By Carol Samms

Outsourcing has become one of the driving business strategies for the late 1990s for Chief Executive Officers and many senior Financial Executives. Most discussion of outsourcing centres on the "host organisation", instead this project looked at what happens to the outsourced or transforming company. The transition to being an outsourced organisation and the possible best practices are rarely identified.

There is a "wave" appearing. If located in a head office central function, there will be pressure to delayer/ downsize as much as possible and the shift to having a part-time contract workforce will increase. There can be no easy return to old organisational forms under current commercial conditions. My personal view is that all forms of research are likely to be included in the future practice of outsourcing as fewer organisations are able to absorb head-office research functions any more. The commercial pressures have become too intense for the late 1990s organisation.

The project structure involved three phases. In phase 1, a literature search of business, management and marketing journals was undertaken. This included publications of management consultants involved in outsourcing, typically information technology or telecommunications, the most popular forms of outsourcing. This enabled hypotheses to be generated about transforming organisations.

In phase 2, 20 in-depth interviews were conducted of executives leading outsourcing initiatives or those who were in the process of transition. Marketing research was just one of the areas probed; also information technology, innovation, knowledge development, public relations and communications monitoring were covered.

In Phase 3, best practices were developed from a combination of the two previous stages. Through the Loop frequently uses this model combining secondary and primary research.

Incidentally, we view this as a preliminary project. It is planned to extend this with further research, both primary and secondary.

The time has arrived for outsourcing due to the combination of three factors.

Firstly, many companies are moving to flatter organisations concentrating on their core businesses. In this process, there is a move to rationalise what can now be brought in from a variety of vendors.

Secondly, many companies are in highly competitive situations requiring constant vigilance. Slow growth markets means that many sectors are seeing a wave of mergers and alliances e.g. financial services and the drinks companies. These competitive forces maintain pressure on organisational costs.

With the ability to call on fewer central staff, a leaner way to work has to be found.

Outsourcing is now developing into a much more sophisticated offering. It is now moving into all functions of customer care and increasingly towards higher grade executive positions which involve elements of intellectual property.

Research and development, innovation processes, finance, human resources, telecommunications, information technology, manufacturing, logistics and also many forms of research are now included in outsourcing. This is applicable to both private and public sector organisations.

This change requires a new personal agenda to be adopted. As William Bridges cites in Jobshift, "we've entered the age of the contingent or temporary worker, of the consultant and sub-contractor, of the just-in-time workforce, fluid, flexible and disposable."

In order to see how transforming organisations and people need to develop in the future, it is important to understand how outsourcing can be successfully managed inside the host organisation. Any new management strategy has a learning curve and outsourcing is no exception to this. Published secondary data shows that while some of these lessons are sector-dependent e.g. for information technology or telecommunications, there are some fundamental operational principles emerging. It must be expected that lessons learnt from both information technology and telecommunications will be applied to other areas of outsourcing such as research.

Principle 1: Outsourcing has become changeware for organisations. The organisation can flex appropriately to the new environment and shift from hierarchical to flat, from strategic to tactical.

Principle 2: The host company can maintain an efficient, streamlined structure.

Principle 3: The relationship between both parties needs to be nurtured. The Gartner Group indicates that 25% of current contracts will be negotiated or cancelled within the first three years of agreement.

Principle 4: Contracts are necessary so that expectations are managed and service is provided at satisfactory levels.

Principle 5: A new position will develop in some large companies- the position of a chief resource officer who will be responsible for managing organisational relationships. This person will develop specific performance metrics across outsourcing contracts. Again, the research function will have to learn to comply with this.

Principle 6: A system needs to be set up which allows a continuous exchange of information between the two parties.

Principle 7: Outsourcing with the sole motive of reducing costs is often less effective than outsourcing as a specific strategy to create a flexible organisation.

The mandate is going to become tougher for the outsourced organisation and in the future, there will be a greater expectation of service delivery. This deeply affects us as a service industry and drives a change in the way in which we need to work. The next part of the article reflects the views of the executives from transforming organisations. In many respects, they have gone beyond theory into practice and they are now starting in some cases to push the boundaries of outsourcing.

The following themes were found in the in-depth interviews: a wide range of triggers had occurred to set the outsourcing decision in play; from a personal point of view, this was perceived as being on a roller-coaster; a more flexible approach was needed especially in the construction of the business plan; there was rarely a symbiotic relationship with the host beyond a certain time period, which in turn led to specific steps for both the acquisition of new business and also for client management. Finally, nearly all of our respondents claimed that there had been fundamental changes in working practices.

Living on the coalface of change requires very different organisational and personal skills and behaviour. Taking decisions has to be a quantum leap faster. Some talked about their personal timeframe shifting to 30-45 days. Nearly all of the respondents had moved to develop new skill sets and competencies for the business.

Establishing a new identity for the transforming organisation is very important. Many of our respondents stated that they surprised how long it took to establish.

• A Business Ecosystem

Many outsourced organisations are developing an ecosystem of their own as they use suppliers, suppliers of complementary services and other outsourced organisations. In fact, this richness is the considerable advantage of the outsourced company. In many respects, their ecosystem can be more varied than the host. It can also allow innovation of new products and services which are more powerful than those created by a single organisation.

• Partner Your Client

Building client relationships both with the host organisation and other clients will be a critical factor determining the business success and failure. The quality of these relationships has been found to be incredibly important. Partnering the client can only be productive, understand their culture and applaud their successes.

• Expect Your Business Model to Change

The business model will change. Expect it to do so and look for areas of flexibility.

Outsourcing will become the ultimate Changeware strategy allowing organisations to flex into the future. Outsourcing requires considerable enterprise by the transforming organisation and also by the host organisation to work successfully. The challenge is substantial but the potential rewards are often personally worthwhile.

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© Carol Samms / Through the Loop Consulting Ltd 1998-2000