A New Way for Businesses to Operate

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A New Way for Businesses to Operate
A New Way for
Businesses to
Operate
ThinSourcing:
A New Way for Businesses to operate
ThinSourcing: A New Way for Businesses to Operate
Introduction
Over the past 20 years, a lively discussion has taken place about the merits – and demerits –
of outsourcing. Driven by the desire to reduce costs and focus on core business imperatives,
many companies have shifted functions such as manufacturing, software development and
call centers to outside vendors operating domestically and, increasingly, internationally. The
emergence of cost-effective technology and telecommunications platforms has greatly
facilitated the outsourcing movement, which author and journalist Thomas L. Friedman
brilliantly described in The World Is Flat: A Brief History of the Twenty-First Century, his
bestselling book analyzing the growth of global interconnectedness and commerce.
While many companies have embraced outsourcing, others have adopted an opposite
strategy: insourcing. Insourcing is the establishment of an in-house unit that provides a discreet
service to a larger corporate enterprise – but operates autonomously, often with a lower cost
structure. While both outsourcing and insourcing provide advantages, they also have distinct
drawbacks. A newly emerging approach – ThinSourcing – overcomes these problems.
This paper details the recognized strengths and weakness of traditional outsourcing and
insourcing relationships and then explains the principles of ThinSourcing as a business concept.
It also outlines the operational pillars on which an effective ThinSourcing model is built and
provides current examples of successful ThinSourcing relationships in the marketplace today.
Outsourcing
Outsourcing is a business relationship in which one organization transfers management and
implementation of an operational function to an external vendor. Typical goals of outsourcing
programs include lowering costs, focusing on core competencies and accessing resources not
available in-house.
Business functions that have traditionally been outsourced include manufacturing, information
technology, accounting, human resources, real estate management, software development, call
center management and food service, among many others.
In outsourcing these kinds of functions, many companies have contracted with off-shore
resources – often in developing countries – where labor and overhead costs are far lower than
in the U.S., and technical skills are rapidly improving. For example, capable software
developers can today be found in India, China and The Philippines, as well as in many Eastern
European countries.
Cost reduction is perhaps the number one goal of most outsourcing relationships; however,
companies also choose to outsource so that they can focus their efforts on mission-critical
imperatives, relieving management of the burden of overseeing non-core activities.
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ThinSourcing:
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One of the world’s largest travel service providers, Thomas Cook, provides a good example of
outsourcing. As part of a sweeping business transformation designed to eliminate
redundancies and gain competitive focus, it centralized and outsourced all back-office
functions – including information technology, finance and human-resources.¹
This initiative reduced annual expenses at Thomas Cook by more than $220 million. According to
Ian Ailles, managing director of specialists businesses and former group finance director,
outsourcing “is seen as a key contributor to the firm’s success…and has helped us focus more
on our core competency – the travel business.” ¹
Despite the many advantages of outsourcing, there are clearly drawbacks. These include the
“hidden expenses” of integrating and managing an outside vendor, as well as higher than
anticipated operating costs related to faulty planning assumptions or lowball bidding
practices. Furthermore, productivity loss during the initial transition period to an outsourced
relationship should be expected, as it takes time to staff and train workers, transfer knowledge
and organize efforts. Oftentimes companies don’t consider these costs, but they are very real
and should be incorporated into the decision-making process surrounding a potential move
to outsourcing.
Other serious concerns regarding outsourcing relate to the commitment and openness of the
outsource vendor. For organizations accustomed to handling all of their operations in-house,
outsourcing relationships often reduce transparency and control and complicate quality assurance procedures. Companies that outsource an externally facing function face an added
challenge: ensuring that customers receive a level of service and sensitivity that is consistent
with their brand’s standards of customer care.
Insourcing
Insourcing is essentially the opposite of outsourcing. It seeks to replicate the cost-saving
benefits of outsourcing with an in-house arrangement. Insourcing is typically defined as ‘
contracting in,’ or delegating a discreet business function or job to an internal but standalone
entity that specializes in that operation. This approach, which is quite different than operating an
internal department, is often performed with workers who receive different compensation
and benefits than parent company employees and operate under different time requirements
and work conditions.
Examples could include a hotel’s business center, a corporate headquarters’day care center or
a bank’s customer call center. Each of these discreet, specialized, non-core functions operates
autonomously – but within the realm of a larger business entity.
