Question Time with Mentor John – Outsourcing effectively

Outsourcing is a business practice of hiring another party to perform certain jobs that were previously done in-house. It allows the business to focus on its core activities, while contracting out other tasks to a service provider, who may be able to handle the outsourced jobs more efficiently. Businesses can outsource a range of tasks, such as payroll, call service, IT services or book-keeping. What are the best strategies to adopt, when it comes to outsourcing? Mentor John answers your questions:

We have decided to outsource certain non-critical tasks in order to reduce costs. This is going to mean letting some staff go. How do I maintain company morale high, especially as employees will need to collaborate with the soon-to-be-appointed service provider?

First, think very carefully about outsourcing. It became a fad for a time and it can certainly reduce costs. It can also let you down to a point where your client blames you for reduced standards, but you cannot effectively get any redress from your supplier. Be very certain that the supplier you outsource to is: [1] honest and will not steal your ideas, [2] efficient and has Plan B if his systems fail, [3] going to make the same commitment to your own clients as you do.

You have decided to go ahead with the outsourcing strategy and this results in firing some of your staff. Can they get jobs easily? Can they get jobs with the person to whom you are outsourcing? Can part of your contract with your outsourcer be that he employs your staff for at least 6 months? How you treat those you fire will determine the company morale more than anything else.

Be transparent with your remaining staff. Tell them the economics of firing those you let go. Tell them there will be no more firings for that or similar reasons – if you honestly can.

From past experience, I’ve found outsourcing to be more of a hassle than it’s worth, due to the drop in quality, increased risk of loss of proprietary know-how and communication errors. Is there a better way to manage my service providers?

If there is a good commercial case to outsource, and that means real financial benefits, then you have to make it work by paying attention to your third party supplier, as much as you would to your own staff. If your supplier is poor, change him. But it is your job to choose him well in the first place and then to handle him with skill and attention. Be as attentive to a supplier as to a client.

It’s the same as your regular suppliers. If you treat them well and make them feel a part of the business, they will be responsible. Of course that will not stop rogue or inefficient employees of your outsource damaging your business but in a similar manner, you couldn’t avoid internal sabotage and pilfering from your own employees.

Try making your suppliers friends, sources of industry information (gossip) and also sources of new ideas. Treat them as the best staff you have and they will respond.

I’ve leveraged on outsourcing a few times to accelerate certain projects. My service provider saw the opportunities and now has become my competitor, stealing clients from me. Is there anyway to prevent this in the future?

What intellectual property (IP) protection did you have for your products or services? It is difficult to prosecute IP in some countries in Asia and impossible to do so if you have little money. What is the basis of your service provider stealing your clients? Is it lower prices? If so, you can retaliate by undercutting him but this is a game of losses for both sides, since you will have to wait until his losses hurt him more than your losses hurt you. Is it superior products or service? If so, you need to up your game. I am afraid this issue is more about competition than about trying to prevent service providers from becoming competitors.

There are strategies you can put in place to deal with competition. For example, when I was running Cerebos Pacific, I had a strong brand in Brand’s Essence of Chicken. Many big competitors tried to move into the market including Unilever, Reckitts and others. There were strong local competitors as well, Eu Yan Sang among the most effective. Our strategic approach was to step up advertising and promoting the product to the point where the invader’s margins were squeezed uncomfortably. It worked. Today’s media are different but the same strategy is possible, if you can afford it.

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