Human capital trends: Is there value in outsourcing?
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