For example, The Walt Disney Company operates its own police department for all Disney
theme parks and resorts. At Walt Disney World in Orlando, Florida the Disney Police Department
consists of over 800 employees and is responsible for 47 square miles of Disney property.
The Disney Police force operates in the same manner as public officers, controlling crime,
protecting property and maintaining order. Through insourcing its own police force, Disney
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maintains complete, internal control over an important function and ensures that its guests
are protected.
In considering an insourcing solution, companies should recognize that insourced functions,
though operating autonomously, will likely require a significant degree of management
oversight. Additionally, it may be difficult practically and legally for a business to truly treat
its insourced unit as if it were an outside contractor, i.e. one not governed by the parent
company’s human resources policies, operating practices and cost accounting principles.
Perhaps most importantly, the parent company may find it difficult to hire and retain qualified
employees, maintain specialized equipment and technology, implement best practices and
comply with changing government regulations. These difficulties directly affect the quality,
productivity, risks and costs associated with an insourced function, leading many companies
to seek an alternative solution.
ThinSourcing
ThinSourcing overcomes the drawbacks associated with both outsourcing and insourcing. It
is an intimate business relationship between two companies that provides a cost-effective
third party service and delivers that service in a manner that is virtually indistinguishable from
the way the company itself would provide it. With deep knowledge of the company, the product and the service, the ThinSourcer imperceptibly functions as an operational and brand extension of its client’s business. In a ThinSourcing relationship, there is, in effect, a very thin line
between the vendor and the client.
ThinSourcing as a business model is built upon five key pillars: a custom business solution; a
seamless, secure technology platform; an advanced recruiting, training and retention
program; a comprehensive, timely, transparent reporting system; and an impeccable compliance
process.
•
A custom business solution
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ThinSourcing relationships require custom solutions that precisely meet the needs of
contracting companies. The process starts with a ‘strategic infusion’ through which the
ThinSourcing vendor rapidly absorbs the goals, strategies, culture and brand essence of its
client’s business.
At this stage of the relationship, the ThinSourcer acts very much like a management
consultant, assessing needs and formulating a detailed plan of action. Unlike a consultant,
however, the ThinSourcer will implement the agreed plan and all its components in
accordance with a clearly defined service level agreement and performance metrics. These
will likely cover ongoing management, staffing, timing, technology, production, reporting,
quality assurance and, of course, cost.
•
A seamless, secure technology platform
Seamless, secure technology is critical in a successful ThinSourcing relationship. Flawless
integration with the client’s IT system enables the ThinSourcer to operate indistinguishably
from the contracting company – both internally and externally. For example, agents in a
ThinSourced customer call center should be able to access all necessary data and avoid
time-consuming delays that result from toggling between multiple programs or screens.
If necessary, they should be able to instantly ‘hot transfer’ a call – including its full,
up-to-date computer record – to personnel in the client company in a manner that is
imperceptible to the customer.
ThinSourcers need to be able to quickly adjust software programs and operating protocols
to meet rapidly changing client requirements. Additionally, they must employ extraordinary
data security procedures. Today, many businesses fear that in outsourcing a service, they
may jeopardize the security and privacy of their corporate and customer data. Companies
worry that outsourcing partners have less invested in protecting customer privacy and
are therefore less diligent in protecting data.
To address this concern, ThinSourcers must take extraordinary measures that encompass
technology, data encryption, training, employee policies and enforcement. These measures,
which should be periodically tested by outside security consultants, ensure the highest
possible levels of information security.
•
An advanced recruiting, training and retention program
Hiring, training and retaining a high-performance workforce is perhaps the ThinSourcer’s
greatest challenge. It is also the area where a ThinSourcer can provide the greatest value
to its client.
Intimately understanding the demanding requirements of its own business, as well as the
needs of its client company, the ThinSourcer employs a skilled, focused and motivated
workforce. Operating in strong labor markets and using well defined selection criteria,
the ThinSourcer exclusively hires high potential individuals.
These employees receive progressive, modular training programs that teach job skills and
provide knowledge about the client’s company, product and brand experience. Through
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ThinSourcing:
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close supervision, incentive-based compensation and an empowering work environment,
employees are extraordinarily productive, and retention rates are exceptionally high.
