The term outsourcing can be used very broadly to refer to processes that would previously have been termed subcontracting. For some, a crucial point is whether the work was being done by an internal department under hierarchical governance within the organization prior to outsourcing to an external service provider. From this perspective Outsourcing is a particular form of market externalisation of employment that involves an outside contractor taking over an in-house function (Purcell and Purcell, 1998). A key criterion for a definition of outsourcing, and the particular focus in this section, will be that the process includes a transfer of staff to the third party while still requiring them to carry out more or less the same services for their previous employer and the service provision is recurrent - that is frequent in execution[a]. This can be compared with more general forms of subcontracting; where outside companies carry out work for a client adding to in-house resource with their own staff or providing in effect the finished product using their own resource. These types of market externalisations perhaps should not be called outsourcing but service contracting. In this section of the Wiki the main thrust of the discussion will be the people in transition between organisations looking at the ways they cope and make sense of the situation as they move between them - performing the same work, sometimes even within the same social setting, but having a different employer paying their salaries. It is our belief that in taking this approach we are able to focus in more clearly onto some of the problematic areas of Outsourcing and offer an explanation of what tends to go wrong as well as shifting our attention into areas where we might improve.
Outsourcing should also be more clearly distinguished from insourcing, when contractors are used to assist with work for example supplementing internal capacity in an occasional or non recurrent way. These types of service provisions are usually managed quite well by tradition procurement processes whilst being managed by market based contracts. Offshoring is also a major trend, as business processes especially call centric services are handed over to organisations operating from parts of the world that enjoy a labour cost advantage over the local workforce. Whilst there may be no staff physically moving between organisations there are clearly aspects of justice and fairness to be discussed discussed as well as the problematic issues around the embedding of service processes within dispersed workforces. Finally, as the market is maturing, the concept of back-sourcing (or re-sourcing) internal organisations must be considered, as more companies see the need to bring people and processes back under their control. We will explore this phenomina from the viewpoint of what is driving this and consider whether this is just a normal part of maturity in the outsource market as the configuration between organisations gets adjusted to new circumstances.
Overall our preference here in this wiki resource will be is to distinguish outsourcing from other types of sourcing, by using a definition that emphasizes the delegation or handing over to a third party of all or part of the technical, process and human resources of an organization that includes management responsibility for transferred staff. Thus we look at in this section Outsourcing that involves a transfer of people from one company to the service provider and the people factors that must be accounted for during this transition.
The Types of Outsourcing
There are a variety of models that relate the type of service to the form of the relationship with the supplier. Cullen et al (2005) is a particularly useful framework that outlines seven key attributes, around scope, supplier grouping, financial scale, pricing framework, duration, resource ownership and commercial relationship. To simplify the argument here we emphasize differences between full versus selective, single or multi vendor, the process to be outsourced and the scale and duration of the contract.
Full outsourcing occurs when a complete function or department is outsourced, and handed over to one or more suppliers - although this type of approach has beeen criticised as being of high risk and several problematic issues have been uncovered. Selective outsourcing occurs when a specific function is outsourced, such as only the desktop management, within IT, or the payroll function in HR. Somtimes referred to as best of breed or best practice approaches the basic concept is to find a supplier who is specialised in the desrired function and thus able to perform at a higher service level than internally provisioned services. There are also differences between single, dual, and multi-vendor outsourcing, with obvious coordination and contractual complexities to be addressed as the number of vendors involved increases. The area to be considered for outsourcing will also impact on the process. There are differences in risk between outsourcing cleaning services compared to functions with high specificity and complexity such as some parts of IT or human resource management. In general, simpler, easy to define services, carry lower risk - although this will vary by organization. Our research work has shown that even in cases where a service can be classified as simple, and apparently risk free, the removal of that task from the overall structure can have adverse consequences for change. The removal of cleaning staff from under the control of ward managers to a more central operation in the UK can led to a deterioration in service and an increase in hospital infection rates as aspects of control and identity that had previously maintained performance have been broken. The scale of the project is also important, not just in terms of the value or the number of people involved, but also whether multinational operations are covered. Extra management effort and time will be needed to construct a workable contract and these hidden long term costs in monitoring supplier performance for international suppliers often negates the immediate direct labour cost savings.
There are also regulatory aspects such as data confidentiality and security that must be accounted for. Outsourcers cannot 'outsource' their liability for these important areas and we have seen the catastropic consequences that can occur if poor management of the service happens such as BP exploration. Finally, outsourcing varies by time-scale, with some contracts being signed for relatively short periods, two years for example, and others extending for ten or even twenty years. Clearly, the longer the time-scale, the more certainty there will be a need for flexibility and for contractual changes as over such a long time-scale, spanning possibly an economic cycle, changes in the business model may result in the original business case being invalidated. However, short contracts carry their own problems, particularly around stabilising the change, building trust and managing human factors. Calling for too short a contractual time-scale as some authors have suggested is almost certainly a mistake and does not allow for suppliers to establish a firm grip of the services or for personnel to adapt to the new circumstances. Overall the ideal sweet spot seems to be around five to seven years, any longer and the outsource is overtaken by economic events and shorter ad the change cannot be stabilised.
- ↑ Purcell, K. & Purcell, J. (1998) In-sourcing, outsourcing, and the growth of contingent labour as evidence of flexible employment strategies. European Journal of Work and Organisational Psychology, 7(1)
- ↑ Cullen, S., Seddon, P. B. & Willcocks, L. P. (2005) IT outsourcing configuration : research into defining and designing outsourcing arrangements. Journal of Strategic Information Systems, 14.
- 1 In the main outsourcing of services that include the transfer of personnel are a specific case of sourcing under market governance - the reason for the approach adopted is many of the problems with outsourcing can be traced back to an instrumental stance on people issues in current practice.