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Outsourcing is a tried and tested way for organisations to entrust responsibility for their non-core business activities to an external vendor. By tapping into a specialist resource-base the company is free to focus on its key purpose.

Outsourcing of non-core business activities took off in the past half-century and is even more popular in times of economic difficulty, when pressure to cut costs really ramps up. In the past 50 years, both companies and government have outsourced non-core business activities to cope with the increase in competition and their ballooning management. Here are just a few examples:

Overall, the increased focus on the organisation’s core purpose that outsourcing allows, has a positive effect on the bottom line: a three-year study of businesses showed outsourcing unlocked savings of up to a third (Ritchie, 2015)

OUTSOURCING IS AN EFFECTIVE, PROVEN BUSINESS STRATEGY USED ACROSS THE PUBLIC AND PRIVATE SECTORS

NHS trusts have outsourced back-office financial services to a specially-created shared services company and have

saved the Department of Health £224 million over nine

years, beating its ten year target with a whole year to

spare (Hickling, 2015).

Thames Water, the UK’s largest water and waste provider, outsourced its

procurement and reduced its operating expenditure by 20

per cent (Hickling, 2015).

International brand L’Oréal outsourced procurement of its HR services, IT and

telecoms, travel and facilities management and saved €4 million in just three months.

Longer term, it forecasts it will cut its operating budget by ten

per cent (Hickling, 2015).

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OUTSOURCING AN OPERATION

CAN CUT ITS COSTS BY UP TO A THIRD

You should form a STRATEGIC ALLIANCE when the task is high in strategic importance, but contributes little to operational performance. So, although you need to retain control of them to make sure they are done exactly as you want, they are relatively insignificant in terms of cost or smooth running and so not worthy of full in-house focus.

Whether or not to outsource part of your business operation is a big decision, but one that’s easily clarified. Let’s use an outsourcing decision matrix (Mindtools, 2015) to consider the two most important factors.

RUNNING ALL NON-CORE BUSINESS ACTIVITIES IN-HOUSE PREVENTS ORGANISATIONS FROM MAKING EFFICIENCY SAVINGS

OUTSOURCE TASKS THAT ARE IMPORTANT

TO YOUR OPERATIONAL PERFORMANCE, BUT HAVE

NO STRATEGIC VALUE

You should RETAIN FULL CONTROL of a task when it’s high in strategic importance and has a big impact on operational performance. These tasks should be kept in-house so that your organisation keeps maximum control.

And you should OUTSOURCE TASKS that are important for successful operational performance, but are not strategically important. These tasks are simply not worth spending in-house time managing.

You should ELIMINATE TASKS from your organisation that are not important to your organisation’s overall strategy and don’t make a significant contribution to its day-to-day operational performance. Question why you are doing these tasks at all.

LOW

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LOW HIGHCONTRIBUTION TO OPERATION PERFORMANCE

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HOW STRATEGICALLY IMPORTANT IS THE TASK TO YOUR BUSINESS? Strategically important tasks are ones that are a source of competitive advantage.

WHAT IS THE TASK’S IMPACT ON YOUR ORGANISATION’S OPERATIONAL PERFORMANCE?Tasks that have a high impact on operational performance are those which, if done well, contribute greatly to the smooth running of your organisation or, if done badly, greatly disrupt it.

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THE OUTSOURCING DECISION MATRIX

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1HOWEVER GOOD YOUR IN-HOUSE FUNCTION, A SPECIALIST COMPANY WILL BE ABLE TO DO IT BETTER When something’s not your core business, your organisation will have a lack of expertise in that task area. This can translate into a more expensive function and labour-intensive processes.

IF IT’S PART OF YOUR ORGANISATION, YOU HAVE TO FIND THE TIME TO MANAGE ITWhen a business activity is done in-house, then it has to have a place in the management structure and needs attention from senior management — attention that could be better spent elsewhere.

KEEPING BUSINESS ACTIVITIES IN-HOUSE EXPANDS YOUR LIABILITY PORTFOLIOYou’re looking at an increased salary bill as well as wider employee costs such as pensions, taxes and welfare responsibilities. It can also open up a whole new area of responsibility regarding regulations and compliance.

THE FIVE HEADACHES OF DOING EVERYTHING IN-HOUSE

YOU DON’T HAVE ANY CENTRAL SUPPORT RESOURCES TO CALL UPONSomeone within your organisation has to source and provide everything that a successful non-core business activity requires, often at significant effort or expense. For example, any specialist training will often have to take place externally. And it’s unlikely that economies of scale will be open to you in your purchasing, making your business activity relatively expensive.

MAINTAINING THE RIGHT TEAMCAN BE CHALLENGINGAs a small, specialist operation, your in-house business functions often can’t offer a progression route for personnel. This may well result in a continual recruitment issue, as staff look outside your organisation for promotion or new opportunities to learn and develop a career.

