Larger numbers of law firms appear to be outsourcing increasing aspects of their businesses as they look to build leaner and more efficient practices. Here our Strategic Business Adviser, Nick Palmer outlines some of the key issues.
Following a successful 1962 mission to orbit the earth, John Glenn (US astronaut and, later, politician) was asked what it felt like to sit in a rocket awaiting blast-off.
He replied: “I felt exactly how you would feel if you were getting ready to launch and knew you were sitting on top of two million parts – all built by the lowest bidder on a Government contract”. The balance of quality, expertise and cost has always been at the heart of any decision to outsource. In order to avoid the risk of being dragged into a cost-only outsourcing model, we offer the following comments.
Perhaps the need to outsource comes from a lack of in-house expertise, or a desire to remove a non-core activity (and thereby allow individuals to concentrate on their expertise). Perhaps the need comes from a desire to reduce costs (why pay someone full-time for a part-time demand?) Either way, at Armstrong Watson our encouragement is for our clients to be certain on their purpose and justification for any outsourcing decision. What advantages will result? How will these be measured? How often will these be measured? What process will there be should the anticipated advantages not result? What process will there be to review any business planning? As with any business decision, one hopes for a level of planning to ensure that the logic of any outsourcing decision is, in fact, valid. As the PFI example in recent years illustrates, there are sometimes cost implications that might not feature in the initial financial analysis, but which can cause significant pain or irritation over time. The media like to remind tax payers about the costs to replace a lightbulb in a PFI-financed facility.
Whilst a Government-outsourced project is likely to look different from an outsourced project within a small business, the due diligence should (hopefully) cover the same themes. As well as identifying (then tracking) the anticipated financial benefits, what steps does a business take to scrutinise the delivery of any intended supplier? How can the decision maker “mystery-shop” the prospective partner in action? Is the prospective supplier’s delivery as slick as their marketing? What can be agreed between the parties should circumstances change or should delivery fail to meet expectations? Of course, this due diligence “works” both ways, and should be part of the engagement conversation for companies to whom others outsource (such as professional service companies!) How can both parties agree on what success looks like? What balance of service, quality and cost will make it worthwhile for both parties? How can the provider be “referral-worthy”.
One critical step is to be clear about how the prospective outsourced activity fits within your own operations? As a LEAN six sigma black belt practitioner, I remind my clients to focus on the “voice of the customer” in order to design or improve any business process or activity. In an outsourcing conversation that becomes easier because you are the customer! How well do you know your own process? How well can you anticipate the implications of error or failure within that process? How will that affect your other operations? How well does the prospective partner grasp the implications of your processes and systems? How well do they understand your end user? As an example, at Armstrong Watson we have a “quest” to help our clients achieve prosperity, security and peace of mind. That encourages us to ensure everything we do has a positive impact throughout the organisations we support. An employer might engage our financial planning team to provide a company pension structure, but we encourage them to go one step further and invite our specialists in to run education seminars around financial protection for individuals across their whole team. This addresses the statutory requirement to provide an employer pension structure, but it also helps enlighten employers to “engage” and reward loyal employees such that the business can avoid the recruitment and training costs of disengaged staff.
One overriding concern with outsourcing is that, in situations where cost is the only consideration, it becomes very difficult for the outsource provider to add significant value to the customer. In essence, when cost is the only consideration, the supplier is invited to commoditise their offering. It’s not impossible to add value in such circumstances, but it’s not easy either. I don’t think it’s too controversial to suggest that we are probably all aware of outsourced contracts that have failed due to an exclusive desire to buy on price. My experiences as a business advisor suggest that in any delegation, the chances of success will likely improve with clarity of purpose, instruction and an alignment of values. This clarity factor can be overlooked even when delegating internally, so it’s critical to consider in an outsourcing context, especially where the business process is subject to a volatile, uncertain, complex and ambiguous world. There might not be any point finding the cheapest supplier if they don’t understand your purpose, instructions or values. Whilst the reasons to consider outsourcing might be varied, the balance of quality, expertise and cost is constant. In order to avoid the risk of ending up in a cost-driven situation, it pays to be clear on purpose, process and competence. Can the headline price realistically deliver the desired outcome?
If you are interested in reading more about the benefits of outsourcing, Bill Kirby, Director of Professional Choice Consultancy outlines the advantages of outsourcing your accounting and bookeeping services in this recent article.