The Theory and Practice of Outsourcing
Dave Griffiths
carrying out core value-adding activities in-house
This paper discusses the reasons why companies are
where an organisation can best utilise its own core
interested in information outsourcing (the theory) and
competencies.
how it can be made to work for the benefit of companies
and individual information developers (the practice). The
Main Factors influencing successful
paper examines how information developers can, and do,
outsourcing
react to the prospect of outsourcing. And by doing so, I
hope to help information developers to understand the
The critical areas for a successful outsourcing
process and take advantages of the benefits it does offer
programme as identified in a recent survey (ref 1) are:
them, while recognizing that there are some downsides to
the process.
· Understanding company goals and objectives
· A strategic vision and plan
· Selecting the right vendor
· Ongoing management of the relationships
· A properly structured contract
· Open communication with affected
WHAT IS OUTSOURCING?
individual/groups
· Senior executive support and involvement
Outsourcing can be defined as "the strategic use of
· Careful attention to personnel issues
outside resources to perform activities traditionally
· Short-term financial justification
handled by internal staff and resources". Sometimes
known also as "facilities management", outsourcing is
From this list, I would select open communication and
a strategy by which an organisation contracts out major
executive support as of paramount importance in a
functions to specialised and efficient service providers,
successful outsourcing process and I would personally
who become valued business partners.
add to the list the need for workable Service Level
Agreement, which is openly available to all staff
Companies have always hired contractors for particular
involved.
types of work, or to level-off peaks and troughs in their
workload, and have formed long-term relationships
Open Communication
with firms whose capabilities complement or
supplement their own. However, the difference
Kudos believes that whatever the outcome of the
between simply supplementing resources by
outsourcing arrangement, managing change is
"subcontracting" and actual outsourcing, is that the
fundamental to the success of the programme.
latter involves substantial restructuring of particular
Assessing stakeholder requirements is the first part of
business activities including, often, the transfer of staff
this process, and having open channels of
from a host company to a specialist, usually smaller,
communication during this time are vital. Everyone
company with the required core competencies.
concerned should be involved in the process. The
Fujitsu case study will demonstrate how this can be
Why do companies outsource?
achieved in practice.
Here are some common reasons:
Executive Support
· Reduce and control operating costs
Strategic objectives, such as outsourcing initiatives,
· Improve host company focus
must come from the top echelons of a company. Senior
· Gain access to world-class capabilities
management must articulate the goals and objectives of
· Free internal resources for other purposes
the outsourcing initiative and communicate how the
· A function is time-consuming to manage or is
process will benefit the organisation.
out of control
· Insufficient resources are available internally
Today's managers are looking ahead and recognizing
· Share risks with a partner company
that the responsibility for ensuring the success of their
enterprise's outsourcing initiatives does not stop when
In the early days, cost or headcount reduction were the
the ink has dried on the contract. Unfortunately, this
most common reasons to outsource. In today's world
has not always been the case. A combination of
the drivers are often more strategic, and focus on
uncertainty combined with a lack of attention to critical
details has created a present day scenario where,
according to The Gartner Group (ref 2), 25% of
outsourcing contracts will be re-negotiated or canceled
Service Implementation
within three years. Ongoing management of the
relationship is important. Senior management must stay
Service Implementation covers the activities required
involved during the implementation of the contract.
to take these ideas and intentions and develop them
Not only should there be a clearly defined escalation
into a formal, planned outsourcing programme and to
procedure, but senior management should meet at
make the transition to the outsourced service.
appropriate intervals to discuss the outsourcing
Specifically these activities are:
relationship. Meetings should also be held at the
operational level to address the workings of the
· Defining the transition project
outsourcing contract in practice, to identify and resolve
any problems that have been encountered, and to agree
· Transferring staff
on changes to ensure continued satisfaction.
