From our previous discussion on the topic it was obvious Outsourcing works to reduce costs, grow revenue, and be first-movers to market. We discussed Why the Market is moving toward Outsourcing with the following points:
First, there has been an increase in the number and types of capabilities that external product development contractors possess.
Second, advances in technology and other innovations make it more advantageous for firms to outsource because of the difficulty in simply keeping up with the latest advances.
Third, even if companies could keep up with changes, it is not cost-effective to make the investments necessary to be on the cutting edge of countless technologies.
Managing the Relationship in Outsourcing
According to Michael F. Corbett companies typically spend about 2% of the value of their outsourcing contract to manage the vendor relationship. Effective management of vendors is based on these 10 principles:
- Maintain strategic responsibility — Operational issues must be handled at various levels, but do not delegate the alignment of your firm’s interests with its vendor/ supplier. Making sure that the relationship works is a job for a top executive.
- Create multiple organizational links — Promote them at every level of the company.
- Hold regular meetings — Get together periodically to iron out any issues.
- Employ technology — Use the Internet, e-mail and such tools in management.
- Define escalation processes — Everyone should know the processes to be followed when issues need to be elevated to higher levels.
- Use a scorecard — Define and apply metrics that will gauge success.
- Apply carrots and sticks — Motivate employees with fair incentives and penalties.
- Reward your vendor’s employees — Without becoming a co-employer, find ways to motivate and recognize the employees of your outsourcing partner.
- Define the change process — How will both firms address the need for change?
- Honor the relationship — Carefully manage, respect and nurture the outsourcing relationship. It is a strategic asset for your company.
The Future of Outsourcing
Change, including change in employment, has become a constant. Corbett points out the following changes await all organizations:
- Expect more competition — whatever you do, you will be competing with well-trained professionals who earn a fraction of your salary. Today those workers live in India, the Philippines, China or Eastern Europe. Soon Afghanistan, Thailand and Vietnam will step up to the plate. To stay ahead, advance your knowledge constantly.
- Everyone will be self-employed — Even if you work for a firm, you are essentially self-employed. And self-employed people know they only get work if they address the needs of the companies that hire them. Self-employed workers take responsibility for their own training, realizing that their knowledge and expertise define their value.
- Outsourcing will change the role of managers and executives — increasingly, they will shift away from functional or operational expertise and toward the integration skills that top managers have always needed. Mike Useem of the University of Pennsylvania’s Wharton School terms this “lateral leadership” and says lateral leaders need four essential capabilities. They must be able to think strategically, to make deals, to govern partnerships (such as outsourcing agreements) and to manage change. Companies will pay a premium for mid-level and senior managers with those abilities.
- Project/process leadership — more outsourcing means a greater focus on project and process leadership. Businesses increasingly create teams to attack specific tasks and achieve specific results. A team comes together to find a solution and then disbands. Project leadership requires a different set of skills and a knack for blending team members’ competing interests. Everyone must stay focused on the task at hand.
- Global leadership — Gone are the days when leadership primarily meant managing the people stationed in the headquarters in Little Rock or Newark. As outsourcing goes global, managers and executives at every level must work with those from different cultures and countries. Global experience will be vital to a manager’s career.
- Transformed organizations — like prisms, companies will unite external resources and focus them into a laser-sharp result that meets consumers’ needs. Certain business units will be affected more than others. Departments that innovate, for instance, will see a great deal of activity go offshore. The pharmaceutical industry will out-source the discovery of new drugs, for example. Technology firms such as Dell, Cisco and Intel already have turned outsourcing from a supply chain mechanism into an innovation chain, delivering not new hardware, but new ways of doing business. Because innovation is based on knowledge — whether information about employees, customers or operational systems — managing knowledge will be more important than ever. The challenge is to facilitate and encourage the sharing of knowledge across business structures and units. Risk management will also see profound change. Out-sourcing makes organizations more interdependent, so risks that affect an outsourcing partner now also affect the domestic firm. Thus, Ghana firms must hold their foreign partners accountable for compliance with standards and regulations. For more details on the topic contact Kojo who provides outsourcing consulting, research and training in West Africa with international accreditation.
ABOUT THE AUTHOURS
Daniel is the Managing Partner Spint Consult Ltd and Michael is the CEO MG Business Solution Ltd.Certify Outsourcing Professional (IAOP,COP)email@example.com |+233-577-670-880