Outsourcing was first started as a measure to offset the lack of skill sets within the company and to cut costs. It can still be a profitable solution.
Why do many organisations outsource some of their business activities at all? It is because they realize that they would be able to concentrate better on their core activities if they outsource generic or support services from external organisations. In many cases, outsourcing is used as a measure to tap the expertise and experience that is not available in-house – could be technical or managerial support – and in some other cases, it is done to merely cut down the cost of establishing in-house support services.
Reason behind Outsourcing
A study indicated that the main reason behind considering selective outsourcing was to ensure cost reduction (69% of the companies interviewed gave cost reduction as the main reason). And, 81% of the companies that went in for outsourcing of some kind cited lack of in-house knowledge and expertise as the main reason. These two discoveries tell us the problems faced by mid-sized and large-sized companies that are not able to support huge establishment and inadequate skill sets, but are compelled to concentrate on ensuring cost-effective services to their business.
Initially, companies would consider outsourcing only non-core activities so that they could pay more attention to the core activities and related matters. Of late, many companies believe in outsourcing various types of activities to one service provider – a cost-effective measure again in the present fiscal scenario – and negotiate a sort of ‘package deal’. This method enables better monitoring and better management of the activities outsourced.
The Road to Outsourcing Has Never Been Smooth
Despite stringent agreements and mutually acceptable negotiations, some problems associated with outsourced or managed service contracts do persist. The companies should not think that once they have outsourced their activities, all will be taken care of and they can sit back and expect the job to be executed on time without any hitch. They also need to strategize and plan meticulously if they have to reap maximum benefits from outsourcing and obviate risks in the form of undue delays, sub-standard work or incomplete tasks.
The main problem faced with outsourcing is that the supplier may not monetarily stable and competent during the entire period of contract. Such financial instability may lead to inefficient output or staggered supply of quality work. This can be attributed to the dismal lack of control or inadequate governance on the part of the outsourcing companies. To this extent, the outsourcing company needs to monitor – which is roughly 3%-5% of the total contract value – the financial health of the company at regular intervals and must also devise ways to terminate or get out of the outsourcing arrangement in case of unsatisfactory services. Also, the outsourcing company should be in a position to take over the crucial service from the supplier if there is any unexpected disruption or abrupt discontinuation of services.
What the Outsourcing Companies Need to Do
Having said that, the outsourcing companies would do well to remember that they need to have realistic expectations from the suppliers. A good and healthy relationship with the service supplier can turn a hopeless deal into a good one or a good deal can go awry with bad supervision or relationship management. Thus, the vibes between the outsourcing companies and the service suppliers play a crucial role in achieving the desired results within the time frame.
If you are outsourcing your service from another supplier, remember not to outsource such activities that give you a definite edge over your competitors. What is critical to your business must remain a closely guarded secret within your company. Do not have any kind of confusion regarding the price you are paying for outsourcing. Any misunderstanding in this area will not only result in sub-standard work with undue delay but mar the relationship with your supplier too. Study the market thoroughly before finalising the price. Set a definite bench mark for good work and reward accordingly. In short, adopt total transparency in the matters of financial dealings and total clarity in the execution of allotted tasks. Take the help of specialist legal advisers, to draw and complete the contractual agreements or obligations from both the sides. You can also use outside help in managing your outsourced contracts.
It has been seen that media has never waxed eloquence about outsourcing business. They have always viewed managed service contracts as potential threat to the employment situation of any country. Hence, when you consider outsourcing your business services to another company, you must take a few aspects into consideration such as, the motivation behind doing so, whether the job would be finished on time and within the allocated budget, whether outsourcing would substantially reduce your overhead and ancillary expenses, and if it is going to improve your product quality and availability, etc.
Along with what has been mentioned above, there will be other factors too, but each factor has to be identified, weighed and assessed in the larger interest of your company. Otherwise, the outsourced contract might spring some unpleasant surprises that might not augur well for your company in the long run.
Alisha Webb on Behalf of HudsonYorke – Network and telecommunications services.