Are You Being Outsourced?

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By Dean Meyer

Proactive initiative is only way to avoid becoming vulnerable to an outsourcing threat. There are four things staff can do to retain their position as users' or clients' vendors of choice.

Watch for Early Warning Signs

First, watch for customer dissatisfaction as is apparent through loss of market share.

Whenever clients hire their own decentralized staff, internal staff have lost market share.

Whenever clients work with their own contractors or buy directly from vendors rather than acquiring products through internal staff, the internal service provider has lost market share.

Whenever staff feels they need a monopoly to ensure that clients work with them, their market share is in jeopardy.

If any of these warning signs indicate pressure on an internal service provider's market share, it means that clients aren't happy. Staff can expect a rebellion in the form of outsourcing.

This is the time for a serious look at the internal operations of the organization.

Take the Initiative

Second, take the initiative and be proactive about competitive comparisons.

Don't wait for an executive mandate to invite outsourcing bids. Do your own competitive comparisons -- all the time.

A healthy organization divides itself into clearly defined lines of business, each run by an entrepreneur. Each entrepreneur should know his or her competitors, and continually benchmark price and performance against them.

This isn't make work. Those very competitors are also potential extensions to the internal staff. If demand goes up, every entrepreneur should have vendors and contractors lined up, ready to go. And whenever it bids a deal, staff should propose a "buy" alternative alongside their "make" option. This is exactly what is meant by "extended staffing."

By working with outside contractors on a regular basis, every entrepreneur automatically keeps an eye on the competitive market and gets early warnings if internal staff loses its competitive edge.

Manage your Vendors

Third, manage your vendors. Consider these examples of the kinds of things that can go wrong.

One IT department hired an international consulting firm to manage a large, state-of-the-art systems development project. Since the clients felt they could direct the external consultants, the internal project manager wasn't given clear authority over the project (although she was certainly held completely accountable for it).

On the surface, the consultants seemed to perform well. In reality, they did as much damage as good. The consultants did whatever it took to make sure that their portion of a project stayed on schedule; and, indeed, they met their objectives.

Meanwhile, they made no effort to cooperate with staff on related aspects of the project. On a number of occasions, they went so far as to make unreasonable demands of internal staff to make their own jobs easier. Of course, when their demands weren't met, they made every effort to pin the blame on internal staff.

By the way, driving good staff away helps the cause of the outsourcing vendor. The more trouble the internal service provider has with retention, the weaker it becomes relative to its outsourcing competitor.

Another IT department fell victim to an even more insidious vendor. Some vendors have deliberate strategies of getting their foot in the door by helping staff and then making every effort to displace them.

This IT department hired such a consultant to help with a large, complex project.
They later learned that, at every opportunity, the external consultants had planted seeds of doubt with top executives to undermine staff's credibility. Consulting partners routinely met company executives on the golf course and said something to the effect of, "Your staff is pretty good...for routine things. But these are not routine times...”

Then, they attempted to sell the CEO on outsourcing the entire IT function.

Early in the sales cycle, vendors can promise top executives dramatic savings. But watch out for that caveat, "subject to due diligence." It's easy for vendors to find reasons to back off from their promises once serious negotiations begin, and it's hard for executives to spot this "bait-and-switch" tactic in such complex deals.
Forewarned is forearmed. If you must engage a consulting company that's also in the outsourcing business, head them off at the pass by warning your executives in advance about these questionable tactics.

And make it absolutely clear to the consultants that you won't put up with it. Either they work for you, or not at all.

Get Healthy

Fourth, and most important, make sure your internal service provider organization is healthy and earns the right to be clients' vendor of choice.

Internal service providers must continually invest in organizational performance to ensure they're the best deal in town.

Getting healthy is not a matter of cosmetics, and not simply cost cutting (which generally implies reducing services).

It's not a matter of image either. A marketing program that says, "We're fine; you users don't know it," can be disastrous. The implied complacence galls clients and sends the message that, if they're dissatisfied, they'll have to look elsewhere.

Instead, clients want an internal service provider that recognizes its problems and demonstrates commitment to fixing them. And they must have faith that the organization has a viable plan for self-improvement -- one that will lead to an internal service provider that outperforms its external competitors and earns clients' business.

Useful Links

NDMA
http://www.ndma.com

Identifying the Strategic Value of the Work You Provide
http://www.sourcingmag.com/content/c060322a.asp

How Service Providers Buy Your Business
http://www.sourcingmag.com/content/c060227a.asp

Comparing Costs between Internal and Outsourced Services
http://www.sourcingmag.com/content/c060208a.asp

How An Internal Team Can Respond to an Outsourcing Challenge
http://www.sourcingmag.com/content/c060116a.asp

How To Manage The Extended Staffing Model
http://www.sourcingmag.com/content/c060102a.asp

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