Outsourcing expert: Beware of the ‘black hole’

Experts at an outsourcing event held Thursday at the International Trade Club of Toronto cautioned that companies must work out several issues before letting another firm manage part of their business.

This is especially critical since a shift in thinking has prompted companies to outsource important functions that need world-class attention, as opposed to five years ago when they looked for non-core functions to outsource, said one authority in the field.

Today, firms are farming out services like IT, finance, transportation, manufacturing, marketing and sales, management, administration and customer service, said Alex Lam, chief operating officer of the Outsourcing Institute in Asia, and president and founder of the OCB Network in Toronto and Intelligence Connections Ltd. in Hong Kong.

Outsourcing has become a sensitive and well-publicized topic in North America and is estimated to have cost the U.S. 300,000 jobs over the last three years, according to figures from Forrester Research in Cambridge, Mass., Lam explained.

Indeed, outsourcing has become the next “bad name,” said Lam, equating it with past sinister terms like re-engineering and downsizing. He said outsourcing doesn’t need to have negative connotations, and noted “innovation gave birth to a new set of industries and jobs” in areas like biotechnology and nanotechnology when manufacturing jobs moved offshore in the past.

Working with companies that have outsourced, Lam has found that the decision has evolved from a tactical to a long-term strategic tool that’s embraced by big or small companies that generally don’t move back in-house the outsourced service.

In choosing to outsource, companies must be aware of some longstanding myths, including that the service will solve all employee and asset problems, achieve immediate results or increase customer satisfaction, he said.

At the same time, firms must be wary of the “black hole of outsourcing,” warned Lam. Organizations that contract out work may leave management of the division, project or function to outside vendors without considering they need a small group within the original company to manage the vendor and offer continuity on the project, he said.

Organizations that are successful in outsourcing need to know the ins and outs of their business, get along well with their service provider, and explain to staff the reasons behind the decision to outsource, Lam explained.

Since “outsourcing is a traumatic experience for most organizations,” added Ronald Morrison, president of RC Management, a Burlington, Ont.-based consultant to manufacturing companies, they should decide the aspects of their company that need to change to be compatible with a service provider’s way of doing business.

Moreover, they should take a look at the total delivered costs, both hidden and visible, and continually examine the impact of outsourcing on customers, he said.

And although the Outsourcing Institute’s research has shown companies generally don’t take back internally farmed-out work, Morrison said it’s important to have “an exit and recovery strategy in their hip pocket.”

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