Barbara DeGuise, Managing Consultant - Sequoia Practice
Charles Rosenfield, Senior Consultant - Financial Analysis Alsbridge, Inc.
Outsourcing is an important, results-oriented vehicle for improving efficiency, lowering operating costs and establishing a leaner, re-skilled organization. It is, however, also a major change that can be difficult on all who will be directly or indirectly impacted by the event.
If not dealt with effectively, business benefits such as increased operating savings, improved delivery performance, and enhanced service levels, are delayed or never fully achieved limiting the success of the outsourcing deal.
Every outsourcing deal involves change for both the company and the provider. For employees of the group being outsourced, confusion and fear are intensified by a legitimate concern for the future of their jobs. Whether the provider wishes to preserve their retained team or absorb the new team into its own organization, they should assess employment issues in the earliest stages of the deal and communicate honestly with existing and new staff. For the provider, this means asking some fundamental questions:
How will transferred employees fit into the provider’s business plans?
Does the provider anticipate keeping the team largely intact?
Should the new delivery team be consolidated into the provider’s shared staffing model or reduced in size after stabilization?
The answers will determine how employment issues should be managed.
A thorough and far reaching communication strategy is essential in any outsourcing engagement. Without clear communications, the fear of change can impact productivity, group performance, and ultimately the success of the deal. The best communications plan does not provide assurance of job security but does assure affected parties that the company has their interests in mind and will assist them with taking the next steps.
The greatest challenges come with mitigating risks during the transition period. If not dealt with effectively, business benefits such as increased operating savings, improved delivery performance, enhanced service levels, and best practice capabilities are delayed or never fully achieved because the provider is unable to establish a stable environment to build future performance on.
If a company and provider are aware a deal will result in terminations or layoffs, they should plan for those actions in a way that minimizes disruptions in the workforce (including the provider’s workforce), and reduces legal and financial exposure. Providers need to determine:
Who will handle terminations (company or provider)?
When will the terminations be planned?
Who pays for severances and what are they comprised of?
Once the decision to outsource has been made, strategies should be developed to allow the three major participants in the relationship to move toward success.
Many companies actively seek protections for their broad pool of employees. Providers must assess these demands in terms of both cost and the overall impact on the post-transition operating plan. A provider’s willingness to accept employee protections may depend on the company’s willingness to cover all or a portion of the associated costs.
Companies can facilitate success by taking the following actions:
Identify key people to form the basis of a new strong governance organization and engage them in developing the new delivery model
Focus on achieving an aggressive business case, which encourages creativity to achieve desired results
Retain company personnel who are essential to providing proper knowledge transfer and potential candidates to be rebadged to the new provider
Establish a transition and governance process and populate the teams early in the transition period
Unfortunately, "no change" is not an option. The cost reduction techniques and operational alternatives have already been examined. Competitive and economic pressures will not go away and will become more difficult to overcome if complacency is an acceptable alternative. To counter complacency, the company must clearly and firmly communicate its outsourcing objectives and begin the change process in a visible, decisive manner.
Significant pressures exist today for the outsourcing service provider to offer compensation and benefits equal to or better than the existing package enjoyed by affected employees. The salary structure of the new provider may be lower than the company engaging in the outsourcing relationship, jeopardizing retention of key individuals that should be retained for service stability purposes. Today, a two-tiered level of benefit packages is often created within companies.
When evaluating different providers, consider whether they have:
An intended percentage of rebadged company employees
A clear transition plan describing services and a timeline
Clear governance roles and responsibilities between provider and company
Incentives for essential transferred employees that allows for shared expense between the provider and the company during the transition period
Gaps in total compensation packages, including provider career planning and new job opportunities
One simple step is also among the most overlooked: telling critical employees you want them to stay. And to avoid misunderstandings during a confusing and fast-moving time, clearly document any promises with written communications or, better yet, employment agreements. At the same time, be careful not to make promises you can’t deliver on later.
The company and provider work together to make the employees whole, taking into consideration the current economic environment and disparities between what the employee was paid and the provider’s compensation policies. Fairness is always perceived differently, depending on which side of the table you sit. Both the company and the provider should expect some disappointment and disillusion, and should work to promote a positive, forward looking organization.
The people who make up the company are a community and human beings with lives outside the company that depend on employment with reasonable compensation. Upon hearing the first rumor about outsourcing, employees begin planning how they are going to handle it and preparing for what they believe is the inevitable. Leadership must be prepared to communicate widely and deal with rumor prevention, productivity loss, and premature defections. The more information a company can communicate to employees early in the engagement, the more success they will have in retaining employees.
Strategies for minimizing the negative effect on existing employees include:
Creating an effective communications plan
Addressing communications from a community and an individual perspective
Demonstrating no signs of weakness or uncertainty in the decision made to outsource
Constructing plans for retaining the loyalty of essential personnel
Understanding the demographic make-up of your organization and tailoring messages to be most effective to their perspectives
There is no mention of fairness of severance and compensation packages because the company’s current situation may not allow them to offer an equivalent plan due to economic conditions, agreements in place or continued ability to compete in today’s market.
When considering the operational implications of an outsourcing deal, the company’s culture and human element is often overlooked. A good provider is one that will take the time to understand the policies and attitudes that define a target company’s spirit and specifically develop a strategy to address cultural issues in the wake of the outsourcing deal.
Outsourcing success is impacted by many variables, the least being the contractual relationship entered into by the company and the provider. At the end of the day, people, productivity, and innovation drive business results. Careful planning and collaborative execution among the three participants are necessary for long-term success in outsourcing.