The organization of a company can be carried out by relying on a number of strategies with
regard to the location of the business units. Outsourcing and insourcing, nearshoring and
offshoring are some of the strategies you can organise your company with.
For many businesses in today’s world, insourcing is still the only strategy available but
certain other sectors such as IT are typically confronted with more complex strategies in
order to support business strategies.
With more than a decade in IT, I had the chance to lead some sourcing strategy initiatives
and changes in small and large organisations. My executive MBA paper was linked to this
area, making it a subject that I like and which I am passionate about.
Why am I writing a post on this?
No later than last week, I was in a conference where speakers from different sectors shared
their experiences. For some it had been a success while others reported a failure.
In another conference, I was in a discussion stating that offshoring could bring value. The
people in front of me were looking at me with big eyes which were expressing the thought,
“why should you do this, you must be crazy.” So I just thought I would put some of my ideas
and experience in a very short post.
So why outsource.
There are different reasons for why you should outsource. However, the first big mistake you
could make is outsource for budget savings alone.
The first thing to do is think about your sourcing strategy. What do you have, why are you
thinking of change, and the benefits and issues that every solution could bring
Some of the reasons for changing your sourcing strategy are
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Organisational flexibility: Could increase, decrease staffing depending on the
needs. Absorb up and down staffing needs. Be flexible when organisation needs to
change.
Competitiveness, innovation and skills
Price: When you outsource, and even more when you nearshore/offshore, you expect
savings. Yes, it will be there but could not be so much as you think plus know that
over the initial years, the total costs could easily ramp up to 50-60% more than the
signed contract;
Reduce complexity: Internal organisation could after time become very complex.
Changing your sourcing strategy could be one way to change the way you organized
and start from scratch.
Productivity: You outsource specific tasks to niche players who are specialized. This
will be more productive that doing it internaly
Risk sharing: If you don’t know how to do certain activities
Greater focus on core activities only: Don’t bother with standard activities and
commodities and outsource it; keep value added ones internal.
Talent and experience: Difficulty to attract talent and keep it. Some experiences are
only available if you go in for outsourcing
Etc …
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Different types of sourcing
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Insource: Having internal Full time equivalent (FTE) on your payroll
Outsource: Hire someone as a freelancer or having a contract with a company in
order to delegate one or several tasks within a defined contract and framework. Final
responsibility should stay within the company.
Shared service center: Center where you group different functions that support an
organisation.
Near shore: When you outsource not in your country but to countries that are +- close
to you.
Offshore: When you outsource to a country that is far away from you
Smart source: Hybrid strategy of sourcing, where you do a mix of several sourcing
types in a way that supports the best results for your organisation
What could be outsourced
Not every business can be outsourced; this is a certitude. Now, what is preferable to be
outsourced? This is something that will depend on the sector, country, organisation and
culture of the company you're working for.
One magic rule doesn’t exist but you need to pay attention to
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Don’t outsource business critical functions/ positions
Don’t outsource leadership
Ensure that what you outource is well mastered and documented. Don’t expect that
the provider will clean the mess.
Ensure that if business strategy is changing, you can change your sourcing strategy.
Don’t be stuck with one model.
Tips and tricks – Lessons learned
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Strategy and sourcing decisions: Before you outsource, define your strategy and
operating model
Undertand the market: Check and evaluate the different possibilities that are existing
at a certain moment.
Ensure internal staff has the skills to manage the outsourcing contract and transition.
As well promote internal flexibility
Be fair: Your actual staff will be impacted with the new solution. So be fair. Search if
they can internally/externally have a career move and help them with it. And if it is not
possible, ensure fair compensation.
Internal sponsorship: You need to have support from top layers. Changes will have
an impact on the organisation, and you will face hard times before seeing benefits.
Start with Proof of Concept, prove the value: As mentioned, you need to have people
following you in this strategy, this could be achieved with a POC and showing fast
benefits; In the end, it is not the management that will engage people, but people
engage people.
Governance is key. There is a strong need to have regular checks on how the service
is going, and set measures if deviations exist.
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Invest in training and rotations: Not only technical training but as well in soft skills
training. If you go for offshore, it’s critical that your staff understand the cultural
differences and how to deal with it. This to avoid frictions, tensions and
misunderstanding. As well sending people for x weeks to the offshore locations and
vice versa, will help to build a unified culture. It’s not them and us anymore but WE.
Organisational transformation: As with any transformation, you need to have a good
change management program. This will affect people and their way of work, so you
will have a lot of questions to answer and resistance. Ensure that the program is fair
and has a clear communication.
It takes time: It will be not perfect immediately. You need first to plan enough time
where legacy and the new solution will be able to do switch over. Afterwards, you will
face some service degradation. It takes time to build a performing service. Therefore,
do not change every year
Knowledge management and transfer. In a few weeks or months, you will transfer
knowledge and know how from several decades of experience to some staff that
know nothing or less about your organisation. So, documentation is key to mitigate
this risk, ensure knowledge is somewhere and not lost. This will speed up the ramp
up of the new solution
Attrition rate: For some countries such as India, it is around 20%. Know this, set
counter measures as necessary.
Manage delays. Keep a very close follow up. Don’t micro manage, but do regular
checks to follow up closely on the delivery. Focus on the results.
Location (timzone, infrastrucutre, skills, language, business travel): You need to take
these factors into mind and the ways it will affect your work.
Sense of being part of organisatons: People need to be engaged with your
organisation. When they are, they will deliver better service and retention will be
higher. So treat them as you would internal employees
Retain crucial roles in IT as mentioned already.
Capacity management: As mentioned, when outsourcing you have some flexibility
and can increase/reduce staff depending on the needs. Don’t forget good capacity
management is needed as you have the flexibility. If you reduce, this will have an
impact on outsource staff and if you increase, it takes time to find good staff. So plan
plan and plan
Opt Out strategy: If it goes wrong, have an exit possibility
Create a company culture: Engage your internal and external staff. Show them what
is the value of the company but as well which role and which value they bring to it. I
love one famous statement. One architect in the Middle ages asked two stone cutters
what they were doing. One says he is cutting stones while the other one responds
that he is building a Cathedral. You should strive to inculcate the second way in your
staff and make them feel part of a big family
Contract: Be clear in your agreement and what you expect. Don’t allow opportunities
for different interpretations. What and how you want the service must be written down
clearly.
KPI: You don’t know what you don’t measure. Set challenging KPIs in order to
evaluate the service. Don’t just evaluate technical indicators but set business
outcomes measurements as well;
Be realistic: Don’t think outsourcing will solve all your problems. Set realistic
expextations and make continous improvements
Get help from experienced individuals or entities : A lot of organisations fail in their
sourcing strategy. It is not as easy as you might think. Experienced counsel could be
more than useful to succeed in this transformation.
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Conclusion:
Defining and changing your sourcing strategy is not easy. No magical solution exists and it
will have an impact on people, and in the beginning, on performance.
The journey will take time, cost you even more in the beginning and will probably make you
unpopular.
But not changing will bring you other troubles such as inflexibility, not being able to find some
skills, lower productivity, complexity, focus on activities that aren’t core, …
So not reviewing the strategy is not an option as well.
Therefore, my final conclusion is to be smart, follow best practices and if you have never
worked on this, ask for help. Failure in this area is very easy and will have disastrous
consequences.
Success will be much more difficult but will ensure better productivity, more engaged staff
and a solution that should fit to your organizational needs.
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