A lot of discussions about outsourcing in the media make it appear complex, but it’s really quite simple. In fact, it’s so simple that you probably began “outsourcing” work at home before this became a trend at work. At home, we’ve “outsourced” many functions: cooking, maintaining our lawns, child care, and much more. When we haven’t got the time, the focus, or the skills to do the work ourselves we look for someone who can do the work; we also need to make sure that we can afford the work, which often (but not always) means that it either costs less per hour to have someone else do it, or we get a better value when someone else does it (better quality, more convenient, greater consistency, etc.). Corporations think and work very much the same way. The difference is mostly that of scale, a business makes outsourcing decisions that will impact more jobs, require the consideration of more variables, and involve more decision makers.
Another similarity between your home life and your corporate life is that every outsourcing decision is unique. You and your neighbor may be superficially identical (same age, same job, same house, both married with two children), but that doesn’t mean you make the same choices. Your neighbor may have chosen to hire someone to clean their house, but you may have focused on more childcare. Corporations can come to startlingly different decisions about what… and how much… they want to outsource. There is no template that works for all firms, but there is a process that any firm that is thinking about outsourcing needs to go through. Let’s walk through that process:
- Realization: Yesterday, big corporations didn’t know what outsourcing was. Today, they know about outsourcing, but don’t realize how many outsourcing (and outsourcing-like) programs they already operate: Copy centers, mail rooms,
facility management, IT, even parts of your legal department. Outsourcing may
not solve every problem, but learning about the previous generation of contracts will identify new projects and provide valuable insight.
- Goal setting: Corporations perform a lot of different work functions. To be successful in creating an outsourcing program, you need to define specific goals: reduce corporate costs by 5%, focus just on your New York office, or only look at functions performed in one business unit. Goals don’t need tremendous detail. As your outsourcing experience increases, definitions will change.
- Participation: You need participants from many areas of expertise to provide inputs to the plan, to verify assumptions and to provide expert judgment. When you move from a general plan to specific projects, you will repeat this process and create sub-groups with even more specific knowledge.
- Identification: Now that you have goals and experts to identify and interpret information, it’s time to identify specific projects for your outsourcing program. Every firm makes develops different criteria, and is driven by culture as much as by financial or operational analysis, but there are common criteria that you should look at:
- Previous decisions: Your firm probably made earlier decisions about using non-employees, such as temporary workers or service contracts. Work with Procurement and your PMO (Project Management Office) for details. See how they addressed the issues on this list, and compile lessons learned.
- Expertise: Are you performing functions or producing products without sufficient expertise, or are you having problems retaining managers? Does the current management have a plan to address these
problems? If not, this could be a good outsourcing project.
- Quality: Even if a function has the people with the right skills and experienced managers, you may not get the level of service you need. Does the manager conduct customer surveys? What are the customers saying? A gap in quality or a lack of interest in customer service is another flag for outsourcing.
- Cost: An exceptionally high-quality service is not necessarily a good value. How do your costs compare to competitors? Does the function produce monthly reports: unit costs, operating cost, multi-year cost trends? If this function cannot produce these reports an outsourced service might provide greater transparency into your operations.
- Scale: When you examine your entire firm, you will make many unexpected discoveries. Stay focused! To be a good project you need scale. A lot of “one off” projects are much harder to manage and will have less impact than a large group. Keep a comprehensive list, but
only select candidates than provide a big impact in your first wave of projects.
- Security: You now have a good idea of potential projects. It’s time to filter them according to security standards. Security is a complex and controversial subject. Different standards apply to different industries, and some firms are more security conscious than their competitors. Understand internal and industry standards, and limit outsourcing
projects accordingly. Include legal, IT, corporate security, and compliance (if it applies), and any “risk” departments in your discussions.
- Prioritization: Each item above (and perhaps other characteristics) must be scored, and then each project given a total “outsourcing value.” Undoubtedly, there will be much debate over which characteristics are the most important, if their scores are accurate, and if other characteristics should be considered. Don’t be surprised if this process lasts for months or even years.
- Communication: By the time you’ve prioritized potential projects, you’ve held a lot of meetings and talked to a lot of people. Don’t be surprised if these discussions are now public information in the departments you’ve targeted for outsourcing. Always assume that these discussions will get to your employee population, often in real time. Carefully thought out corporate communications need to be
prepared and ready. Never let rumors become a better source of information than facts.
At the end of this process you will have your initial outsourcing plan. There are many more steps as you execute this plan: confirming data, sub-committees for specific projects, identifying vendors, running pilots, awarding contracts, and so forth. However, developing your plan provides you with the first and most important step! And that’s my Niccolls worth for today!