Setting the Stage of Outsourcing

Setting the Stage of Outsourcing

More and more companies are outsourcing job functions to enhance organizational efficiency and promote cost savings within the organization. There are good and bad consequences of outsourcing in organizations. This paper will evaluate key initiatives necessary to ensure the success of outsourcing in a selected company. In doing so the researcher will set the stage for successful outsourcing in the selected company by identifying seven key steps for success.

The project considered for outsourcing is hiring all administrative staff within the company to carry out clerical and basic administrative functions. The theory supporting outsourcing is by outsourcing daily tasks the company will reduce overhead expenditures and operate more efficiently and cost-effectively. Many issues however, surround outsourcing and the success or failure of strategic outsourcing initiatives. This paper will also discuss planning initiatives, the strategic implications of outsourcing, analysis of cost and performance outsourcing, relationship building and other critical factors related to successful outsourcing initiatives within the company.

Planning Initiatives Outsourcing

Planning is vital to the success of an organization embarking on a strategic outsourcing initiatives. Khanna & Randolph (2005) note planning is a key element of effective outsourcing. The authors suggest the role of outsourcing is to serve "as a source of human resources" which ideally suits the strategic aims of the organization in this case (p.4). The determination of the HR Plan for outsourcing is according to the authors, an overall "by-product of the overall HR Plan for the organization" (Khanna & Randolph, 2005: 4). Planning for outsourcing requires multiple stages including: (1) evaluating the current organizational structure and current job profiles (2) determining the extent to which outsourcing is necessary and gaps existing within the company and (3) exploring ways those gaps can be filled by external contractors, employees or experts (Khanna & Randolph, 2005). Planning should emphasize evaluation of the organization's needs while also focusing on the organization's core activities, goals, aims and objectives. The more planning is aligned with organization's objectives and strategic aims, the more likely it is to succeed.

Strategic Implications Outsourcing

Outsourcing has many strategic implications for an organization. Perkins (2004) notes outsourcing may impact business objectives including but not limited to cost reduction, gaining access to greater skills or expertise and knowledge sharing and core business activities related to strategic aims and objectives. Outsourcing is for many a "business-driven" activity that may impact the organization's ability to adapt to change successfully and compete in the global environment (Perkins, 2004; Outsourcing Institute, 1998). Outsourcing can also impact strategic leadership, enhancing a leaders ability to govern an organization successfully if planned correctly and if meeting strategic aims correctly, but also detracting from a leader's efficacy if planned poorly (Khanna & Randolph, 2005).

Analysis of Cost and Performance Outsourcing

Most companies initiate outsourcing as a method of reducing costs while improving organizational efficiency. To analyze cost and the performance of the organization from outsourcing, multiple key points of outsourcing should be addressed during the outsourcing process (Khanna & Randolph, 2005). These points or considerations including evaluating, contracting, transitioning and then working to maintain a relationship with outsourced incumbents (Khanna & Randolph, 2005). Tornbohm & Rold (2005) note the degree of outsourcing relationships will impact cost; for example, outsourcing onshore may or may not result in greater cost savings than near-shore or offshore outsourcing (Tornbohm & Rold, 2005). Costs are also associated with the potential successes or failures of outsourced job functions, roles and duties.

Provider Selection Outsourcing

Provider or vendor selection is key to the success or failure of outsourcing initiatives. Vendor management can be accomplished in many ways. The HR planner responsible for overseeing outsourcing should also assign a leader whose tasks include vendor management. This role includes monitoring, controlling and managing the activities assigned the vendor responsible for providing outsourced talent (Khanna & Randolph, 2005). There are many issues involved with vendor management. The team leader responsible for overseeing the vendor must oversee outsourcing relationships and work to create cross-functional teams between the vendor and supplier and existing managers overseeing employees within the organization (Khanna & Randolph, 2005).

Vendor selection should involve analysis of the vendors specific expertise related to the functions or work roles being outsourced (in this case administrative and clerical tasks) and the vendors knowledge of the industry and operations the organization operates within and the operations or technology the organization plans to outsource to the vendor (Khanna & Randolph, 2005).