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A comprehensive, timely, transparent reporting system
Another crucial factor in a ThinSourcing relationship is the ongoing reporting process.
Operating indistinguishably from the client company means providing performance data
and analytical information on a continually updated and fully transparent basis.
This real-time reporting enables the ThinSourcer and the client to accurately track progress,
engage in an open exchange of ideas and rapidly adjust program implementation, if
necessary, to achieve business and brand objectives.
Client-specific reporting protocols are established at the outset of a ThinSourcing
relationship and typically employ a custom technology application, such as a dashboard
with incoming data streams that enables all authorized individuals from the ThinSourcer
and the client company to access and evaluate ongoing program performance data.
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An impeccable compliance process
ThinSourcers must fully understand all relevant laws and regulations that affect their client
companies and adopt operational practices that fully comply with these requirements. In
many cases, ThinSourcers must track and adhere to multiple federal and state regulations
that cover its own business practices as well as those that govern its clients’ operations.
An example is a call center serving a health insurance company. The ThinSourcer must
comply with regulations regarding the National Do Not Call Registry as well as regulations
contained in the Health Insurance Portability and Accountability Act (HIPPA). In the
financial services sector, ThinSourcing vendors must operate under the standards
contained in the Sarbanes-Oxley Act.
ThinSourcing vendors take compliance very seriously. They have independent compliance
departments that monitor changing regulations, mitigate risks and guide business practices.
They maintain a comprehensive compliance database and run ongoing training programs
to familiarize their employees with the latest rules, regulations and operating procedures.
Ultimately, they provide client companies with an exceptionally high degree of confidence
that their business practices fully meet all relevant laws and regulations.
ThinSourcing – Examples in the Marketplace
Although ThinSourcing as a codified business approach is new, several progressive companies
are operating in a manner that is consistent with its principles and practices.
•
United Parcel Service (UPS)
Best-known as a package-delivery company, UPS is rapidly expanding into supply-chain
management. A recent story in Time Magazine ² explains how UPS helps Royal Canin, a
natural dog and cat food manufacturer, not only move products from place to place but
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also store goods and interact with customers – all without Royal having to get involved.
This highly integrated arrangement beautifully illustrates ThinSourcing and the ‘thin line’
that separates UPS (the vendor) from Royal Canin (its client company).
In a similar manner, according to the Time article, UPS supports Nike. UPS employees in a
Kentucky facility quality check each pair of Nike shoes prior to their shipment to retailers
around the world. This step enhances quality control and enables Nike to focus on other
aspects of its global business.
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ADP
For more than 10 years, ADP has provided payroll and records management services to
Wyndham International, one of the largest hospitality and lodging companies in the U.S.
with over 25,000 employees.¹
ADP has become an extension of Wyndham, according to Karen Sparks, senior director of
accounting at the hotel company. "Their staff is an extension of ours. We collaborate with
them whenever needed – typically many times every day."
With a custom solution, ADP supports Wyndham’s unique business structure in which
larger properties have on-site HR, payroll and benefits administration operations, while
smaller one receive these services from the corporate headquarters. The entire operation
is managed via a common ADP platform, which gives Wyndham complete, system-wide
information transparency and data access.
Frequent property sales and acquisitions create a fluid environment, one that the ADP
relationship complements perfectly. "Keeping up with the constant change is almost as
easy as flipping a switch. There's a vibrant, ever-changing relationship between Wyndham
and ADP," says Sparks.¹
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DialAmerica
DialAmerica, a teleservices solution provider, conducts a subscription renewal program
for Highlights, a leading children’s magazine publisher. Having operated its own internal
subscription renewal program for 25 years, Highlights recognized the challenges of conducting such a program internally and sought a resource that could interface with their
subscribers at a high level and comply with stringent privacy guidelines. Most importantly,
Highlights desired a partner that could make it feel like there was no change in who was
conducting the promotion.
DialAmerica handpicked a group of telephone agents and put them through a training
that was adapted from Highlights very own agent training. These reps receive rigorous
training regarding Highlights’ business objectives, brand messaging and customer sensitivity.
This program continues today, with DialAmerica functioning as a fully integrated subscription renewal arm of Highlights.
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In describing the DialAmerica-Highlights ThinSourcing Relationship, Vice President of Corporate Communications, Pat M. Mikelson, says,“As a vendor, DialAmerica is a true advocate
for us. They listen to and understand our needs and work with us in a proactive way to
meet all of our objectives. The staff at DialAmerica is very responsive to what is most important to our organization – consistently giving us excellent results and service both
within the call center and at the account management level.”
