success. A productive nurturing culture is imperative, especially in the beginning, to set the backdrop for a successful relationship.

How to make the most of outsourcing

Apart from reducing the development time and the cost for example new services  an outsourcing relationship can free up resources and orient them towards innovation that can really add value to the core business. It is this potential for the sources of innovation to be focused on the core business competitive needs that is at the heart of the aphorism ‘to focus on core competences’ – In fact it means to build the core. There must also be good communications and systematic tracking and measures in place to help understand how the service is evolving and how improvements can be made. This goes well beyond simplistic SLA types of measures and is in fact an example of proactive innovation.  An outsourcing provider who is willing to learn and understand the business drivers of the client organisation and who can provide the right kind of expertise to a client at the right place can be a company sttrategic asset. The type of proactive innovation can make all the difference to an outsourcing partnership.

Tips for the Outsourcer

  • Treat outsourcing as a strategic investment, clearly defining goals, strategies, objectives and time lines.
  • Choose a firm that has goals you can identify with and a track record that you can use productively in your industry.
  • Set up control processes to manage the interface between the two organisations – treat them as part of the business which is in fact what they become.
  • Once you have outsourced a service  trust the service provider to do the job – heavy handed control or excessive monitoring can get in the way of good service and can only add to costs.
  • Build a contract that has concrete objectives performance measurement strategies and incentives in place – this will clarify things for the provider and provide sustained motivation.

Tips for the provider

  • As with the outsourcer outsourcing is a strategic investment – define goals, strategies and objectives.
  • Build a contract with the client that spells out performance measurements on the basis of concrete objectives – use it to streamline processes
  • Develop an open rapport with the client build a relation that aligns the interests of the outsourcer, the vendor and customers.
  • Build a measurement system to montitor progress and make sure robust management processes. are in place – use it to negotiate changes and upgrade performance responsibilities.

The paranoia surrounding outsourcing is slowly waning and being replaced by a grudging acceptance and recognition of how both sides can benefit. Reports are coming in that well crafted outsource deals restate the value of outsourcing – and add to the stability of the concept. According to a Global Insight study sponsored by the ITAA (Information Technology Association of America), the benefits of offshore IT outsourcing added $33.6 billion to real gross domestic product in the United States in 2003. During 2008, real GDP was expected to be $124.2 billion higher than it would be in an environment without IT software and services offshore outsourcing.

There is value to be achieved by Outsourcing what is needed is a well crafted management strategy to deliver the promise that Outsourcing offers.

Royston

How can people in an outsourcing respect their manager but hate the organisation?

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I was thinking about outsourcing change management and the observation that those being outsourced often speak with respect about the boss delivering the message whilst being very hostile to the organisation actually forcing through the reorganisation. It has often happened to me when talking to people being outsourced that some managers or leaders are able to give bad news when it is necessary whilst still maintaining a good relation with their staff.

From a justice perspective, followers, or in this case the ones on the ‘receiving end’ of the outsourcing change, will judge the leadership exercised as to the degree which it is fair. That is leaders can motivate followers by following ‘fair procedures’ and followers can as a result become more supportive of the direction or goals being proposed and exercise good organisational citizenship – even when the goal being proposed is adversely affecting them.

This can be sharply contrasted if you think of a more distributive type of process where the person affected by the change only sees the instrumental issues – how the change is materially affecting them (loss of income or job for example). What this forces us to consider is how people apply different yardsticks when looking at an organisation’s position and how this can inform us why a person could simultaneously ‘respect’ the person who is communicating the bad news whilst keeping this distinct from poor justice perceived at an organisational level – or from another person or department  elsewhere. I.e. is it seen as fair what the company is proposing as articulated by the manager compared to the way it is actually carried out at a company level. For example an outsource in order to gain cost advantages over an incumbent workforce would I suspect be judged adversely in a distributive justice sense, whereas a correct and fair application of the selection of the people affected by the outsource, as done by the manager, could be seen as procedurally fair if done with integrity – you would probably hear things like ‘he’s only doing his job’ or ‘he has no say in the matter’ but never the less ‘he’s a good chap.’

