If I had a pound for every time the media has attributed the recent British Airways (BA)/Gate Gourmet dispute to the strategic failings of outsourcing, I could have paid for our recent family holiday in Italy.
Naturally, we flew with one of those low-cost airlines which have caused BA and other major airlines so many problems. In the wake of September 11 and rising fuel prices, not to mention intense global competition, BA can hardly be blamed for seeking to reduce the costs of providing what remains the best service I’ve experienced in the air.
Instead of focusing on the preparation of in-flight food, BA chose to stick to what it does best. And it is testimony to the efforts of the company and its management that before all the shenanigans during August, it was on target to make an annual profit of more than 300m – no small feat in the post-September 11 airline business. Here lies the first lesson in outsourcing: focusing on your core business gives organisational leaders the space (not to mention resources) to get the basics right.
Most of the negative material aimed at outsourcing is borne out of a simple misunderstanding of what business process outsourcing (BPO) actually is. The relationship between BA and Gate Gourmet isn’t outsourcing. Otherwise, I have outsourced my driving to Volkswagen (VW), my computing to Apple and the recent work on our house to a local builder. I am simply purchasing products. I do not dictate to VW, Apple or even my builder how they run their own businesses, as much as I might like to think I should.
BA’s mistake – and note again, not any inherent weakness in the business solution of outsourcing – was its choice to rely solely on Gate Gourmet for its in-flight food. Far from being its cause, a true BPO deal would have ensured the Heathrow dispute never occurred. BA and Gate Gourmet would have sorted this out between them, partly through contractual obligations and partly through the unique relationship forged through genuine partnership in state-of-the-art BPO deals.
Outsourcing is emphatically not just about cost-cutting, offshoring or re-engineering either. It is strategy-based transformation involving the complete redesign of organisational processes and structures to achieve profound cultural change in your people so they can fulfil the strategic mission of your organisation. For example, the deal between aerospace and defence giant BAE Systems and BPO company Xchanging to deliver HR services led to huge investment in the capability of HR and IT facilities.
However, outsourcing does mean doing more with less. BT, for instance, now has 600 HR staff serving 103,000 workers worldwide compared with 14,500 HR staff serving 220,000 in 1991. It is the faces of those working in a new, commercially-orientated HR function that light up when I ask them to describe life before the change and life afterwards that convinces me something positive is definitely going on.
Of course, all is not sweetness and light. Any psychologist will inform you that people’s expectations are rarely realised. But it’s a fact of life that organisations must strive to change.
Transformation is arguably the most over-used word in the corporate language. So what might an HR director thinking about outsourcing their HR function look out for?
First, the axiom ‘organisations and processes do not change: people do’ has to be acknowledged. True, organisational processes and structures do shape people. This is partly why organisations engage in change programmes in the first place. But to transform the HR function, your staff need a reason to get up for work in the morning other than money. Engagement really does matter and outsourcing can deliver. There has also been the shift towards an understanding of what clients require to deliver their core business and emphasis on supporting the client in achieving this.
The best outsourcing deals will involve investment in the capability of your people, while processes and structures can be redesigned. How your people engage with these and develop them is key to the success of the deal.
As the Gate Gourmet debacle continued, it became apparent that BA could have been more realistic about the margins it was looking for. Similarly, had Gate Gourmet realised earlier that BA was a pivotal customer, it might have striven to take more of a customer-centric approach to meeting its client’s needs and put its own house in order.
Outsourcing cannot rid organisations of all their problems. But nor should it be a convenient scapegoat for inadequate and short-sighted management.
Anthony Hesketh is a lecturer in management, learning and leadership at Lancaster University Management School. Working with Tony Di Romualdo in the US, Hesketh is conducting the largest ever independent analysis of transferred employees through outsourcing on a global scale