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SO WHAT’S HOLDING ORGANISATIONS BACK FROM OUTSOURCING?

You’ve had an in-house cleaning department for as long as anyone can remember, and a couple of people based in some small back room who do their best to tackle any maintenance jobs that come up; these are institutions within your organisation and your people are used this routine. Habit and familiarity play a large role in reluctance to consider outsourcing.

RETHINK THIS: Work out exactly what elements of your current set-up you’d like to retain, and make that part of your negotiations with potential outsourcing suppliers.

WE’VE ALWAYS DONE ITTHIS WAY.“ ” It’s unsurprising that bringing in an outside

organisation to carry out a business function would be perceived as a trigger for increased costs — particularly when the incoming supplier may update equipment or working areas.

RETHINK THIS: It’s likely that a specialist provider will have access to significant purchasing economies of scale. And refurbishment is often funded by the supplier and offset against the expected profits of the contract’s duration.

IT’LL BE MORE EXPENSIVE TO OUTSOURCE.“ ”

Handing over responsibility for a task — even one with no strategic value — requires trust. And this can lead to organisations clinging on to the current way of operating.

RETHINK THIS: Make sure your contract with your outsourcing supplier is specific in all the areas that are important to your organisation. Including key performance indicator targets can be reassuring, too.

WE’RE UNCERTAIN ABOUT WORKING WITH AN EXTERNAL SUPPLIER.“

” A sense of ‘ownership’ can hold back the outsourcing of key services as organisations worry about the level of commitment an external supplier will show. It’s true that, as with any new additions, developing an integrated team can take time.

RETHINK THIS: Your chosen provider will have gone through this process of forming effective relationships time after time. The supplier will be extremely proficient in fostering the right connections smoothly and rapidly.

OUTSIDERS WON’T FEEL LIKE PART OF OUR TEAM.“ ”

There’s Janet who’s mopped the floors for a good five years and greets everyone by name. And Bill who’s so cheerful as he fixes squeaking doors or the leaking water cooler. What will happen to them if your organisation chooses outsourcing? It’s natural that concerns about existing staff can hold back consideration of outsourcing.

RETHINK THIS: The outsourcing company you choose will be experienced in absorbing an organisation’s existing employees into its own workforce. It’ll be well practiced in the Transfer of Undertakings (Protection of Employment) Regulations (known as TUPE) and will be able to advise your organisation on how the transition can best be accomplished.

OUR CURRENT EMPLOYEES WOULD LOSE THEIR JOBS.“ ”

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MAXIMISE YOUR REVENUE AND

CONTROL YOUR COSTS

Not only are you tapping into the economies of scale available to a specialist supplier’s network by choosing to outsource, you’re also putting all the costs of your operation under the microscope. This is your opportunity to get the best price for the service you need and to know that the amount agreed is effectively capped. Outsourcing brings financial certainty.

GET SPECIALIST CENTRALISED SUPPORT

Choosing to outsource means the operation you ‘see’ within your organisation is backed up by a multitude of centralised support functions held in the supplier’s HQ. From procurement processes through to customised staff training, your non-core tasks will have access to the most professional and effective back-up systems.

THE FIVE BIG BONUSES OF OUTSOURCING

HAND OVER LEGAL RESPONSIBILITIES

Your chosen supplier will use its centralised suite of support functions to take over the legal and administrative responsibilities that come with the business function. This will reduce your risk exposure and free up administration resources.

FREEDOM FROM CASH AND ACCOUNTS

Your supplier will take over all handling of cash, payments and invoicing for every aspect of your non-core business function. Again, this will free up your resources and allow you to redirect them towards more mission-critical activities.

BRING THE BRANDS TO

YOUR ORGANISATION

It’s likely that, if you choose a national supplier, you’ll have access to the major brands they have partnership arrangements with. This can be a real advantage to your people, and reassuring to both stakeholders and your customers.

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You need a supplier that makes safety integral to everything that it does. You want any outsourced activity that takes place on your premises to be fully fit-for-purpose and compliant with all relevant legislation. And you must be certain that your people, as well as any contract personnel on your premises, will be safe at all times.

Look for a supplier who brings up health, safety and the environment (HSE) as an integral part of your discussion.

WHAT TO LOOK OUT FOR IN AN OUTSOURCING SUPPLIER

PUT SAFETY FIRST

You’re looking for a supplier that will fit seamlessly into your organisation, not the other way round. You want a supplier that actively seeks to understand what makes your organisation tick and is interested in getting to grips with how you would like the operation you’re outsourcing to run. And you want clear and open channels of communication, with the supplier taking the initiative in finding out how you like to keep in touch, and then making this happen.

LOOK FOR UNDERSTANDING

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KEY QUESTIONS TO ASK

• How would you ensure the safety and welfare of my people?

• What is your approach to HSE training across your organisation?

• How do you make sure your commitment to HSE is shared by your people?

