IN MY OPINION: Institute of Management companion Bridget Blow, CEO of ITNET plc, recommends outsourcing as one way of handling the downturn positively

IN MY OPINION: Institute of Management companion Bridget Blow, CEO of ITNET plc, recommends outsourcing as one way of handling the downturn positively - The analysts had been predicting it for a long time, but we now appear actually to be experiencing the

by BRIDGET BLOW
Last Updated: 31 Aug 2010

The analysts had been predicting it for a long time, but we now appear actually to be experiencing the influence of the economic downturn.

Such straitened times require drastic measures, as the almost daily parade of cutbacks, profit warnings and redundancies demonstrates.

Downsizing and consolidation have played a part and will continue to do so, but I believe that many businesses devote too much time to considering what costs they can cut out of the organisation and not enough about what a given process can add.

This sort of approach is, quite frankly, short- termist and unimaginative, and it is likely to leave a business weakened. But unfortunately it remains an all-too-familiar feature of the UK business landscape. Why take the time to cut the rotten wood out of a structure without stopping to think first how it might be made stronger?

Yet there are other options available to businesses that are more than simply a short-term antidote to distress. For example, the outsourcing of both technology and business processes is still a woefully underestimated option, although these practices are growing in popularity among the business elite such as the FTSE-100. It is a lead that other companies will find well worth considering.

But don't just take my word for it. A recent report by Morgan Chambers reinforces the message with the claim that 56% of the FTSE-100 companies have already embraced the outsourcing of internal services, while huge growth and increasing diversity has occurred in business process outsourcing, which now accounts for pounds 5.9 billion in revenue from the FTSE-100 alone.

And it is not a little fix. Outsourcing now has the maturity and capability to play a key role in driving business strategies and business benefits in a directly measurable, financially efficient and effective way.

There is also evidence that, as a tool, outsourcing is able to turn around the fortunes of entire industries and not just individual companies. Already there is evidence that strategic outsourcing has a positive impact on share value, the report suggesting that the difference is in the order of 5.3% above the individual sector average and 4.9% above the overall FTSE-100.

The outsourcing example illustrates my contention that any cost-cutting measure isn't worth doing unless it helps strengthen the business, allowing it to emerge in a position of advantage when the storm clouds finally disperse.

Even so, while many of our leading businesses are making the choice and using approaches such as outsourcing as a 'win-win', others shy away because there are a number of easy cost-wins that they can still make, such as trimming staff training, marketing budgets and project work.

Yes, these cuts will trim back costs, but they are ultimately a false economy in a long-term downturn, because they are nothing to do with taking the competitive initiative to ensure long-term strength.

Rather than roll into a ball, a company should see the downturn as an opportunity to take a long, clear look at how its business works. It needs to identify its weaknesses and strengths and then take clear steps to make the changes that will cut costs, while creating the structure for stability in the longer term. Viewed this way, a downturn may actually serve to make the business stronger.

However, although measures such as outsourcing will offer cost and efficiency benefits during and beyond an economic downturn, there's a second lesson to learn: companies must not make the mistake of trying to do it themselves. They need to follow closely the experiences of other businesses if they are to succeed.

After all, lots of outsourcing has already been done, so businesses should learn from it. There's no need to reinvent the wheel in either the design of the service or the contracts. It's simply a case of moulding whatever is available to a company's own particular needs.

Nor does outsourcing have to be an epic of time and resources. Although it take a lot of management time to outsource, it can be achieved successfully in four to six months with the right partner. With the decision to outsource taken, the business can then focus on its strengths and maximise its opportunities for survival in the bad times.

There will inevitably be some suspicion of outsourcing within an organisation and a resistance to it. Real attention needs to be paid to the management of the client-outsourcer relationship if the true benefits of outsourcing are to be realised.

Hitting service-level agreements is one thing, but it is not necessarily the same as meeting customer expectations and handling the softer issues associated with the contract and relationship, such as technical leadership and help with business planning processes. There needs to be equal consideration of these factors to guarantee overall success.

Yes, the storm clouds of the economic downturn continue to gather, but today we have an opportunity to leave behind the old-fashioned cost-cutting tack that can weaken a business, and take the smarter approach that builds the business as well.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Subscribe

Get your essential reading delivered. Subscribe to Management Today