Hu­man cap­i­tal trends: Is there value in out­sourc­ing?

Chronicle (Zimbabwe) - - Business - Silin­gan­iso Moyo

THE prac­tice of out­sourc­ing trans­ac­tional and ad­min­is­tra­tion ser­vices by or­gan­i­sa­tions is be­com­ing a common fea­ture in the 21st cen­tury.

Pro­po­nents of the con­cept be­lieve it can have a pos­i­tive im­pact on cost struc­ture as well as an or­gan­i­sa­tion’s bot­tom line.

In view of trans­for­ma­tional jour­neys by in­di­vid­ual or­gan­i­sa­tions, there is need, there­fore, for strate­gic think­ing by com­pany se­nior ex­ec­u­tives.

Could out­sourc­ing be a so­lu­tion to cost cut­ting, par­tic­u­larly in a de­pressed econ­omy like Zim­babwe’s? Var­i­ous fac­tors will have to be adopted when de­sign­ing the out­sourc­ing strat­egy and the tim­ing must be proper given that such a de­ci­sion can make or break the com­pany.

Out­sourc­ing is about hir­ing a third party to pro­vide a ser­vice for an or­gan­i­sa­tion on the ba­sis of a com­mer­cial con­tract. This is not com­monly prac­tised in Zim­babwe and many or­gan­i­sa­tions are yet to em­brace the con­cept in spite of it be­ing com­monly prac­tised in other coun­tries.

For those com­pa­nies that have ap­plied out­sourc­ing in Zim­babwe, some have burnt their fin­gers due to out­sourc­ing wrong busi­ness units, us­ing fly by night con­sul­tants, out­sourc­ing too many ac­tiv­i­ties at the same time. Some thought out­sourc­ing was a panacea for all their com­pany prob­lems.

The Press is awash with head­lines of com­pa­nies down­siz­ing, cut­ting salaries or wages, sus­pend­ing re­cruit­ment and some to­tally shut­ting down. It has be­come a rep­u­ta­tion of most Zim­bab­wean com­pa­nies to fo­cus mainly on hu­man tal­ent as if that is the only source of cost cut­ting with­out ex­plor­ing other pos­si­ble ar­eas within the busi­ness. It is paramount that or­gan­i­sa­tions de­velop new mind-sets and be­gin to eval­u­ate all other as­pects of the busi­ness holis­ti­cally.

Most or­gan­i­sa­tions in Zim­babwe are cur­rently in a sur­vival mode.

While busi­nesses are fo­cus­ing on their core busi­ness, it is im­per­a­tive that they also ex­plore pos­si­bil­i­ties of out­sourc­ing their non-core pro­cesses. Pro­gres­sive com­pa­nies have em­braced the idea of out­sourc­ing and for this rea­son they are likely to out­live the cur­rent eco­nomic dol­drums.

A prom­i­nent man­age­ment ex­pert, Peter Drucker, notes that “re­sults are gained by ex­ploit­ing op­por­tu­ni­ties not by solv­ing prob­lems”.

Or­gan­i­sa­tions, there­fore, need to be more ex­ploita­tive of their en­vi­ron­ment than be­ing re­ac­tive. Com­monly out­sourced ser­vices can vary greatly. Ex­am­ples in­clude, but are not lim­ited to; in­for­ma­tion tech­nol­ogy, ac­count­ing, hu­man re­sources in­clud­ing pay­rolls, labour mat­ters, pen­sion ad­min­is­tra­tion and so on. Ben­e­fits of strate­gic out­sourc­ing are many. Chances are that the com­pany will en­joy spe­cial­ist ser­vices of­fered by the sup­plier since this is the sup­plier’s core op­er­a­tion. The prom­i­nent ben­e­fit is that of cost sav­ing. Re­search has shown that out­sourc­ing re­duces em­ployer costs by between 40 per­cent and 70 per­cent of to­tal costs. The com­pany is able to fo­cus on core ar­eas of the busi­ness thus in­creas­ing ef­fi­ciency and com­pet­i­tive­ness.

Shar­ing of com­pany risks/lit­i­ga­tion mostly as­so­ci­ated with em­ploy­ees is trans­ferred to the third party. This al­lows the or­gan­i­sa­tion to be flex­i­ble and re­cep­tive to change. The ap­proach is a source of sus­tain­able com­pet­i­tive ad­van­tage.

Out­sourc­ing may com­ple­ment em­ploy­ers’ cost cut­ting en­deav­ours but may be com­pro­mised by dys­func­tional op­er­a­tional sys­tems of an or­gan­i­sa­tion. Or­gan­i­sa­tions thus need to align their cor­po­rate cul­ture to their in­ter­nal struc­ture to achieve cost ef­fi­ciency and com­pe­tence. These be­ing pil­lars of com­pet­i­tive­ness, it is in­cum­bent that com­pa­nies pe­ri­od­i­cally eval­u­ate out­sourced ser­vices.

There should be strin­gent con­trols by man­age­ment in or­der to pro­tect the busi­ness’ in­ter­ests. Out­sourc­ing should be un­der­taken af­ter do­ing a cost, risk and ben­e­fit anal­y­sis and should not be done for the sake of do­ing it. Gen­er­ally an out­sourc­ing con­tract would in­clude the fol­low­ing:

Scope of work — What the sup­plier/ven­dor/ con­sul­tancy will do for the client

De­liv­er­ables — What the sup­plier will pro­vide in terms of equip­ment, dead­lines etc. Terms and con­di­tions — Con­trac­tual obli­ga­tions Ser­vice Agree­ment — Ser­vices will be cat­e­gorised in terms of fre­quency, vol­umes, com­plex­ity and so on.

Out­sourc­ing could sal­vage many strug­gling com­pa­nies in Zim­babwe with­out spend­ing a for­tune, pro­vided com­pa­nies are not scep­ti­cal to in­tro­duce such change.

Out­sourc­ing can be a busi­ness driver re­sult­ing in rev­enue growth, cost ef­fi­ciency and im­proved brand eq­uity.

The value ben­e­fi­ci­a­tion would en­tail com­pa­nies in­tro­duc­ing eco­nomic busi­ness meth­ods with a view of achiev­ing sus­tain­abil­ity.

Silin­gan­iso Moyo is a con­sul­tant with Dis­pute Res­o­lu­tion Con­sul­tancy (D.R.C) (Pvt) Ltd; a Labour Law and Tal­ent Man­age­ment Con­sult­ing Firm. She can be con­tacted on 0772238496; email: con­sul­tants @drc.co.zw

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