From WikiOutsource

Contents

1 Introduction
2 Types of Outsourcing
3 References
4 Notes

The Outsourcing Lifecycle

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.

Life-cycle stages in Outsourcing

Most managers will understand the concept of the product life-cycle as applied to outsourcing. Outsourcing can be viewed as form of service-based 'product' flowing through the life-cycle stages moderated by the continuous iterative nature of the development process as the form of the service is shaped during contracting and the early stages of delivery. Although there may be peaks and troughs in terms of life-time value of outsourcing contracts that are important from financial perspective a more important consideration are the different stages each outsource process goes through and how this impacts the people affected by the potential transition and the service delivery. Unfortunately, many organisations only consider the initial search for a vendor and handling of the procurement process when considering outsourcing forgetting the longer-term factors such as people management imagining that once the deal is done then it is no longer their concern - which is a grave mistake that lies at the heart of most outsource horror stories. Thinking through the transition of the people who will actually be delivering the service and the service concept itself are key tasks for organisations wishing to be successful in this change process.

Whilst some models have been developed for specific forms of outsourcing that allow for different stages most of these miss out important details. For example Khanna & New suggest HR planning during outsourcing should move from; Analysis/Evaluation, Contract Negotiation, Transition, to Stabilization/Improvement. They do allow for a return path in their model, but there is little discussion of changes after the stabilization phase. George, suggests stages of: selecting the vendor, preparing the contract, outsourcing management, and termination. However, its is probably best practice to ensure that any activity to be outsourced fully scoped in quite some detail, and efficiency savings made first, before embarking on an outsource. When assessing the capabilities of the organisation and key resources some components will appear to be delivering less economic rent or competitive edge compared to the resource cost. The first port of call is to improve the economic 'rents' by addressing efficiency (reducing costs etc.) and then evaluating based on approaches such as transaction costs whether a function can be better acquired from the market.

We therefore recommend the stages of: scoping, preparation, negotiation and selection, transition, maturity, and re-scoping. These six stages allowing for each important aspect of the outsourcing lifecycle to be given full attention. There are also issues regarding the people lifecycle processes, an aspect often forgotten in the management literature. If you are talking of transferring staff to the vendor, and/or imposing redundancies, this will have a major impact upon all the staff. Often they will perceive that you are transferring them because they were under-performing and unwanted. There are also issues around the differences to their contract, and a major change in the nature of their work relationships. Particularly if the contract with the supplier is short-term, their work position has been become very similar to a contractor. Even if they decide to transfer permanently to the supplier, it is likely to be a very different way of working. The psychological contract – their perception that if they worked well there would be some concern for their welfare – has been broken. Although some suggest staff have to go through various stages of shock, protest, despair and mourning, there is evidence that events, particularly how you manage the situation, can make a real difference and mediate the worst effects of this process.

Staff doubts and concerns are likely to make an impact on the performance of the function, both in the long and short term. Research indicates that the very nature of outsourcing contracts, including the need to continue working for the original employer, and often to remain on a contract that matches that of their original employment, does impact upon the way staff evaluate their situation, and influences their performance. In our work on outsourcing transition we have shown that even up to two or three years after the initial transfer staff are still finding relationships with their old and new employer difficult and feel they need to monitor the situation with their old employer closely.

To frame the discussion in this wiki section and highlight the experience of staff during the stages we will use findings and interviews from our own research that show the parallel emotional experiences undergone by people, the 'people life-cycle': the preparation, encounter, adjustment and stabilisation effects as shown in figure 3.2 below.