Consulting Journal: Methods - Outsourcing controls

Methods: Outsourcing controls

by David Blakey

There are four aspects to outsourcing. Control them all.

[Monday 11 April 2005]

In my writing and presentations about outsourcing, I have reminded my readers and listeners that there are four major areas that will be affected by outsourcing:

the quality of the service provided;
the people and the tasks that they perform;
the roles and responsibilities within the organization; and
communication and reporting within the organization and between the organization and its supplier.

Most organizations consider the quality of service, and they write service level agreements to ensure that it matches the current quality. They also aspire to use outsourcing to improve the quality of service.

Many organizations consider the people and the tasks that they perform, although most are only concerned with the people and tasks that they plan to outsource. Often, little consideration is given to the people that remain in the organization and the impacts that outsourcing of other tasks can have on their tasks.

These first two areas represent the bottom line. If the organization can improve the quality of service and the effectiveness of the outsourced tasks, it is often satisfied.

The last two areas represent the corporate culture. Few organizations consider the impact of outsourcing on the roles and responsibilities within them, and fewer still consider the impact on internal and external communication.

In several instances, I have been told that clients understand my arguments, although they have decided to ignore them. These clients have imagined that the problems will take care of themselves, or, at least, that someone else will take care of them.

I also argued that all four of these areas were linked. Again, my advice has often been ignored.

The dilemma

Now, some organizations face a dilemma. They outsourced some functions that provide support to their core business processes. In some cases, parts of the core business processes have themselves been outsourced. They protected themselves with service level agreements that they intended to re-negotiate annually.

In IT, many clients replaced their ad hoc communications with formal procedures for specification, commissioning and acceptance of new and extended information systems. They were pleased that they no longer had the situation of making short term IT strategic decisions. That situation had often led to new applications being partially developed and then scrapped, as business requirements changed. With outsourcing, these clients would spend real dollars rather than internal budgets; they would take more care before they requested new applications. They could not afford to begin development and then scrap a project. Because of it, the IT development life-cycle became longer. It was less able to react quickly to changing business needs.

Many businesses have discovered the advantages of having dynamic business strategies. Rather than setting a strategy in place for three to five years, they continually review their strategies to compete in rapidly changing markets with rapidly changing technologies. Few business can now predict what they will be doing in three years time. For these businesses, the time to move from design to market has shortened to a fraction of the time that it took only a few years ago.

If these businesses have outsourced, they may be in the position of having service level agreements for non-core processes that will operate over a longer period than their dynamic business strategies.

The resolution

This dilemma can be resolved by these businesses and their suppliers discussing their shared future and then agreeing to a new model for their relationship. The answer may lie in introducing dynamic service level agreements to match the dynamic business strategies.

One effect is this will be to place a new emphasis on my fourth area - communication and reporting. If internal and external communication has been ignored in the past, this can mean a complete change in the way that a business deals with its external providers. It can no longer afford to only connect its business strategy with its service level agreements once a year. Instead, a full two-way continuous flow of information will be needed to keep the two in line.

To return to my example in IT, many clients should now consider shortening the time taken to bring new applications into service. They will need faster communications for specifying, commissioning and accepting new IT projects. They will need better management, to avoid scrapping partly developed projects. They will need to spend more money. They will need to spend that additional money effectively. As a result, they should be able once again to react quickly to changing business needs and changing business strategies.

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