Business Intelligence

Outsourcing is not the cause of the problems in the world around us, but is one of the most powerful tools available for fixing those problems. Outsourcing helps build better businesses, stronger economies, and a more prosperous way of life. This is true not only for the developing countries like India that are the recipients of work being outsourced offshore, but also for Western countries that are doing the outsourcing. Companies that outsource are creating and enhancing jobs for their employees, increasing returns for their shareholders, and fueling growth for the American economy.

–Michael Corbett

(10709) Michael Corbett says:

The practice of outsourcing literally has the potential to transform every aspect of work and organizations as they exist today. It will raise the bar and reward business specialists more. Outsourcing will also transform organizations from a fortress mentality to the mind-set in which firms will find new and creative ways to combine what they do best with world-class external capabilities. As a result, the business enterprise of the future will harness outsourcing to create more value for its customers than ever before.

The most likely impact of increased outsourcing on the future of business is:

Employees will return to the “craftsman” model. Instead of having work organized in to 9-to-5 jobs, more and more people will manage their careers along the lines of the craftsman work model — start as an apprentice, gain expertise, then get your own customers. In essence, craftsmen approach and develop their careers as if they are self-employed. They initiate the development and enhancement of their own skills and stay ahead of their competitors. Craftsmen see their own value being determined not by what they do for a company but by their own knowledge and experience. Therefore, they take responsibility for their own career development. Craftsmen also develop and enhance their own professional networks in order to seek out customer who value the work they do.

Specialization will increase. As outsourcing becomes more widely adopted and grows, every field of business will develop its own specialty services provider. The growth of these firms, in turn, will mean that more and more people will work for firms that are specializing in one line of business rather than attempting to do business across a broad range of industries. This specialization will also drive innovation forward aggressively.

Employees will stop working in cost centers and move instead to working in profit centers. As more companies outsource their operations, everyone will become more directly accountable for the revenue they generate. This is good. It will enhance the impact every employee can have. With more responsibility will also come greater risks, but everyone will need to become more customer focused.

The more routine tasks of every field will get rapidly commoditized by offshoring or by more advanced technology.Specialist employees will concentrate on those areas where their skills and knowledge can produce exceptional results. The more routine aspects of their specialty will either get passed off electronically to people in countries where wages are lower or better information systems will emerge to handle these tasks. Specialists will continually move up their own field’s skill levels in order to command top dollar.

Managers will become integrators and lateral thinkers. In the traditional corporation, only the top people were expected to think strategically, make deals, grow partnerships and manage change. As outsourcing becomes more widely accepted, every manager at every level of the organization will be operating this way. Instead of worrying about selecting and managing employees, managers will be blending a unique combination of internal and external resources to create value.

There will be a greater focus on leadership. Since more of the work of the business will be done by bringing together teams of people, project leadership competence will come to the fore. Managers will need to understand processes better and how to blend these together.

Firms will outsource their innovation. They will use research centers to test many thousands of potential new products for them at a rate that far exceeds what their own labs could handle. Firms will also tap into the new ideas of their value chain partners to pick up on all the new ideas their suppliers may come up with.

Knowledge management will become increasingly sophisticated.Firms will share their human capital (the combined knowledge of their employees), their structural capital (the infrastructure these firms use to organize their know-how) and their customer capital (the relationship an organization has with its customers) across their entire outsourcing networks. This sharing of knowledge will supercharge and enhance the creation of new ideas in the future. In essence, more business problems will be solved and better tools will emerge for applying that increased knowledge.

Organizational risks will be offset and spread. As outsourcing spreads, more and more organizations will become interdependent. That increasing level of interdependence will mean risks get lowered as there will be a greater pool of knowledge to tap into. All organizations in the network will depend on each other for their success to a greater degree than ever before.

(10708) Michael Corbett says:

Outsourcing should never be treated as a one-off transaction. Rather, it’s important that the ongoing relationship be invested in so even greater value can be generated in the future. In other words, manage the relationship intelligently.

The key principles in managing the outsourcing relationship are:

1. Keep strategic responsibility near the top. The CEO or someone reporting to the CEO must be responsible to ensure the interests of the provider and your organization stay aligned over the long haul.

2. Create organization links at multiple levels so that day-to-day decisions can get made by those who are closest to the customer. Build links up, down and across the outsourcing relationship. Create as many connections between your organization and service provider as possible.

3. Conduct regular evaluation meetings where goals are discussed, problems are resolved and progress is evaluated.

4. Use the latest communication technologies so that both organizations have available a real-time dashboard which reflects what’s happening.