· Defining the Service Level Agreement (SLA)
· Defining service reporting
Contracts and Service Level
· Implementing and handing over the service
Agreements
· Implementing service management procedures
During the handover phase it is imperative that
There are several critical components of a good
continuity of service is maintained at all times, that
outsourcing agreement. The emphasis from the outset
there is no reduction in the quality of the delivery and
should not be on who wins the best deal, but rather on
that timescales and deadlines are not compromised.
negotiating a reasonable contract for both parties. As
each aspect of the outsourcing relationship is governed
by the contract, both the outsourcing company and the
Final Agreement
supplier need to reach complete consensus. Both
parties need to reach agreement on issue resolution.
The draft contract produced at the Initiation stage is
The key document in outsourcing agreements is the
generally amended during negotiations and the final
Service Level Agreement (SLA). It helps manage the
contract is produced on completion of the negotiation
strategic relationship between the outsourcing company
cycle.
and the supplier and includes the identification of
responsibilities, which is key when processes change.
Programme Closure
Successful outsourcing relationships focus on results.
To be meaningful, these results must be objective,
In order to gain maximum benefit, the programme
measurable, quantifiable, and comparable against pre-
should go through a formal close down. There is no
established criteria.
point in continuing to argue lost causes once
irrevocable decisions have been taken. Staff and
Kudos Outsourcing Methodology
companies alike need to accept the new situation and
move forward. However, there will be a lot of
Kudos uses a sequence of logical actions for the
information generated during the life of the
successful implementation of an outsourcing
programme, and this will have been stored with varying
agreement. There are four main aspects to a typical
degrees of formality by the team members. This
Kudos outsourcing programme:
information needs to be formally filed away for future
reference.
· Programme Initiation
· Service Implementation
· Final Agreement
STAFF REACTION
· Programme closure
Through experience Kudos have been able to
understand the reactions of staff faced with the
Programme Initiation
proposition of being outsourced and have therefore
been able to assist information developers in coping
with the initial turmoil and subsequently seeing the
At the start of any outsourcing programme, there are a
benefits of belonging to a specialist information
variety of ideas and opinions about the purpose and
development organisation. Obviously, every single
scope of the programme, what the final result of the
individual is different, but we do now recognise three
programme will be, and how the programme will be
phases that many people go through.
carried out. The Programme Initiation Stage is
concerned with taking these ideas and intentions and
documenting them to form the basis of a draft contract
1. Rejection: in some people the initial reaction is
information required for its client base by using
almost as serious as in a lay-off situation. There is
dedicated in-house technical writing resources. An
an element of shock and horror at how their
external manufacturing and distribution company then
company (for whom they may have worked for
distributed this information to ICL clients worldwide.
many years) can (a) do such a thing to them as an
individual and (b) even consider getting by without
However, the business nature of ICL was changing
internal information developers. There is a feeling
from being IT product-based to delivering customer-
of rejection, both as an individual and as an
focused solutions and services. The staff, comprising
information developer. There is often total lack of
technical authors, graphics artists and project managers
understanding of how a host company can even
were totally focused on the current tasks in hand, had
consider such a thing.
an uncertain future within ICL because of the
impending change from proprietary product
2. Self-interest: understandably many people's sole
development to a service-based solution delivery
aim when they finally come to terms with the fact
business.
that something is going to change is to concentrate
on looking after their own career interests. This
The production and distribution of technical
can apply at an individual level, where a person
information for use by clients was not classified as
may seek to get an improved personal deal with
being part of ICL's core business. ICL had not been
the new company or to try and transfer to an
successful in the past in negotiating outsourcing deals
alternative role in their original host company. In a
for non-core business areas (for example, catering, site
heavily unionized environment, the union may be
maintenance and IT administration and maintenance).
asked to negotiate terms with the new company or
even to seek to prevent the outsourcing from going
Needs
ahead. Much of this is wasted effort, particularly in
Europe where European rules exist to safeguard
ICL explained its needs, all of which were equally
the rights of individuals who are transferring from
important, as:
one company to another.
