Jack of all trades or master of one?Business Management
Running an agricultural business often means being a jack of many trades – an orchardist one minute, a plumber or mechanic the next and an accountant or market analyst by the end of the day.
Some of these tasks require skills that come easily, others might be hard to master, frustrating or just plain tedious and time consuming.
Have a think about what you do on a daily basis and how often you feel stretched too thin or your attention is taken away from your core role or skill set by tasks outside the scope of your expertise or interest. What is the cost of this work unfinished or delayed?
In many cases, there may be an opportunity to outsource/offshore these tasks and even though the need to identify someone to take on the task and brief them may seem daunting, in the long run the gains from being able to focus on what you do best may more than repay the effort and additional cost.
Outsourcing and offshoring
Outsourcing refers to the contracting out of an entire business function, a project, or certain activities to an external provider. The term entered the business lexicon in the 1980s. In the second half of the 20th century, as companies tended to grow larger and skills were required to be more and more specialised, companies found that external providers were often able to get work done faster and more efficiently owing to skills they possessed. This led to more hiring of external providers to manage business functions and projects where specialised skills were required.
Towards the end of the twentieth century, with improvements in shipping technology and telecommunications infrastructure, it became increasingly efficient to get work done in other geographical locations, especially in developing countries where wages are lower. This practice came to be known as offshoring.
Outsourcing versus offshoring
There is sometimes confusion about outsourcing, versus sending work offshore (offshoring). Outsourcing refers to an organisation contracting work out to a third party, while offshoring refers to getting work done in a different country, usually to leverage cost advantages.
Whilst it’s possible to outsource work but not offshore it; for example, hiring an outside law firm to review contracts instead of maintaining an in-house staff of lawyers. It is also possible to offshore work but not outsource it; for example, a Dell customer service centre in India to serve American clients. Offshore outsourcing is the practice of hiring a vendor to do the work offshore, usually to lower costs and take advantage of the vendor’s expertise, economies of scale, and large and scalable labour pool.
|Definition:||Offshoring means getting work done in a different country.||Outsourcing refers to contracting work out to an external organisation.|
|Risks and criticism:||Offshoring is often criticised for transferring jobs to other countries. Other risks include geopolitical risk, language differences and poor communication.||Risks of outsourcing include misaligned interests of clients and vendors, increased reliance on third parties, lack of in-house knowledge of critical (though not necessarily core) business operations.|
|Benefits:||Benefits of offshoring are usually lower costs, better availability of skilled people, and getting work done faster through a global talent pool.||Usually companies outsource to take advantage of specialised skills, cost efficiencies and labour flexibility.|
There are several reasons for companies to both offshore and outsource. Over the last few years it’s become even bigger as the list of goods and services that companies outsource have expanded into key parts of a business or even core competencies. Cost savings, process efficiency, access to a different or limited source of labour are some of the top reasons, however many organisations don’t achieve what they believed they would through outsourcing. With this in mind, below is a short overview of some of these key success factors and how they can improve your success and satisfaction with outsourcing.
Why does it go wrong?
- Outsourcing the wrong products or services, or for the wrong reasons to the wrong supplier.
- Suppliers underbid the contract either because they didn’t fully understand the requirements or deliberately to win a tender.
- Unclear objectives or specification between the parties.
- Price changes over the period of the contract that were not considered.
- Risks are not thoroughly analysed and mitigated.
- The contract and relationship are not managed.
How can it go right?
Be sure you’re outsourcing the right products or services for the right reasons. Identify what success looks like and whether the market can deliver it better than you can.
You will also need to understand your objectives in outsourcing. Are they to reduce costs, increase service levels or flexibility, reduce time to market, gain expertise you don’t have or simply to get people off the books? And, are these objectives and the targets you’ve set realistic?
A key driver for outsourcing is often to save money. Unfortunately, very few companies thoroughly investigate the savings claims made by suppliers and understand if these are possible within their organisation. Remember that you are now contracting to a supplier that needs to make money. That will likely be their key motivator.
Conduct a comprehensive sourcing exercise
Once you’re clear about your objectives you can source suppliers who should also be aligned with your business’ goals now and in the future and their company culture should be one that you can work with. This requires a thorough investigation of the supply market’s existing and potential capabilities and some open discussions.
Develop a strong contract strategy
Does your contract strategy motivate your supplier to provide a good responsive service and continuously improve? Ensure you have pricing mechanisms to stop the price from spiralling out of control. A common refrain is: “I used to get the job done, now I get a quote.”
Service level agreements should clearly state your expectations of the level of service delivery and give unambiguous methods of measurement, which all parties clearly understand. This should be created by negotiation for a clearer understanding between the parties and ensuring that delivery is practical.
Don’t ignore the implementation
You will need a thorough project plan, which shows what you and the supplier need to do, including communication with employees and other stakeholders which includes customers.
Manage the contract and the relationship
Starting at implementation, the most successful contracts are proactively managed to ensure they are not only good on day one but continuously improve instead of stagnating or even degrading. Outsourcing doesn’t mean signing a contract and then forgetting about it. You have outsourced the work but don’t abdicate the responsibility.
Don’t forget an exit strategy
And finally, give some thought up front to what you will do if it all goes wrong. Have you built in the ability to terminate the contract? If the service being outsourced is critical then do you have a good runner up service provider who could step in or could you take it back in-house?
Outsourcing is often selected on the basis of a gut feel or other subjective reasons, what is needed is a clear strategy as to why you are outsourcing, the benefits (and risks) you will receive, a contract management plan and finally a contingency if it doesn’t work.
Article was contributed by Gordon Donovan, Intelligent Spend Evangelist, SAP Ariba.