March 19, 2014

Three questions to avoid irreversible outsourcing

The outsourcing of tasks is an age-old phenomenon. It appears that even the Romans used outsourcing as a means of collecting taxes through third parties. The advantages of outsourcing seem clear enough. Outsourcing work to specialist companies offers price benefits, supplier expertise, flexibility and support. It seems an ideal solution, particularly during any economic change, but it also has inherent risks if it’s not planned and managed diligently.

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Insourcing/Outsourcing is often seen as a cyclical process – at times the trend is to outsource, and then a few years later the trend begins to change back again. Whether insourcing or outsourcing, keeping control of business processes and having the flexibility to make changes should always be the overriding factor. However, experience shows that the decision is often led by price.

Various reasons

In some countries there is a difference between the spending strategy of the government and that of the industry. Government purchasing practices might be extremely efficient, but if the unemployment rate increases by several percent as a result, then you are wide off the mark. These people go to social services for their unemployment benefits, so any profit from the economy of scale evaporates immediately. Under the pretext of social responsibility, in some European countries this problem has previously been recognised and acknowledged and governmental bodies did not join the outsourcing boom, and continue to work a lot more with their own people.

For commercial businesses another important point is the risk of reputational damage with unfair contracts when the work is outsourced. Squeezing suppliers with poor collective labour agreements does not match the desired CSR profile of large organizations.

Whatever your motivation is for choosing insourcing or outsourcing, just you keep control of the business. If you know what is going on and you are in control of the processes, you can take immediate action wherever and whenever necessary and determine the right strategy at that time.

Three questions to be answered

Faced with the choice whether or not to outsource we recommend you consider the following:

  1. How can you ensure that the actual total costs of outsourcing are identified and how will you monitor these costs?
  2. What quality standards must the outsourcing party meet and how do you control the quality of their work?
  3. Most importantly how will you ensure that sufficient knowledge remains within the organisation?

Those wishing to keep the option open of reversing outsourcing in the future must be able to answer these questions. Only when you have insight into the costs and quality of secondary business processes, will you be in a position to make such an important strategic decision.

Jos Knops
Director Global Product Marketing