Terms of Negotiation Outsourcing

Outsourcing can occur in many ways. Full outsourcing is not necessary in all cases to meet an organization's objectives. For example, HR Planning may include negotiations to outsource partial functions, or outsource some of the administrative and clerical tasks in this example. Alternatives that may provide greater flexibility that should be negotiated with leaders within the organization may include the following: (1) hiring part time workers as a cost-effective method of managing spikes in workload (2) hiring temporary workers so that flexibility of operations is easily maintained (3) hiring "float workers" or full-time employees that can cross train in other areas and help out in other areas when needed to meet the daily fluctuating demands of the organization (Khanna & Randolph, 2005). Still other negotiations that may be made include changes in payroll or agreeing to work with consultants or independent contractors to help save money or offer new alternatives to organizations planning on full outsourcing of certain job functions (Blumberg, 2004).

Resource Transitioning

Transition is also vital to the success of outsourcing. Khanna & Randolph (2005) suggest a phased approach to transition is necessary to ensure the success of the organization. The authors note the "big-bang or clean break approach to moving work to a third party does not work" (p. 37). Often this approach only leads to confusion, chaos and often resentment. Rather, transitioning is necessary. A clean break approach may work for non-business critical functions, however in this case most of the administrative tasks being outsourced are considered critical (Khanna & Randolph, 2005). A phased transition allows for greater "business continuity" and skills transfer to those outsourcing various job functions (Khanna & Randolph, 2005). While transition is sometimes slow and costly, ultimately it can dramatically impact the success or failure of an outsourcing initiative.

A phased transition program may involve 3 stages. These stages may include putting in place the organizational framework necessary to manage the outsourced employee and job functions, a phase to extend outsourcing scope "to cover major application projects or administrative projects in progress" and a phase to merge current operations with those handled by outsourced individuals (Khanna & Randolph, 2005: 37).

The transition process may take several months or more if occurring in phases. However time and time again studies suggest using phases to easily transition a company into an outsourcing model works best than making an instantaneous change, which can disrupt organizational work flows, processes and even the work culture (Khanna & Randolph, 2005; Perkins, 2004). When done correctly, slow transitioning of outsourced functions is more likely to lead to knowledge sharing and knowledge transfer as well as skills transfer (Perkins, 2004; Khanna & Randolph, 2005). This is necessary to help streamline business processes and ensure that work flow is disrupted minimally. Transitioning may also involve consolidating work tasks or moving outsourcing functions from one vendor to another or from multiple vendors to a single vendor, which can provide more knowledge and skill sharing and greater symmetry within the organization (Khanna & Randolph, 2005).

To help facilitate this process the organization will benefit by appointing a transition leader responsible for managing a transition team, whose goals should include ensuring outsourced tasks are completed effectively and members who are outsourced are aware of strategic goals, aims and objectives. These team members will also be responsible for ensuring someone is accountable for outsourcing decisions and the work completed by outsourced employees (Khanna & Randolph, 2005).

Managing Relationships

All members of the organization from the top down are responsible for ensuring streamlined relationships between vendors, outsourced agents and current team leaders, managers and employees. Blumberg (2004) highlights the importance of creating an organizational culture supportive of change, change management and relationship building. Knowledge sharing is another key component vital to building outsourcing relationships with vendors and incumbents.

A team leader or multiple team leaders should be appointed to help manage relationships between the outsourcing vendor and top executives, as well as manage relationships between incumbents outsourced and traditional employees. One way to develop effective and strong relationships is by initiating diversity training programs and developing an organizational culture that embraces outsourcing, diversity and learning from different people with different experiences. If current incumbents are weary of outsourcing, negative relationships may occur within the company. Thus, team leaders appointed with the task of managing relationships must directly address concerns employees have about outsourcing and work with employees to help them develop a positive perception of the benefits the organization and individuals working with it will gain by outsourcing certain job tasks.