Industry Insights
Corinne Handelsman, Technology Practice Leader for both the Paris-based executive search firm Progress, as well as for IIC Partners, Executive Search Worldwide, was recently interviewed by Echanges magazine, a review for CFOs and Financial Controllers in France. She spoke in depth with Echanges about how to manage outsourcing projects — and especially how to communicate with employees on the subject of outsourcing.
Interview by Georges Couvois
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Echanges: An outsourcing process is prepared through strong and targeted internal communication. Who needs to be consulted or simply informed?
Corinne Handelsman: There are three stages to the outsourcing process: strategy, study and implementation.
During the first stage of strategic thinking concerning the opportunity of launching an outsourcing process, four divisions need to be involved: the general management, human resources, the management of the department to be outsourced (or its director, depending on whether or not he agrees with the approach) and the finance division.
At this stage, the risks and opportunities, strategic issues and desired results are analyzed, and macro-economic hypotheses are worked on. This stage can remain secret and confidential. But even at this stage, in a context of ''secrecy,'' it is important to talk about an “opportunity study.”
During the second stage, once the general management has approved the opportunity study, the feasibility and economic benefits of the issue are explored in greater depth.The aim is to build up a more detailed dossier, which will be the basis for Eventual contract specifications, reviewing the situation and the context and introducing the underlying issue of outsourcing (industrializing-optimizing-transforming, for example). These elements will then enable potential service-providers to be “consulted” within the framework of seeking expressions of interest or ''pre-tender'' information.
To move forward at this stage, more staff members will have to be involved, in particular in the department concerned, since they manage and understand the essential data. However, this should be limited to management, plus a few experts.
At this point, the launch of a study must be announced — because it is impossible to keep it secret. This communication could be in the form of information provided to employee representative bodies (ERBs). Depending on the atmosphere among the workforce, the type of communication may vary (official or informal). Communication focuses on the opportunity study and emphasizes that the result is truly uncertain. Outsourcing will be implemented only if the result of the study is positive. We recommend communication concerning the decision-making criteria in order to ensure that the critical path of the project is as clear as possible.
During the third stage, the decision is made to go ahead with the outsourcing operation. This is the start of the implementation stage, and we can begin to talk about it as a project.
The decision to proceed with an outsourcing operation implies official communication with the ERBs. The invitation for tender is launched only when the company has decided to work with one or several service providers. It is related to the outsourcing operation itself and not the choice of subcontractor. Local elected representatives are often the last recourse for employees concerned about their jobs within the framework of these operations, and they work to defend local employment. It is crucial to inform them when a major delocalization operation is envisioned.
The employees of the department concerned are of course informed, whatever the option chosen, with or without transfer of employees. Information is provided in co-ordination with that given to the ERBs.
At this stage, to avoid misunderstandings, it is important to inform all departments of the company. The middle management of the departments not affected should also know how to inform their teams. The managers need to be briefed by their directors – or the project manager – based on messages prepared jointly by the HR division and the internal communication division, in order to convey consistent and effective messages to the organization.
Finally, major customers and suppliers should also be sent consistent and carefully vetted messages.
In your opinion, what is the standard organization for steering this type of operation?
The standard organization is that defined at the outset: general management, HR division, finance division, MDs and deputy directors of the department concerned. Starting from the expression of interest stage, the purchasing division should join the team to help with the strategy to be implemented, supported by consultants if necessary. It is essential to appoint a director for the study who can then become the project manager. Caution, however, this person should not be directly affected by the outsourcing operation. In other words, the person should not be within the scope – they cannot be judge and jury.
Does the financial director have a role to play, or should he or she have one?
Financial directors are almost always involved in outsourcing operations because outsourcing implies important financial issues and these are often the main drivers for the operation. So, whether or not his or her department is affected, the financial director will always be included in the project team.
At the initial brain-storming stage, concerning the opportunity to outsource, the financial director will often be called upon for a macroscopic analysis of the financial impacts and risks of such a process. The financial director is naturally involved in the negotiation stage with suppliers, and often has to delegate a team member, not only to provide certain data, but also to approve the hypotheses used by the project team, and of course to analyse the suppliers' responses.