5. Define an escalation process in advance by which problems can be brought to the attention of progressively more senior managers until resolved. Focus on developing solutions more than apportioning blame.

6. Develop a scorecard around which you can report results with the idea that this scorecard should track what’s important, keep everyone focused, track objectives and provide ongoing motivation. A scorecard will mean facts rather than opinions reign supreme.

7. Apply any agreed upon incentives or penalties fairly and even-handedly so everyone knows they are genuine factors and not just window dressing. If incentives are not paid or penalties are not applied, they lose all effectiveness.

8. Extend your own incentive system so it rewards the provider’s employees as well so they become just as motivated to achieve your goals as your own people are. Encourage the achievement of your provider’s top people.

9. Integrate the change process into your own management structure so that the signal gets sent outsourcing will be a permanent part of your strategy and not just a one-off event. Agree in advance how you will identify, negotiate and implement change.

10. Always treat your outsourcing relationships as valuable strategic business assets and therefore they are worthy of the time and resources invested in them.

(10708) Michael Corbett says:

The initial knee-jerk reaction of most people to news of an impending outsourcing arrangement is: “Job losses!” That’s unfortunate because the impact that a new outsourcing arragement can have on employees is actually much broader than that. Instead, outsourcing can create new opportunities for people to grow, to gain new skills and to advance their careers. Managing the impact of outsourcing on people should, therefore, be a management priority.

The key to easing the transition to outsourcing is for managers to communicate what’s happening and why effectively. There are nine specific points managers need to communicate to their employees:

1. Why outsourcing is needed at this time: the compelling reasons and the business case for it.

2. The consequences of doing nothing: what will happen to your organization if you don’t act now.

3. The change tools and techniques which will be utilized: whether it will be structured as a merger, acquisition, divestiture, partnership, etc.

4. The long-term role of outsourcing: why it is the right tool for your organization to grow and move forward.

5. The benefits and implications for your organization: how outsourcing will enhance competitiveness and more.

6. The benefits and implications for your customers: in terms of added value and other tangible benefits.

7. The benefits and implications for employees and the general community: how outsourcing will affect them.

8. Timelines: when decisions will be made, when implementation will occur, how long people will have to adjust or even to make suggestions.

9. Metrics for success: how the organization will know the objectives have been met.

Keep in mind that from an employee’s perspective, all change is personal. First and foremost they want to know what the new arrangement will mean for them. They’ll also want to know that the management isn’t acting in a random fashion, but has a definitive plan in place. If you can demonstrate by what you say and do that you’re committed to creating positive employee outcomes through the use of outsourcing, you’re halfway there. If employees can be shown the new arrangement will actually create new career opportunities for them, they will embrace the idea enthusiastically.

(10707) Michael Corbett says:

A good outsourcing relationship is never set in stone but instead is a fraemwork for a work in progress. Pricing, contracting and negotiating isn’t about getting the best deal possible because in a long-term relationship, both parties have to benefit if the arrangement is to endure. Instead, the outsourcing contract should establish a framework around which the relationship can grow over time.

Most effective outsourcing contractual arragements are modular in that they capture the intent of both parties and then can be added to and refined in the future. An effective outsourcing contract will have these sections:

Terms Section This is where the specific intent of the relationship is defined and how it will be managed. This will include information about the transition, the use of the customer’s assets, any transfer of personnel and each party’s responsibilities and cost allocations. How the relationship will be managed during the lifetime of the agreement also needs to be specified here.

Scope of services section Describes the type, scope and nature of all services to be provided by the outsourcer. This section must also set out the scorecard or metrics by which the agreement will be evaluated so there is agreement on this.

Pricing section Specifies what fees are to be paid to the service provider and how these fees are to be calculated:

Since outsourcing agreements evolve over an extended period of time, it’s important that both parties feel comfortable discussing their needs and requirements. In an enduring contractual relationship, both the customer and the provider must succeed in terms of their own chosen criteria. The responsibilities and risks must be shared in an even-handed manner and there mjust be some alignment of interests.
Outsourcing can fall anywhere along a continuum of risk and ownership. The parties need to agree where on this continuum they want the outsourcing relationship to operate. It’s only after this deliberate decision has been made that pricing and terms can be discussed. If the customer wants the provider to assume the high level of risk commonly found with joint ventures, then the agreed upon pricing structure must reflect that positioning.
Conversely, if the outsourcer assumes the minimal risks of a traditional supply arrangement, it stands to reason lower prices will be chargeed. Decide where along the continuum the agreement will be first and you can then move on to negotiating the finer points of an agreement.