Know the benefits and costs of outsourcing services

By Ann Macaulay
|Canadian HR Reporter|Last Updated: 03/30/2001

Outsourcing non-essential services can help you concentrate on your core business, but before you start hiring outside workers, know what you need and what the benefits — and costs — will be.

“People have to think of outsourcing as an option for doing things more effectively,” says Toronto-based organizational development consultant Gail Aller-Stead, who works with organizations and individuals to help them improve their work processes.

Keep your core capability in-house — whatever defines your business, makes you unique, and gives you competitive advantage. If it’s absolutely integral to your business, don’t outsource it. “You’re putting yourself at risk” if you give up responsibility for governance of your firm, says Aller-Stead.

Almost all of a firm’s functions can be outsourced. Payroll, telecommunications, food services and pension and benefits have long been on the list of outsourced services, but newer additions include sales and marketing, human resources, legal services and research.

Outsourcing doesn’t mean you can abdicate all responsibility for getting the job done. On the contrary, it can add a level of complexity since the work is being done outside the company. Managers are still held accountable for getting the job done, but they don’t have the same control that they have over inside workers.

In his book The Age of Unreason, Charles Handy says that all non-essential work should be “contracted out to people who should, in theory, be able to do it better for less cost. Calculations by some organizations revealed that if they broke down all the elements in their product or service, 80 per cent of the value was actually carried out by people not inside their organization.”

Handy uses the image of a three-leaf shamrock to symbolize the three different groups of people in organizations. The first leaf represents the core essential workers, the second represents all non-essential workers whose jobs could be contracted out, and the third leaf is the flexible or contingent labour force.

Aller-Stead lists criteria that decide what should be outsourced:

•specific expertise you need and don’t have in-house – it’s a major investment to train inside workers; and

•work that can be done more effectively by an expert.

“The decision to outsource is a solution to a problem – be clear what the problem is,” says Aller-Stead. “Focus on what the problem is for which outsourcing is the solution.”

Some firms have been unhappy with the results of outsourcing job functions, creating a backlash against hiring outside workers. Frustration from poor service or escalating costs can result in “backsourcing.” If a function has been performed poorly inside the organization, it won’t necessarily be performed better by outside workers — and an even worse job may result.

Temporary workers

In addition to off-site outsourcing, companies are employing a larger number of contract and contingent workers for special staffing needs such as maternity leave, work overload, special projects and sudden departures.

Jeff Hendler, manager of candidate services at The Part Time Controllers (PTC) placement agency in Concord, Ont., says “most outsourcing needs are last-minute. About 80 per cent are panic mode ‘my controller just left me,’ situations, although in a few cases they anticipate in advance.”

Hendler says that finding good people is difficult. “With the unemployment rate so low, it’s hard, I now only present two people for a job instead of three or four.” He says there’s a great deal of competition now, including more electronic-based recruiting.

Companies’ need for temporary workers “tends to grow” as they realize how much work needs to be done, says Judy English, president of Outplacement Services Inc. in St. John’s, Nfld. She sits down with clients and goes through a list of their staffing needs. “The process gets them thinking” about what they really need. “Sometimes they have no idea what they need.” There’s “a lot of hand-holding, baby steps, especially with new clients.”

English has hundreds of employees available for outsource work on file at any given time. She gets a lot of requests for customer service representatives, but the need for IT workers remains high. “Experienced IT workers are very difficult to get.”

English works very closely with HR departments to help place workers, since “HR people tend to get snowed under” with other parts of their jobs, including training, and administering pension plans. “We’ve gotten very busy — a lot of companies realize it’s the way to go instead of putting an ad in the paper.”

Ann Macaulay is a Toronto-based freelance writer.

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