KEY QUESTIONS TO ASK

• How would you work out what my organisation wants and needs?

• What steps would you take to make sure your knowledge about what we want from this

outsourced function is always up-to-date?

• What communication channels would you put in place so we could keep in touch?

You want a quality of service that reflects your own high standards of performance, and you want that service quality to remain high at all times, long after the ink on the contract is dry. You look for an approach to service that is always seeking to improve, and you expect the latest advances in service to be incorporated into your experience without you having to ask for them.

Be on the alert for a supplier who is ready to talk you through exactly how they would establish, monitor and maintain high standards of service.

LOOK FOR A CULTURE OF GREAT SERVICE

WHAT TO LOOK OUT FOR IN AN OUTSOURCING SUPPLIER

You want the people running your outsourced activity to provide an experience that will allow you relax in the knowledge that everything is being taken care of. And you want to deal with someone that fully identifies with your objectives, giving you confidence that they have your business’s best interests at heart.

Look out for a supplier that can clearly explain its approach to recruiting people who will provide you with excellent service. You want a supplier to show you that they understand the importance of providing career development opportunities for the people they employ, so that good people stay within their organisation.

If outsourcing would mean the new supplier taking over responsibility for any existing business departments you may have, then you want the supplier to demonstrate a thorough understanding of the Transfer of Undertakings (Protection of Employment) Regulations, known as the TUPE process.

And you want a clear explanation of how the supplier would make sure your outsourced function has all the staff it should have, at all times.

SEEK OUT THE RIGHT PEOPLE

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KEY QUESTIONS TO ASK

• Once you’ve found the right people to carry out the outsourced function, how would you keep

them in post?

• What steps would you take to make sure our outsourced functions have the right staffing levels at

all times?

• How would you absorb the people who currently work in our shortly-to-be outsourced functions

into your organisation?

KEY QUESTIONS TO ASK

• What standards of service could we expect you to provide?

• What steps do you take to make sure these standards are met, consistently, throughout

our contract?

• What mechanisms would you put in place to collect feedback from our people about the service

you provide?

You want the best deal for the service you’re thinking of outsourcing — and you don’t want to have to sacrifice anything in terms of quality or service to get the price you think it’s worth. You want confidence in all aspects of your contract and financial dealings. And you want to be able to relax knowing that your supplier is constantly striving to provide you with the best possible value.

Look for a supplier who will bring up the sometimes tricky matter of balancing quality and service with a price that you’re prepared to pay. You want a supplier that is willing to talk openly about pricing and the trade-offs that may have to be made to get you the service you want, at a price you can afford.

GET THE QUALITY-SERVICE-PRICE EQUATION RIGHT

WHAT TO LOOK OUT FOR IN AN OUTSOURCING SUPPLIER

You want to know that the high standards put in place at the beginning of your contract will be maintained, if not exceeded, throughout its life span. And you’d like to be able to assume this will happen as a matter of course, rather than having to check up on it yourself. Plus you want to know that, no matter how many outsourced functions you have and how widely dispersed across the UK and Ireland they are, every one of your people will enjoy exactly the same high standards of experience.

Look for a supplier that is aware of the need to stay on top of excellence and that has a robust structure in place for making sure that standards don’t slip.

PUT EXCELLENCE IN PLACE AND THEN MAINTAIN IT

KEY QUESTIONS TO ASK

• What is your approach to cost transparency and reassuring my business that we are getting true

value for money?

• How would you go about working out exactly what we want is included in our contract?

• How will you make sure you offer my business the best possible value throughout the length of

our contract?

A KEY QUESTION TO ASK

• What business excellence systems do you have in place to make sure that we will receive a

consistently great experience from you, day in and day out?

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You want to know that you’re getting the best possible value in your contract and you expect a large outsourcing supplier to pass on all the benefits of their network to you.

Look for a supplier that can clearly explain how outsourcing to them can bring access to economies of scale for you.

MAKE SURE ANY ECONOMIES OF SCALE ARE WORKING TO YOUR ADVANTAGE

WHAT TO LOOK OUT FOR IN AN OUTSOURCING SUPPLIER

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KEY QUESTIONS TO ASK

• What access do you have to economies of scale and how will they translate into benefits

for my business?

• How easily could you deal with a sudden increase in what we need, adding another department at

short notice, for example?

Hickling, G. (2015) Shared Services in the NHS. Available: http://www.noa.co.uk/files/722.pdfHickling, G. (2015) Thames Water and Efficio. Available: http://www.noa.co.uk/files/288.pdfHickling, G. (2015) L’Oréal: An innovative approach to indirect procurement. Available: http://www.noa.co.uk/files/316.pdfMindtools (2015) The Outsourcing Decision Matrix. Available: https://www.mindtools.com/pages/article/newSTR_45.htmRitchie, M. (2015) Outsourcing’s booming business. Available: http://www.iso.org/iso/news.htm?refid=Ref1922

REFERENCES.

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