Published November 19, 2004 in the Portland Press Herald.
Does outsourcing mean lost jobs and destroyed communities? This question
seems to lie at the center of a highly politicized debate.
In reality, though, it's offshoring people mean to talk about as the dark
side of globalization. Outsourcing has been, is and will remain a part of the
process by which businesses constantly reinvent themselves to adjust to a
changing world. If managed wisely, the practice can create opportunities for
economic efficiency, increased productivity and more
employment.
Outsourcing has existed since families first bought, instead
of baked, their bread. From call centers to semiconductor manufacturing to the
host of small businesses that support papermaking and shipbuilding, outsourcing
has provided new jobs and economic development in Maine. Legal counsel and
accounting services are commonly outsourced. Even cleaning firms are a good
example of how outsourcing has created new business
opportunities.
Outsourcing:
Enables a business to take advantage of new technologies and stay
competitive.
Frees up valuable resources, both human and material, to focus on core
business functions.
Reduces overhead and expenses that do not directly support a firm's business
model.
As with any dynamic process, there are risks. Outsourcing can become a drug
that lures a business into overdependence upon a single vendor. When it is time
to end the relationship, that business can find it is not free to move on
without significant disruption. If the outsourcing relationship fails, so can
the business being supported.
There are other concerns. Outsourcing a complex function may cause
difficulties because unanticipated events crop up.
For example, the outsource vendor could hire away a company's best salesman
or computer technician. Or the outsource vendor might also not perform as
promised.
Although this may appear to be the greater risk for specialized skills like
computer programming, a failure in the most basic of business functions can
produce the same result.
Few in Maine's business community are unaware of recent examples of payroll
companies that defaulted on their obligations and left many small businesses
owing substantial sums in unpaid taxes.
Before you choose to outsource, give careful thought to prior planning.
Consultation with legal counsel can provide useful insights into the
process.
Discussion with your accountant can sharpen your business planning. You
should be sure that your outsourcing plans translate into line-item reductions
in your operating and capital budgets.
Consideration must be given to the use of intellectual property and other
business assets. If any of this property is to be used by the outsource vendor,
be sure to protect against unauthorized uses or disclosures.
Be sure to define the services that you want, understand how much you will
pay for them, and establish performance standards like response times, quality
specifications or periodic reporting. In this way, you will be able to monitor
the relationship as it goes forward to determine if it is satisfying your needs
on time and at the price you anticipated.
Not every contract goes smoothly. Consider how to resolve any problems that
arise, perhaps through notice and cure provisions that alert the vendor to
performance problems that need to be addressed promptly. If a situation cannot
be resolved by informal means, think about formal dispute resolution procedures
that fit your budget and timing. Perhaps mandatory arbitration is appropriate.
But don't assume that any boilerplate will be satisfactory. If you don't
understand each step of the process, you may find yourself in for an unpleasant
surprise involving a lengthy and expensive proceeding that may prevent you from
having access to the court system.
There will come a time when you outgrow your relationship with an outsource
vendor. It can be an amicable break, or it can be sudden and ugly. If you don't
think about your exit strategy until then, it is too late to control the
process. Here is an example:
An employer uses a third-party administrator to handle its group health
benefits for its employees. Because the administrator is a turnkey operation,
the employer is only nominally involved. When the administrator announces a
price increase, the employer finds a lower-cost vendor to take over.
Unfortunately, the old contract makes no provision for transferring claims
information to the new administrator. As a result, when an employee visits a
doctor, the benefit is denied because the old administrator refuses to pass on
the claim to the new one.
Employees are confused, doctors are unclear about coverage, and the new
administrator and the employer must go through a difficult transition process.
If the old outsource contract had made clear what would happen when the contract
terminated, these problems could have been avoided. Think past the honeymoon and
consider the consequences if your outsourcing relationship goes sour.
