When users (the clients) see the deliverables of an internal function as a commodity, rather than as a core competence of the company, it’s understandable that they think in terms of simple comparisons of internal and outside costs.
On the other hand, when they understand its strategic value, a function may be kept internal even if its costs are a bit higher. The premium price is more than repaid by the incremental strategic value that internal staff can contribute (and service providers can’t).
Thus, a strong response to an outsourcing challenge should include more than just a budget-by-deliverables. It should describe the contribution of the function to corporate strategies (with case examples, be they internal or from other companies). In other words, leaders can describe what a world-class function would deliver. They, they can argue that internal staff are better positioned to deliver all of that vision than an arms-length vendor.
This “vision” is key to raising the discussion above the level of a simple price comparison of commodity services.
A powerful way to develop this vision is to brainstorm answers to the question, “What should be expected of a world-class internal service provider in our situation?” When NDMA has facilitated such workshops in the past, leaders have come up with a wide range of vision statements, such as the following:
- The service provider is expected to designate an “account executive” for each business unit who is available to answer questions, participate in clients’ meetings and facilitate their relationships with the function.
- The provider is expected to proactively approach opinion leaders and help them identify breakthrough opportunities for the function’s products in an unbiased, strategy-driven manner.
- The provider is expected to proactively facilitate the formation and operation of consortia of clients with like needs.
- The provider is expected to help clients plan and defend budgets to buy the function’s products.
- In response to clients’ requests, the provider is expected to proactively offer a range of viable alternatives (as in Chevrolet-, Cadillac-, or Rolls Royce-level options) and supply all the information clients need to choose.
- Whenever possible, the provider is expected to design products using common components and standards to facilitate integration (without sacrificing its ability to tailor results to clients’ unique needs).
- The provider is expected to assign to each project the right mix of skills and utilize a diversity of vendors whenever others offer more cost-effective solutions.
The vision might also describe an internal service provider that embraces the extended-staffing strategy — an approach that gives the firm the best of both vendors and internal staff.
This vision workshop is beneficial in its own right. It stretches leaders’ thinking about what’s expected of them, and builds a common understanding of the organization they wish to lead. In fact, this workshop is a key step in the process of building a healthy internal service provider that’s the corporation’s vendor of choice.
These visionary expectations provide decision criteria against which both internal staff and outsourcing vendors can be rated.
The next step in the process is a self-assessment of the current organization in light of these visionary performance criteria. Of course, if the vision is, indeed, visionary, the current internal organization won’t live up to every one. Staff need not be worried if they rate themselves “unsatisfactory” on many of their visionary criteria. Vendors are unlikely to fare much better, and the arms-length nature of a vendor relationship makes it difficult for them to aspire to many of these criteria.
Furthermore, being tough on themselves in this self-assessment proves that staff are not complacent or defensive; in fact, it portrays them as just the kind of honest and progressive leaders that clients want to do business with, and reassures senior management that progress will be made on these critical issues of performance criteria.
Of course, executives will feel far more comfortable committing to keep a function in-house if they see a clear plan that will achieve those visionary criteria. Documenting a transformation plan helps defuse dissatisfaction with the current quality of service by showing that clients’ concerns can be addressed without outsourcing. Beyond this defensive effect, the plan builds confidence in staff’s ability to deliver these visionary expectations of strategic value and buys time to implement meaningful changes.
This plan can be developed by analyzing the root causes of the gaps identified in the self-assessment and then by planning the right sequence of changes needed to build a high-performance organization. This, too, is a key step in the process of building a healthy internal organization.
The response to an outsourcing challenge might close with a recommendation to give internal staff a chance to succeed by investing in their transformation process.
In summary, the table of contents of an outsourcing response might include the following items:
- Introduction: context and contents.
- Costs of current deliverables (the budget-by-deliverables, as requested).
- Costs with maximum use of vendors and contractors (the expense of headcount caps).
- Strategic value of the function (why the firm should look beyond just cost comparisons).
- Vision of what’s expected of a world-class function — i.e., performance criteria to look for in a provider beyond low cost.
- Assessment of the internal service provider against these performance criteria (portraying internal staff as an honest business partner that’s ready to improve).
- Plan for transforming the internal service provider to satisfy the visionary performance criteria (reassurance that the internal service provider will, indeed, improve).
- Recommendations: invest in staff and embrace extended staffing.
NDMA workshops on transformation planning
How Service Providers Buy Your Business
Comparing Costs between Internal and Outsourced Services
How An Internal Team Can Respond to an Outsourcing Challenge
How To Manage The Extended Staffing Model