The Outsourcing Manual

Robert White, Barry James

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351884563
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

Large companies and small are increasingly seeing outsourcing as a means of making the most of their more limited resources. But how do you know whether it is right for your organization? What benefits are on offer and how do you ensure you realize them? How do you begin to construct a value-for-money agreement or determine a basis for pricing? What are the risks, and how do you recognize and manage them? Because every organization's needs are different, informed answers to these questions have been difficult to come by. Robert White and Barry James are experts with more than 35 years of experience in this field. The Outsourcing Manual is a fully comprehensive guide for any organization considering taking this route. It is above all practical, with models, outline procedures, a step-by-step guide to procurement, and standard documentation that can easily be adapted to your organization's requirements. There are case studies and worked examples throughout. The four part structure takes you through: assessment of outsourcing as a strategy for your organization; the planning phase; implementation; and outsourcing from the supplier's perspective. If you are involved in or considering outsourcing, the methodical and case study illustrated approach of The Outsourcing Manual will equip you to manage the process for a successful outcome.

Part I
Think First!

Introduction to Part I

The trouble with outsourcing is that it has become fashionable – and when something becomes fashionable there’s always a rush to buy. Whilst there are real business benefits to be had from outsourcing, experience shows that winning them requires much careful thinking before you sign a deal and a lot of robust management afterwards.

Therefore the first important message is don’t rush – do nothing, do not pick up the phone and call your local friendly outsourcing dealer. All you have to do is think – at this stage, it’s the only safe thing to do and, believe us, it will save you much money in the long run!

Part I of this book, then, is aimed at setting you off on the right foot. That means being clear about what you are trying to achieve before you do anything, and Chapter 1 will offer some thoughts on how to set some relevant objectives. Once clear targets have been identified, you then need to know whether outsourcing is relevant to their achievement. Chapter 2 provides some clues as to how you might assess its relevance and, at the same time, if outsourcing proves not to be relevant, assess the potential to improve your internal performance.

If you do decide to pursue an outsourcing agreement, you will need to know some of the more immediate implications. Chapter 3 will give some insights into the implications for users of the function under consideration, Chapter 4 will remind you about all those people who are going to have an interest in what you are doing, each one of whom will need careful management, and Chapter 5 will expose some of the risks.

If, after all that, you still want to proceed, Part II will begin to show you how but before you reach that far – think on!

1 Setting clear objectives

WHY OBJECTIVES ARE IMPORTANT

The importance of setting objectives correctly cannot be overstated. Outsourcing agreements typically run for a number of years and involve two, usually disparate, organizations attempting to work closely together. More particularly, outsourcing agreements can take many different forms and have many different components. You may be confronted with a bewildering range of options which could lead to what will seem like a life sentence if you make the wrong choices.

The nature of the objectives set profoundly influences both the direction and the outturn of the outsourcing agreement. Correctly set objectives will fulfil the following functions:

●Guide the assessment of internal options and suitability for external partnering.

●Guide the design of the external partnering contract or internal improvement programme.

●Provide the basis for measuring progress towards the delivery of benefits.

●Facilitate the ultimate delivery of planned benefits.

●Provide a datum against which proposed courses of action may be tested.

The absence of objectives will frustrate the ability to test the appropriateness of proposed courses of action and deficient objectives may lead to the adoption of inappropriate courses of action.

Setting meaningful and measurable objectives is, therefore, a critical success factor. It is also more difficult than most people believe.

HOW OBJECTIVES INFLUENCE THE OUTCOME

The skill with which objectives are set will affect the outcome of both an investigation into the appropriateness of outsourcing and, if judged to be relevant, the resultant outsourcing agreement itself. The illustration that follows shows how.

Assume that a single objective to reduce costs is set. The resulting service or contract principles will be as follows:

●There must be an exact definition of service requirement — poor definition that excludes a service component will result in increased charges or lower service

●Tight cost constraints will mean total adherence to the supply of those closely defined services – the supplier will have no scope to vary the service since it is tightly constrained by the need to provide a service and make a profit for the price agreed.

●There will be minimal service flexibility and no value added services.

●Constraints to the rate of business development may be imposed because the supplier is forced to a position where it is unable to agree to changes in the service requirement without the ability to see how existing poor margins will be improved or, as a minimum, not be diminished still further.

●Changes to service requirements will be subject to potentially difficult negotiation because the supplier will either perceive an opportunity to improve weak margins or, more negatively, work to avoid a further weakening of margin.

●Increased charges for changed requirements will be used to lever up the supplier’s margin. The most basic of business dynamics must make this so.

●Budget constraints may constrain the desire or ability of the service provider to respond to changes in the customer’s market sector, leaving the customer trailing its competitors.

If forced to operate within the principles defined above, the service provider is likely to behave in the following way:

●The service supplier may be forced to a position of inflexibility by the twin constraints of low costs or margins and a tight work specification. Low costs and low margins may mean reduced investment, research and loss of continuity, remembering that resources are tuned to the precise requirement and unnecessary resources are removed or re-assigned.

●The service supplier’s priority will be the maintenance of either low margins or tight cost budgets since this is the primary demand of the customer’s objective.

●The implications of the above inevitably result in a lack of emphasis on helping to deliver the customer’s wider business objectives. The requirement has placed no obligation on the supplier to take a broader view and the commercial constraints make it quite impossible for the supplier to react differently.

●The supplier may seek to use every change in requirement to improve margins, which, over time, will have a debilitating effect upon both the relationship and value for money.

●There will be maximum job losses and possibly unforeseen consequences because the pressure to reduce...