Outsource Magazine

The grim news of a GDP contraction in the fourth quarter of last year of 0.6% on revised figures just released by the Office of National Statistics has sent ripples of fear through corporate UK and caused shudders among policymakers. This may suggest that outsourcing firms will suffer, as companies once again look to trim costs and possibly axe some of their pricer outsourcing contracts. However, probably more likely is that this could present further opportunities as firms once again reshape their businesses and strategies to take into account a less positive and likely slower economic recovery.

Certainly the evidence from the recession inspired by the 2007 financial crisis suggests this. For example, one US consultancy, Odesk, conducted a survey of 600 SME businesses in early 2009, at the height of the downturn, revealing that over 40% said that they intended to outsource more generally and close to 30% said that they were looking to outsource more functions going forward.

Similarily in the UK, a poll conducted by the National Outsourcing Association at the peak of the 2009 recession revealed that 52% of respondents were more confident in their use of outsourcing and that 60% planned to outsource services that they had not previously outsourced.

The results of these surveys illustrate how outsourcing has risen from being a mere cost-cutting tool, to becoming a powerful weapon that is often one of the central elements of a company’s business strategy. This step change in how outsourcing is deployed by companies is one of the fundamental reasons why any double dip is more likely to spur firms to seek fresh outsourcing initiatives rather than see them spurn any new opportunities.

Most companies have a clear strategic goal when they consider outsourcing: to enhance competitiveness by getting a higher return on assets through less capital commitment. They are often also looking to enhance their ability to adapt quickly to rapidly-changing business conditions. Organisations are constantly being restructured, re-engineered and downsized in a constant attempt to boost profitability and this trend has intensified in the current - still depressed - economic environment as companies have continually re-modelled their businesses to respond to very dramatic changes in market conditions.

Today, when companies consider operational changes - whether that is a switch in services, a push into a new geographic area or the launch of a new suite of products - more often than not allied to this shift in thinking or strategy there is an outsourcing consideration that can make the new initiative more effective. 

For instance, companies now often open offices in new countries or geographic areas with a minimum of staff necessary to offer their essential services or products, with as many of the support services as possible outsourced. Similarly, new products are developed or sold, often with the lead company only employing a core team of designers and sales executives, with third-party design firms and commission-based sales teams adding to the outsourced firepower that the company can deploy.

However, though any potential double dip may lead to greater outsourcing opportunities, it’s important that companies take a very systematic approach to ensure that the maximum benefits accrue to the organisation and that it does not become mired in process-driven pitfalls.

Outsourcing often appears attractive at the strategic level but serious problems can occur at the operational level if the process is not carefully managed and implemented. At the operational level the clarity of the original outsourcing strategy can be lost in a whirl of day-to-day business problems and issues.
In companies with already streamlined management teams, implementation can often be left to semi-independent management groups, which quickly decide that the only measure of success is the amount of costs cut. This can lead to the development of unwanted dependencies or strategic vulnerabilities that were not foreseen when the outsourcing was undertaken.

Below is a check list of some of the more common problems that occur on outsourcing contracts:

• Neither client or service provider have thought through practically implementation – leads to false starts and endless delays
• Neither party has correctly understood the contract - scope of services to be provided often incorrect or has to be re-drawn
• Team heads at the client company are not convinced of the need – results in passive resistance to the new outsource provision
• Client has not put an adequate team in place to manage the new contract – original end goals of the contract become very difficult to achieve
• Client releases too many key staff as a result of the outsourcing decision – this lack of knowledge seriously undermines the outsourcing’s effectiveness
• Scale of demand underestimated – other teams within the client company see the benefits of the new service and demand to be included leading to disruption
• Clash of cultures between client and outsource provider – both sides have not adequately factored in their ways of doing business, which impairs the contract’s effectiveness
• Ingrained habits re-emerge – staff find it difficult to embrace the new way of operating and return to old habits, gradually reducing the use of the new outsourced service

There are, I am sure, many other issues but if management stays abreast of at least those listed above they should have a reasonable chance of reaping the benefits that outsourcing can provide.