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Human resources: Having the bottle to outsource

Every Issue

Cite as: (2003) 77(10) LIJ, p.98

Outsourcing parts of your firm’s operations can bring many benefits, but look before you leap.

Increasingly competitive markets has placed growing pressure on organisations to either cut costs or improve efficiency. In order to gain value advantages over competitors, organisations are progressively moving towards the outsourcing of peripheral business units in order to focus more and more on the core competencies that differentiate them from their opposition.

Within the legal industry, the outsourcing focus has often been on tangential business activities such as information technology, marketing, payroll and the specific components of human resources (i.e. training and development or recruitment and selection).

Outsourcing can afford firms a more cost-effective approach to accessing specialist skill sets in areas the organisation may not be seen as “best at”. As a result, when handled properly, firms can expect an increase in productivity and efficiency through using best practice resources plus more time and resources to focus on core components of the business success.

Outsourcing gives organisations the ability to channel their energy and resources into what is central to their business, together with the capability of achieving scale economies through the accessibility of cost-effective specialised skills.

However, when handled poorly, outsourcing can cause more problems than it solves. According to statistics, between 1989 and 1994 operating profits increased in only 51 per cent of companies reporting workforce reductions; in 20 per cent of cases, profits actually declined[1]

In addition, the loss of company control of staff and processes is arguably the main regret firms have when they don’t look before they leap.

Unless the relationship with the new supplier and the company is close, organisations lose their ability to “control” the level of service provided in an area they previously controlled. Once a process has been handed over to an outsider, it is extremely difficult and costly to bring it back in-house.

Another factor that must be planned for when outsourcing is the resultant loss of staff through mechanisms such as retrenchment and downsizing. Rigorous cuts in staff can harm the morale of existing workers and often the organisational and human aspect of outsourcing is often neglected.

Once the decision to outsource an existing function is made, the structure of the firm immediately alters and therefore the future responsibilities and alliances of staff will change in either of the following three directions:

  1. they may leave the firm – either forced or voluntary;
  2. they may be transferred to the supplier company; or
  3. they may remain with the organisation in the same or a different capacity.

It is essential that regardless of the outcome, the approach to the process must be rolled out both professionally and sensitively, as the emotions of the employees will be running high. Ensure that you:

  • plan and prepare effectively before implementation, and communicate positively to all staff at each step of the process;
  • are honest when lay-offs are in store;
  • organise outplacement services for those made redundant in the process;
  • endeavour to seek all available options for all employees. For example, the transfer of employees to the new provider; and
  • ensure that those who “survive” remain productive, and do not fall victim to “survivor syndrome”.

“Survivor syndrome” often contributes to the failure of many corporate objectives after a restructure. Many staff feel disillusioned, uncertain, insecure, angry and distrustful of management, leading to decreased productivity through decreased morale, increased absenteeism and staff turnover.

Those employees who do survive will be more accepting of the change if they feel that the employer is doing everything in their power to be fair to all employees. Therefore, communicating both the motivation behind the deal and the progress of the changes along with the provision of as many options as possible to all staff once the initiative is complete is essential.

Alternatively, change can also create opportunity and even throughout a period of outsourcing employees can, in spite of the possible downsizing, be open to potential benefits such as increased career options, shedding of mundane work or the option of a voluntary redundancy package.

There is no question that outsourcing is here to stay and understandably so. However, the question still remains as to how organisations can still achieve this strategic business goal and also keep intact a conducive work environment and culture to enable them to move forward productively.


JOHN QUINLAN is the Law Institute’s human resources coordinator.

hrcolumn@liv.asn.au


[1] Embleton, P and Wright, P, “A practical guide to outsourcing”, (1998) vol 6 no 3 Empowerment in Organisations 100.

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