You could also take another view more directly related to identity and leadership: followers internalise the leaders perspective and construct an identity congruence to the leaders (buy in to the vision) and the issues around Identity in terms of the organisation (letting go and the processes involved in breaking the psychological contract) and constructing a new identity with the new organisation in outsourcing or ‘downsizing’. These types of processes also affect those left behind – i.e. be distanced from the organisation as a consequence of a poor outsource process. These sorts of processes could also help us ‘explain’ a differential response to the different players within an organisation (respect the manager but despise the organisation) – this is seen a lot in downsizing or outsourcing organisations people leave and organisation with a bitter taste in the mouth. It should not be forgotten that poorly outsourced people are probably lost as customers for the rest of their lives!

What this means is that the response of workers to an outsource can be greatly affected by the way messages and procedures are actually executed. A fair and equitable approach delivered by a well trained and respected manager can actually help in reducing resistance to change – in effect stopping causes of resistance at source.

Royston

The Human side of outsourcing – managing people change

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In an earlier article I discussed my research into managing the transition of people in an outsourcing situation. I highlighted the problems people experience, anxiety, lack of control, resistance and reduced performance. Many also found it very difficult to treat their previous employer as a client, and were not able to feel a part of the new company to which they had been transferred.

An outsourcing transfer can be viewed as a form of transition. This change process involves involuntary movement from one company to another, with possible similarities, from the staff point of view, to mergers and acquisitions. The transfer may also include staff reductions or ‘downsizing’, and the new organization will make some effort to develop a relationship with their new staff in the form of organizational socialization. All of these transition processes are likely to impact upon perceptions of justice – in other words, whether people feel they have been treated fairly or not. These perceptions are important as there is substantial evidence that if people feel they have been treated unfairly they are far less likely to perform well. However, of specific interest here is the repeated finding that good attention to procedural justice concerns can increase perceptions of fairness even if the outcomes are unfavourable. If we assume that, at least initially, staff will view the likely outcome of being forcibly transferred to another organization as unfair, it may be possible that procedural justice will reduce their perceptions of unfairness.

What do we mean by Justice? Distributive justice considers perceptions of fairness of outcomes (equity, equality, and needs). Procedural justice emphasises the importance of fairness of the methods or procedures used (decision criteria, voice, control of the process), and Interactional justice is based on the perceived fairness of the interpersonal treatment received, whether those involved are treated wish sensitivity, dignity and respect, and also the nature of the explanations given.

I have had some people ask me why they should bother about how people feel if they are no longer working in their organisation.

For most companies who outsource, the staff will still be required to carry out work for them, albeit under the management of the outsourcing company. It is also possible that at some stage the organization will wish to back-source (bring people back in house). My ongoing research indicates that organizations will experience problems if they do not attend to the needs of their staff during the transfer process. To manage justice perceptions it is important to ensure you do communicate and that the process is viewed as fair.

Some of the practical considerations for the transfer itself therefore include; effective and ongoing communication of the business rationale, a focus on procedural and distributive justice, training of managers to ensure open two-way communication and interactional justice is enabled, and accepting and working with the emotional aspects of the transfer rather than pretending it does not exist.

An aspect not often considered at all by organizations is after the transfer. It will be important to ensure remaining staff receive clear communications regarding the changing roles (their own and their ex-colleagues). A balance will need to be made between letting go, so that transferred staff do not feel they cannot move on, and creating barriers to communication. Most importantly, consider how the contract influences your relationship with them. In the UK for example if the tupe agreement includes a mapping-on of salary increases or other awards it is vital that a process is put in place to ensure this happens, rather than forcing the transferred staff to continually monitor the situation.

So do think about the people side of the transfer if you are outsourcing, and remember that you need them to be motivated and to continue to perform. Achieving this will be difficult and should not just be left to the company you have chosen to outsource to.