In the ''post-change'' stage with the supplier, the financial director must work closely with the governance team of the outsourced department to ensure that contractual commitments are complied with and to monitor any contract-related problems. In general, the financial director oversees — either from a hierarchical or a functional perspective — an auditor positioned in the governance team, in charge of monitoring the relationship with the service provider.
It is also in the financial director's interest to keep a close watch on the tendency of organizations to rebuild themselves internally, thus cancelling out, for reasons that require analysis, some of the savings engendered by outsourcing. Although the finance division is strongly involved in the upstream stages of outsourcing operations (preliminary studies, negotiations), we also observe that the initial goal may get lost or distorted over time. In order to bear fruit, the relationship has to be constantly challenged in a positive way. A comparative study performed every three years is neither sufficient for monitoring purposes nor comprehensive enough to definitively show the cost/benefit balance of a long-term project that may have transformational objectives well beyond cost savings.
Finally, in many industrial organizations, the administrative and financial director has a broader function than just finance, per se. He or she often supervises other support functions, such as IT and general services, which are often impacted by outsourcing operations.
Should a formal schedule be established? If so, what shape should this take?
Always. The future of the processes after outsourcing and how to "plug in" the outsourced department with the other company departments, despite the distance, things left unsaid and unwritten procedures needs to be examined.
All employees concerned should also be involved in reflection concerning their new activity. If they have been outsourced, they will be taken in hand by professional service providers. If they remain within the company, they need help with reconversion.
Another element that requires consideration is the possible failure of the outsourcing operation, and providing a foundation for reverting the process to another supplier or "re-insourcing." Before even thinking about post-outsourcing, the roles and relationship with those employees that remain needs to be managed from the start of the transition phase (following the signing of the contract). The difficulty in driving change at this stage is more complicated internally than with the service provider (especially if the employees have been transferred), since the subcontractor has well-oiled processes in place to support transferred employees. Those remaining in the company begin to worry at this point!
What points must be given priority for communication?
First, the company needs to convince itself that communicating is less dangerous than not communicating.
Communication should also be closely aligned with the genuine interests sought by the company. The strategic and financial drivers need to be explained - giving the overall framework and vision - and also, management should not hesitate to deal with concrete issues, human issues. Everyone concerned will have a multitude of very practical questions, perhaps relating to details, and dealing with these will attenuate worry. The path needs to be clearly defined.
What pitfalls must be avoided?
It would be a mistake to neglect details that have meaning for employees' everyday lives: where will I be working? What benefits in kind (merchandise discounts, etc.) will I retain? These issues may carry far less weight financially than psychologically, in terms of a sense of beloning.
Secrecy should be avoided, as this feeds rumours and worry. Opposition on the part of the employees concerned should not discourage the company, as this is a normal reaction that can be overcome by providing sufficient information concerning their future careers. Another element to keep in mind is that in order to maintain good working conditions, a balanced agreement must be reached with the supplier.
Suppliers are less and less frequently offering an automatic employee transfer clause, since these have been cancelled on several occasions, when judges questioned the economic independence of the transferred department or activity. This means that voluntary transfer or non-takeover of personnel is sought. Voluntary transfer extends the negotiation time but facilitates integration of the employees concerned.
Concerning consultation and negotiation, two pitfalls are to be avoided:
• "Partnership" with a single supplier that damages contractual creativity and healthy negotiation
• A multitude of contacts, which renders the process or the detailed breakdown of the scope to be outsourced more complex, preventing suppliers from providing a creative bid and freezing them into the customer's initial organization, where the sum of the parts may reveal itself to be more costly than the whole restructured.
A dynamic and fair model needs to be established with the supplier, which encourages them to constantly review the service provided in their interest and in the interest of their customer. An incentive model that encourages the supplier to earn more through continuous improvement needs to be sought.
If outsourcing is to be opted for, the focus should be on the goal of the department outsourced rather than the means employed. We should not lose sight of the end and we should allow for significant flexibility concerning the means, simply monitoring the feasibility of any reversibility clause.
What advice would you give to people in charge of initiating an outsourcing operation?
Meet with managers who have outsourced their departments, take plenty of time to discuss issues with them, join the European Outsourcing Association (EOA), which is a transparent forum for discussion on outsourcing, where you can learn about successful examples and/or failures. Get as much information as you can. Make up your own mind about the process. Every situation is different, you need to know how to take on board and understand experiences undertaken elsewhere and how to adapt them to the case at hand. |
