Outsourcing your Services


Managing what can be a Risky Business

Increasingly many service managers are facing up to some key decisions in relation to outsourcing, for example:

  • Should I outsource my customer-related activities?
  • What impact will it have on the customer?
  • Will it save me money?  Can the outsourcer provide a better service?
  • Can I afford to risk getting left behind as technology advances in call centres and e-commerce - but equally can I take the risk that it might all go sour?

Some organisations such as Amazon out-source much of their call-centre management to specialist suppliers and have made a resounding success of outsourcing.  Other businesses such as Dell and Wal-Mart have shown that competitive advantage can be gained by out-sourcing manufacturing and logistics.

However, lots of stories abound of the services of outsourced functions going horribly wrong, with the resulting bad publicity and harm to the reputation and the brand, as many failed Internet start-ups have found to their cost. One disaffected manager summed up these fears: 'The service providers told us they would take care of everything and save 25% on costs - in fact we ended up with such a poor service and we had to keep a close eye on everything they did on our behalf and we were hemmed in by our contract'.  Yet increasingly organisations are forced to rely on outsourcing as a means to expand into new areas.

This article explores some of the realities behind outsourcing service-sensitive areas and spells out some do's and don'ts.

What should be outsourced?  Until recently the answer was clear: the non-essentials.  Over the last 10 years a sizeable number of organisations have outsourced non-essential services activities such as catering, printing, security, payroll and back office services.  These often have some component of customer relations, but a company will usually insist on retaining what it does best and gives it its distinctive edge.  This means that an outsourcing service provider can offer a better service and allows the company to use its distinctive expertise to serve the customer.

Outsourcing can offer more focus, better training, a wider career structure and greater cost efficiency.  But times are changing as companies increasingly see their future in the e-world, where they have little experience, no reservoir of skilled staff and no structure to retain them.  And they need to make headway fast as the competition gets ahead. Accenture handles HR work for many of its European companies from a centre in Prague. Xerox, is transferring a large part of its manufacturing to contract suppliers, Cable and Wireless recently outsourced many of its HR processes.

Three stages of outsourcing

How can you avoid getting caught in a trap?  The authors will argue in favour of working very carefully on an outsourcing plan and its meticulous implementation.  In order to do this, you should consider working through a strategy involving a three- stage process.

Outsourcing is often decided hastily for short-term reasons.  To get the most from outsourcing, you should step back and divide the outsourcing process into three stages:

  1. Initial review: have we got our strategy right?
  2. External selection and negotiation: have we anticipated and covered key points?
  3. Getting the outsourcing to work: are we prepared to be flexible and to work together to achieve results?

Developing a 10-point plan

1. Think carefully want you want from outsourcing

Some companies outsource problems with very little control or measurement of their current resource and are surprised when outsourcing does not work out.  These organisations are asking for trouble: to increase the likelihood of success you need to be very clear how outsourcing fits into your overall strategy.  This will then inform your policy on outsourcing.  For example, is the planned outsourcing arrangement primarily to:

  • Tap into scarce expertise
  • Reduce costs
  • Offer a bigger or better service

Proctor and Gamble have launched a study to decide whether or not to outsource many of its support processes.

The clarity that comes through this type of study and debate requires top management buy-in - it is frequently fatal to leave everything to low level specialists such as procurement staff who may not share the wider vision.  The decision to outsource should not be taken lightly; for example, you may lose information or expertise that has taken years to build up and there is the potential for split loyalties that can arise.

2. Assess how detailed the contract needs to be

Some organisations attempt to spell out every small detail, this is reflected in contracts and service level agreements.  This has been particularly true in the public sector.  Such agreements can fail to reflect a changing reality if not regularly reassessed and can become an enable.  It is the quality of relationships that support the agreement that matters, since change will almost certainly mean the contract gets out of date.  Good working relations require that you understand exactly who is responsible for what.  Companies often fail to fully understand and surface their own expectations, since they lack understanding of what their current in-house function does for them.  The length of contract needs to be agreed - long enough for the investment risk to pay off for the service provider, short enough to review or break a contract if things don't work out.

3. Agree how the parties will work together

It is important to agree from the beginning levels of responsibilities, success criteria and review intervals.  For example, common criteria requested and what measures of success you are aiming for.  A common error is to fail to install day-to-day management of the contact, in the mistaken belief that outsourcing takes care of all that.  There is a need to keep a watching brief on progress and this may need more staff than you would like.  However, you shouldn't be 'checking the checker' since this will breed lack of trust.

4. Select the service provider with care

Assess the outsourcer service provider in terms of cultural as well as business fit.  To work successfully both sides have got to be on the same wavelength.  So asking questions of financial strength, track record, skills available, attitudes to key issues when they hit core values is important.  One of the most important is how customer focused are they?  Is their evidence in customer surveys?  Check thoroughly with other customers of the service providers.

5. Carefully plan implementation

Expect the initial stages will be more turbulent than you would like and put in carefully planned implementation strategies.  This will help keep the disruption to the minimum and ensure benefits are realised sooner rather than later.

6. Manage transfer of staff

Many arrangements involve transferring some existing staff.  Their support is essential - expect to work at regularly communicating in groups and one-to-one.  Legislation on transfer of employees needs to be anticipated.  In the UK particularly attention needs to be paid to TUPE (Transfer of Undertakings, Protection of Employees).

7. Seek outside assistance

If you have any concerns you will live with the consequences of mistakes for a long while!

8. Set up to monitor and manage change

Review progress at regular intervals and update the contract as your business changes.

9. Ensure an exit route

At some point you will want to exit from the contract, ensure you can do so.

10. Confirm sourcing alternatives - extend/retract accordingly over time

Myths of Outsourcing:

It's not automatic, and there may be other goals

You don't need to manage providers
- Experience suggests you do.

It's a lot more flexible
- Staff are still taken on
- You still contract for the medium to long-term and you can be constrained by it.

Providers can sort out your organisation's problems.
- Problems may be within your organisation and therefore you will still need to review your own processes and practices.

It all comes down to a tightly drawn up contact
- Partly true, but expect every eventuality will be covered.

Outsourcing checklist

Involve senior management from a variety of backgrounds and confirm the place of outsourcing in the business strategy.

Assess potential providers for:

  • Service-mindedness: attitudes, organisation, processes.
  • Experience of outsourcing, including how much of the business is from outsourcing.
  • Capability to deliver, talent mix.
  • Ability to change to meet your needs.
  • Track record of service delivery ? check with customers.
  • Cultural fit.
  • Keep staff informed.


Outsourcing has the potential to move an organisation forward, to start to focus on core areas which give competitive advantage and utilise an increasingly sophisticated technology.  But it also can lead to an increase, not a decrease, in costs and a decline in levels of service and make management more rigid and communication with customers and employees more cumbersome.  On balance the benefits will win through if managers who can apply a disciplined approach in setting standards of service and performance and a flexible approach to managing.

© Steve Macaulay and Sarah Cook 2002

Steve Macaulay is at Cranfield School of Management.  Sarah Cook is Managing Director of Customer Care specialists, The Stairway Consultancy. Steve and Sarah can be contacted on 01628 526535.

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