Management

Do what you do best and outsource the rest!

Dated: 12 November 2003

Outsourcing is a practice that is becoming increasingly popular with today’s businesses: We don’t know how many businesses in Jamaica currently outsource, but you tend to find more outsourcing being done in the public sector than the private sector. However, with the pressure to become more efficient and competitive, human resource specialist, Dr. Alton Fletcher, feels businesses - both small and large ­ will soon have to turn to outsourcing as the solution.

Let’s consider the following scenario for a moment:

ABC Ltd is an independent garage that sells second hand cars. The increasing local competition has forced ABC Ltd to consider increasing their services and communications in order to increase competitiveness and stimulate growth.

They have made plans to sell new cars and to provide a servicing department. In addition, they plan to provide a high degree of after-sales customer service by contacting customers by phone (courtesy calls, service reminders, etc).

However, ABC Ltd has acknowledged the existing lack of skills and resources to complete such tasks and would prefer employees to concentrate on their core activity - obtaining and selling cars.

Consequently, ABC Ltd has decided to outsource some processes to allow them to concentrate on core activities and to allow the process of "stepping up" to be more effective.

Firstly, ABC Ltd has outsourced the management of customer details to a database management service. In addition, they have approached a call centre to outsource the process of customer service (contacting customers - courtesy calls, etc).

By liaising closely and regularly with the outsource companies, ABC Ltd expect them to come up with new ideas that will allow the process of data management and customer service to become more effective and competitive (within their financial capability).

As was demonstrated in the above scenario, "Outsourcing could prove costly to a business if they do not implement the practise effectively," noted the former Vice President, Human Resource Development, Jamaica Urban Transport Co. (JUTC), who is a Director of Metropolitan Transport Management and a Consultant to the Ministry of Transport, in an interview with the Businessuite.

To some businesses, however, outsourcing may be a practise that has so far been overlooked. However, after reading this article it may give a business inspiration for rethinking how they will operate in the future.

What is Outsourcing? According to Dr. Fletcher, "it is essentially to hire an external provider to provide an activity that would normally be provided by an employee of the firm." The service provider will then be responsible for the day-to-day running and maintenance of the delegated process.

Take the IT giant Microsoft for example - the complete process of manufacturing their products is outsourced to other businesses.

Clearly, outsourcing would benefit large and small businesses, if it is done well, as it can lower costs and allow the firm to keep pace with industry best practices. "So, the question is how to keep your eye on the ball, lowering cost and benchmarking the firm with industry best practices" he said.

In terms of lowering costs, Dr. Fletcher noted that if you have a situation, like payroll, then if you outsource payroll, then you wouldn’t have to pay the payroll staff. That is one way of lowering cost.

In keeping pace with industry best practices, he added, "if you are outsourcing payroll you’d outsource payroll to a firm that specializes in payroll and accounting services. Therefore, you’d get the best technology, expertise and experience from that firm to do your payroll without the cost of a payroll staff."

In a nutshell, he said for example, you take an urban transport company whose core business is to operate a fleet of buses on certain routes, moving the passengers conveniently, safe and comfortable. In an effort to concentrate on your core business, you’d outsource the company other functions like accounts, maintenance and repairs, even training to people who are more competent in doing those functions. His advice is to "concentrate on core activities and siphon off peripheral activities to a more suitable providers."

What Isn’t Outsourcing? Outsourcing should not be seen as a short-term solution to a problem or need. To be truly effective, businesses should consider outsourcing as a long-term solution whereby building a continued business relationship with the service provider will offer long-term benefits to your customers.

Outsourcing should also not be seen purely as a cost saving approach - this is not always the case.

What do Businesses Outsource? Basically, anything that you may consider a business ‘process’ can be outsourced. Below are a few examples Dr. Fletchers said where outsourcing can be introduced:

Why Outsource? There are many reasons why a business may consider outsourcing including:

Advantages of Outsourcing ­ If you are outsourcing a call centre, for example, one of the key advantages of hiring an outsourcer for all or part of your call center operation is that it spreads the risks around: the risk that any given call won't be answered, primarily, as well as the risk of failure at any one centre.

Outsourcing can allow you to respond quickly to changing circumstances, like sudden shifts in volume. It can also allow you to gradually extend what you do - extending the hours you offer customer service, for example.

In general, however, outsourcing can allow you to both make and save your company plenty of money with these additional advantages:

Disadvantages of Outsourcing - On the downside, there is always a lack of control when someone else is handling your calls for you. Not everyone is comfortable with that. Customers are, after all, the most precious asset of any company. Hiring the wrong outsourcer can put customer-relationships in jeopardy. For that reason, Dr. Fletcher says you should go into an outsourcing relationship lightly.

As to the importance of having a call center, it is advisable, that is if you have customers, and you expect to keep them, you'd better have some mechanism in place to respond to their needs and keep them buying from you. Whether that's a call center or some other form of customer contact channel, you're going to need something.

Other advantages to outsourcing, Dr. Fletcher said would include:

Many of the disadvantages can be avoided if you research the service provider and you do not regard outsourcing simply as a money saving scheme - this is not always the case.

Consequently, you should be certain that you have a valid reason for outsourcing and that you intend to liaise regularly with the service provider to avoid loosing all control of the process.

However, the disadvantages are valid reasons why not to outsource - it is therefore a common case of weighing up the pros and the cons for your particular situation

Who Should I Outsource to? Many businesses choose an outsourcing partner (service provider) on instincts, without initially matching their needs with the partner’s capabilities. According to Dr. Fletcher, it was important not to appear do outsourcing on buddy-buddy basis, as that will certainly bring into question cronyism and a lack of transparency.

However, he said the two most important factors in a successful outsourcing relationship are trust and security. "Without these the relationship is destined for failure," he said, "as it is important that you take the time and effort required to find the perfect partner."

He advises that firstly, you should acquire a list of potential partners. You should then find out if their service (capabilities) can cater for your needs. Speak to an employee of the service provider, as their service may extend from what it initially suggests on their web site or information supplements - there could also be hidden terms and conditions that may affect your decision.

Find out who their current/past clients (if at all) are so that you can obtain references on their service quality.

"Finally - and arguably most importantly - ensure that the service provider has long-term financial stability," he said, which means that you should obtain a company report or bank reference to solidify your perception.

Once you are happy with your choice of partner, revise their contract to ensure that they are liable to live up to expectations (service quality). Find out the procedure for negotiating any issues and how much control you will have over the process - contracts are a grey area where businesses slip up when outsourcing.

You should also clarify the costs - are there any hidden extras, bonuses or penalties?

Terminating Outsourcing Contracts - Contracts are usually up for renewal after an agreed time, commonly one year. However, the occasional relationship may not work out and one of the parties may want to terminate the contract with immediate effect.

The contract can only be terminated if a party has a legitimate reason and is not simply requesting on the basis of "I don’t need you anymore". For example, a breach of contract is an acceptable reason for termination. In some cases, if stated by the contract, the offending party has up to 30 days to rectify any issues on their side, before the other party has a legal right to terminate the contract.

Nevertheless, should you want to terminate the contract or the service provider is requesting termination (on unlawful grounds) you should seek legal advice.

To avoid any disputes, you should build exit strategies into the contract highlighting on what grounds a party can terminate the contract (on ‘friendly’ terms).