|Vol. 1- No 1(98)
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This section is devoted to brief discussions of strategies or trends, and book reviews.
OUTSOURCING: JUST ANOTHER FAD?
Corporate America has shown an amazing ability to embrace and apply an endless procession of management techniques. Cynics say we are obsessed with fads. Proponents call it the evolution of capitalism. Whatever the view, one fact remains clear -- change happens and on an increasingly quick and far-reaching scale.
So where does outsourcing fit? Is it just another craze or is it a legitimate survival technique? Why has it been embraced so heartily by so many organizations? And, most importantly, should you be considering an outsourcing approach to expense efficiency?
Outsourcing represents the endpoint of a two-part process. The company must first determine its core products and values and answer the question “what business are we really in?” With this in mind, the organization can decide what business not to be in, which may be those processes that exist in support of the central functions. Most often, it is expense and administration areas that are the likely candidates for outsourcing. Human resources, accounting, and computer services are all good examples.
The stated benefits sound like this. “We make widgets, we know widgets and we must focus on widgets and widget technology. Administering employee benefits programs has to be done, but not by us. Hire a vendor whose focus is just that, benefits administration. Our employees get better service from the experts, we cut overhead, pay only for what we use and convert a fixed expense to a variable expense. Everybody wins.”
And indeed, done correctly, everybody does win. Because, while this positive argument is persuasive, there is a negative reality that is even more compelling. What happens when you don’t outsource? Take employee training for example. No one can deny the need for a continual program of skills and knowledge development, but should that development be provided in-house?
One Corporate Training Director tells of joining a business with the charge of establishing a department to support the company’s anticipated rapid expansion.
“I started as a department of one, with a budget of $50,000, including my salary. The company was a $2.5 billion bank. Twelve years later the company has assets of $65 billion. There are 10 people in my department and a budget of over $17 million. But that’s just the tip of the expense iceberg. As our operating units became more numerous and scattered, mini-training groups cropped up all over. We estimate that employee development actually costs us about $40 million. Is it all money well spent? Who knows? Expenses have to be pulled back in, rejustified and leveraged throughout the company. Outsourcing has to be our primary tool.”
An extreme case? Not really, just dramatic. Your company may be much smaller, your organization much more cohesive, but there are inefficiencies which naturally grow and multiply over time. Outsourcing provides a tool for ferreting out and plugging the expense leakage. Let’s be honest. How much of what you or your staff is doing at this very moment is absolutely critical for survival? Overkill? Let’s soften the question. If it wasn’t done until tomorrow would anyone notice? What about the day after tomorrow or next week? Is that project really mission critical? Maybe, but they can’t all be so vital.
Outsourcing, well implemented, allows you to differentiate critical from important and important from nice-to-have. It allows for the evaluation of true costs in an era of intense scrutiny. Shareholder value is king and as long as it reigns, no dollar can be spent unquestioned. If “better, faster, cheaper” is the battle cry, outsourcing is one weapon of choice.
And it will remain so for a time. At some point of course, like many things American, it will be overdone. And a backlash will begin. But for now, the winners will be those who are decisive enough to find the true opportunities that outsource provides: a refocus on core business, a reliance on experts and tremendous expense efficiencies.
See you in the year 2002, with an article entitled Repatriating the Outsourced Function.