Some
think the outsourcing revolution is near its end but it is about to enter a
new, more radical phase. Radical outsourcing will free up capital for brand
development and there will be laser-sharp focus on core competencies. By
Michael Moynagh and Richard Worsley
Since
the 1980s we have seen a shift from vertical to horizontal organisations, from
‘parent-child’ structures to ‘cousins’.
Organisations
have outsourced activities to independent suppliers, such as catering,
cleaning, law, accountancy, software consultancy and web design. Layers of
management have been swept away. Plenty of hierarchical organisations remain,
but the hierarchies are flatter. More time is spent relating to people in other
organisations than to superiors up the management chain.
The
revolution is not over yet
Many
people assume that the outsourcing revolution is almost over. It has still to
run its course in some sectors and organisations, but in those that took the
lead outsourcing and the disaggregation of organisations have not much further
to go.
Some
have even wondered whether the revolution might be reversed. Private sector
managers have struggled to devise long-term contracts that are flexible enough
to accommodate rapid change, but rigid enough to control costs. Events force
changes to the original contract, and the contractor can use these to bump up
costs. Some managers suspect that they could control costs more effectively if
services were brought back in-house.
Some
outsourcing is being undone
Several
NHS hospitals are said to be examining the ‘insourcing’ of cleaning to raise
standards. Contract cleaners are thought to be less committed to patient care
and less willing to go the second mile. In a January 2001 Tomorrow Lecture,
Lord Butler of Brockwell pondered whether politicians might reverse the
outsourcing of government functions, so as to increase their control.
Despite
these reservations, the outsourcing revolution is far from slowing down. Over
the next 20 years its speed will accelerate dramatically. Large and small
organisations will find it economic to outsource even more of their day-to-day
operations, from inventory control to customer service to payroll. Specialists
will provide these services on-line.
For
example, some 62 per cent of UK organisations in the PricewaterhouseCoopers HR
2000 European Benchmarking survey were outsourcing some elements of HR.
More
HR activities will be outsourced
This
will spread to more HR activities over the next five years, particularly
transactional services and services requiring very specific areas of expertise,
such as career management.
Based
on interviews in the late 1990s with CEOs of large companies worldwide,
management consultants Grady Means and David Schneider expect traditional
industrial and financial organisations to be transformed in the next few years.
They will spin off manufacturing and other processes to an outsourced network,
freeing up enormous amounts of capital that can be focused on brand
developments, customer ownership, supply network management and other industry
leadership processes.
Only
the brand is core
Major
brand companies will leverage their financial, human and brand-owning capital,
leaving the production process and other activities to suppliers. The latter
will focus on their core competencies and secure economies of scale, developing
their own brands in the process.
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Recruitment
agencies, for instance, have specialised, grown in size and cut unit costs,
making it even more economic for companies to buy their services. This has
enabled them to specialise and grow still larger. The same logic will apply to
almost every aspect of business. Brand-owning companies will be surrounded by a
multiplicity of firms in external networks, tied together electronically.
Extract
taken from Tomorrow’s Workplace: Fulfilment or Stress? By Michael
Moynagh and Richard Worsley. Published by the Tomorrow Project, PO Box 160,
Burnham Norton, Kings Lynn, Norfolk PE31 8GA. Price £16. Copies can be ordered
from Ann Micallef on 0115 943 6438. ISBN – 0-9541278-0-3.
