Diary of an outsourcing deal

Outsourcing aspects of their business is now a common strategy. But how closely does the theory match up to the reality? We followed the progress of a recruitment process outsourcing deal to find out.







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The deal

IT services company Steria acquired outsourcing firm, Xansa, in October 2007. Both had outsourced recruitment and the new management team wanted to bring everything under one supplier.

“Both arms of the new organisation had legacy suppliers that had been in place for some time,” says Noel Scotford, resourcing, recruitment and HR manager for Steria UK and India. “It simply didn’t make commercial sense to keep both of them on and I faced with the task of choosing which one would be best for the business we were becoming.”

Invitation to tender

After discussion, Steria decided to go through exactly the same rigorous vetting process it had used to select the providers in the first place.

“By making the process as thorough and demanding as possible we would show all stakeholders that there was no room for favouritism on either side and the final decision would be based purely on the needs of the new business.”

Steria drew up a detailed invitation to tender, based closely upon the original selection document. Replies were then received within the designated timetable and the responses evaluated. Since they were on-site and doing the job on a day-to-day basis, both bidders passed this stage and were invited in to present their proposal in the flesh. “For me the supplier selection day is where it is all put into context,” says Scotford.

Supplier selection day

Each of the contenders fielded a heavyweight team consisting of their managing director, a senior account manager and recruiters who had already worked within each business. Meeting the suppliers in the flesh helped Scotford get an idea of how he would manage a long-term relationship with either supplier.

“As with any important relationship, you want to be confident that the other party will work with you to make it succeed.”

Steria had hoped that the selection day would allow the company to move straight on to the next stage of negotiating with just one party. But Scotford needed the suppliers to come back with a more detailed proposal on how they would forecast their recruitment needs based on a shifting pattern of recruitment, which delayed the decision.

The big decision

Steria’s management team decided to move forward with Ochre House, the organisation that had been handling Xansa’s recruitment needs since 2005.

According to Scotford, the other alternative – a return to handling their recruitment internally – was never seriously considered.

“Both of the original companies had debated the pros and cons of outsourcing in great detail first time around, but it was clear to us all that by now the case for it had not just been made, but also proven. Also, as an outsourcing provider ourselves we want experts to handle our recruitment. We are also an organisation where headcount requirement is heavily driven by the demands of our clients, which makes long-term planning challenging. We need the sort of support that will allow us to go from a demand for 10 people to 100 people almost overnight, and then back again soon after.”

Moving forward

With the key decision made, it was then necessary to pin down exact contractual terms and to start winning hearts and minds within the business. “For an arrangement like this to work, both participants have to be completely clear about what is expected and how it is going to be evaluated,” explains Scotford.

The team assembled empirical data from the two original suppliers to measure what had happened so far and to devise service level agreements and key performance indicators.

The next job was to get the Ochre House team in front of as many relevant people as possible so they could understand the new arrangement.

“Steria put us through a very exacting procedure where we had prove ourselves every bit as much as if we had come to the table without any previous history,” says Ochre House director, Sue Brooks. “What marked their team out as experienced evaluators was the way they went beyond the formal process and technical data to really get to know us as people.”

Managing an outsourcing deal: dos and don’ts

Anthony Hesketh, co-director at the Centre for Performance-Led HR at Lancaster University Management School, who leads the HR advisory panel at outsourcing company Capita, provides a to-do list of outsourcing:

Do:



  • strategise. This might comprise a statement of a particular problem (usually costs) and what to do about it (reduce them). The usual interim plan is to retain consultants to formulate a credible strategy.
  • formulate a business case. Without senior-level support, convincing the organisation as to the merits of new models of service delivery will incur huge costs by having endless negotiations.
  • research the alternatives. Baseline analyses can run into hundreds of thousands of pounds very quickly. Executives tend to collect data and then try and answer questions from their board and other stakeholders, rather than deciding beforehand what they need to achieve.
  • design your service delivery. You will need to be able to articulate to yourself the service delivery strategy, model of execution and how this will drive the wider, overarching strategic aims across the business. Unless there is significant in-house experience, getting to this point alone will probably run into millions of advisory and consulting fees.
  • take the strategy to market. It is not unusual to move through stages one to four, only to then decide not to change existing service delivery strategies.

Don’t:



  • change things too soon. Try to avoid the trap of believing you might be leaving “too much cash on the table” for a third party provider to enjoy. The emotional response is to insist on taking your organisation through internal and incremental change before finally moving to a third party provider after processes have been re-engineered, scaled and cost savings achieved.
  • invest in new systems. Avoid the temptation to move away from proprietary or recently installed ERP systems in which your organisation has invested. The emotional response is to leverage all value from existing organisational systems, while remaining in denial of the total cost of ownership.
  • worry about the back office. Avoid the fear of losing too much control over business critical, albeit standard back office-support functions such as HR and finance and administration.
  • ignore employee concerns about the alteration of the relationship between the organisation and its employees and other internal stakeholders. This stems, in part, from unease concerning the ‘internal disturbance’ caused by reactions to new service delivery platforms and the response of employees as administrative restructuring takes place.
  • fall into the executive view that large-scale change programmes can be executed internally, and that outsourcing such a change programme to a third-party provider is a sign of operational and executive weakness.

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