Further support for ThinSourcing as a valid business model comes from a September 2008
survey that DialAmerica in collaboration with the American Teleservices Association (ATA)
recently conducted with 24 major U.S. companies that outsource over $300 million in
customer acquisition and customer care functions. Among the key findings were these:
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The number one reason for outsourcing functions – cited by 77 percent – was to enable
companies to focus on their core business imperatives.
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94 percent said it was important that outsourcers have business experience in their
industry sector.
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95 percent said it was important that outsourcers understand the rules and regulations
of their industry.
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91 percent said it was important that outsourcers having an impeccable compliance record.
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The number one concern in assessing the value of outsourced customer care programs
– cited by 94 percent – was customer satisfaction.
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41 percent expressed dissatisfaction with off-shore outsourcing vendors.
Conclusion: Evaluating the Sourcing Continuum
This paper has discussed the continuum of sourcing solutions available to businesses today
– from outsourcing to insourcing to the newly emerging option of ThinSourcing. In evaluating the
sourcing solution that best fits a company’s business needs, the following questions may be
helpful:
•
What is the major goal for which a sourcing solution is needed, e.g.:
o Reduce costs?
o Enhance operational efficiency?
o Improve quality?
o Provide better customer service?
o Focus on core capabilities?
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How discreet is the function or functions that are to be sourced?
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Would a customized sourcing solution be advantageous?
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Will existing corporate policies/practices make it difficult to source the function internally
or externally?
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ThinSourcing:
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•
What legal/regulatory requirements govern the operation of the function?
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What reporting process will ensure transparency into the performance of the sourced
function?
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How difficult will it be to staff, train and retain employees for the sourced function?
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How will customers be affected by the sourced function?
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How much management time will be required to oversee the sourced function?
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What technology requirements will need to be deployed to support the sourced function?
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What hard and soft costs will the sourced function add to, or remove from, the business?
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How long will it take to implement a sourcing solution?
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How will the sourced function’s productivity impact the larger organization short- and
long-term?
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Will the sourcing solution potentially result in a loss of control, a reduction in quality or a
diminution of customer service?
•
Can the sourced function be fully integrated with existing operations?
In answering these questions, companies may well conclude that ThinSourcing represents the
best solution, as it most closely reflects a business’ own operating principles, practices and
procedures, while shifting the burden of managing/running a function to an outside vendor.
As companies look to improve their operational efficiency, serve customers more effectively,
reduce costs and compete aggressively, ThinSourcing represents a powerful, growing solution
– one that will likely be embraced by thousands of businesses in the future.
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References & Resources
The following resources contributed to the development of this paper:
¹ Fortune Special Section (2003). An Inside Look at Outsourcing. Fortune Magazine.
² Donnelly, Sally B. (2004). Out of the Box. TIME Magazine.
Elizabeth E. Joh (2004). The Paradox of Private Policing
http://www.questia.com/googleScholar.qst;jsessionid=LyyQ02tLHCy81JZRFLMtJ1DYN6TH0
g1vvJjq2y5j67115vyRpnnF!-1469840406?docId=5008791036
Doscher, R. & Simms, R. (2001). The DialAmerica Teleservices Handbook. Chicago, IL: NTC
Business Books.
Fowler, B. (2007). Is Insourcing the New Outsourcing? CSO Online.
http://www.csoonline.com/article/221017/Is_Insourcing_the_New_Outsourcing_/2
Frankland, D. (2007). The Direct Marketing Services Ecosystem. Forrester Research.
Friedman, T. (2005). The World Is Flat: A Brief History of the Twenty-First Century. New York,
NY: Farra, Straus and Giroux.
Gearhart, B. (2006). Insourcing, extending the capabilities of your Technical Communication Department. CIDM Information Management News http://www.infomanagementcenter.com/enewsletter/200612/third.htm
McGovern, G. & Quelch, J. (2005). Outsourcing Marketing. Harvard Business Review.
Overby, S. (2007). The ABC’s of Outsourcing. CIO Magazine. http://www.ciomagazine.com.
Wikipedia -The Free Encyclopedia, “Insourcing,” http://www.wikipedia.com.
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