· To achieve definite cost savings
3. Join forces with the new company: in most
· To ensure that the company's investment in
successful outsourcing arrangements, the majority
staff development was continued
of staff eventually come to realise that their
· To ensure that the quality of service was
personal interests can best be served by supporting
maintained and if possible, improved
the new company. They may then do everything
they can as an individual to help ensure that a
Solution
reasonable Contract agreement is reached with a
workable Service Level Agreement, which gives
the new company an opportunity to suceed.
The HPS documentation team and all of its
responsibilities were outsourced to The Kudos
To reach this third phase takes time and patience on the
Partnership Limited. Negotiations between ICL and
part of the company (such as Kudos) who are
The Kudos Partnership Limited produced the
negotiating to complete the outsourcing deal. Regular,
following:
open communication sessions are an essential means of
winning the confidence of new staff gained in this way.
· Detailed business contracts to govern the
This third phase of individual reaction has to be
working relationships between the two
reached if the outsourcing deal is to be a success for the
companies
new company and the staff involved.
· Service Level Agreement for both companies
to use in monitoring the service provided by
Kudos
· Buy-in of staff involved in the transfer to
FUJITSU CASE STUDY
Kudos
· Working arrangements to allow Kudos to
develop and maintain new information and
distribution strategies for the benefit of HPS
Background
· Kudos moving the operation into its own
office premises within 30 minutes drive from
Kudos has completed two outsourcing programmes
the main ICL site. The actual location was
with the computer giant, Fujitsu. The largest one was
selected to be easily accessible to the majority
with its European based, wholly owned subsidiary,
of ICL staff who transferred to Kudos, with
ICL. Within ICL's High Performance Systems division
excellent transport, retail and eating facilities
the Customer Information unit developed the technical
in the immediate vicinity.
customer procedural, reference and servicing
today. HP and its partners deliver management,
ICL retained access to the services of the
network intelligence, billing and customer-care
documentation and graphics team thereby ensuring a
solutions for UNIX® and Windows NT® system
smooth transition and the integrity of the current HPS
platforms, enabling service providers to migrate from
information products. Additionally, the know-how,
network to customer-focused business models as the
technical expertise and commercial experiences of
Internet and telephony worlds converge.
Kudos enhanced the documentation and graphics
design services significantly.
Hewlett-Packard's Telecommunications Infrastructure
Division (TID) is based in Grenoble, France. Every HP
Benefits to ICL
division is responsible for its own profit and loss, and
thus, is also free to adopt the business model and
The outsourcing deal was signed in May 1996 and two
practices that best suit the business. The HP corporate
years later ICL's director of services agreed that ICL
culture acts as an overall cultural and structural
has realised significant technical and business benefits:
umbrella, and TID is accountable to Hewlett-Packard
Co. for growth and profitability.
· Achieved the reductions required in the cost-
base
The organisation had tried a number of models for
· Maintained profit margin as the cost of sales
developing documentation in the previous 5 years. The
has reduced to match the price variations ICL
decision to move to an outsourcing option was chosen
has applied to its products and services
because:
· Retained the expertise and skills of the former
ICL documentation team to ensure the
· Neither TID nor HP regard technical writing
integrity of the development and maintenance
as a core activity
of the ICL documentation products
· TID's business needed a flexible workforce
· Maintained its position as a market leader for
model
technical excellence. The latest leading-edge
· TID could not offer career paths to technical
information technologies are being
writers
implemented in the design, development and
distribution of ICL information products.
· Achieved higher productivity because Kudos
Kudos and other established UK-based and French
staff work in an environment where they can
companies in the documentation marketplace were
focus on information product design and
invited to submit offers outlining the approach they
development rather than large company
would take.
agenda
· Improved confidence in information status as
the time to market for information products
Defining Needs
starts to reduce
· Maintained coherent standards through
TID had established selection criteria:
information structures and layouts
· A proven track record and commitment to
technical documentation outsourcing
Benefits to staff
· An understanding of TID's business
objectives and constraints
The initial members of information developers who
· The capability to sustain the Service Level
transferred from ICL have now been joined by an
Agreement and make it evolve over time
equivalent number of new recruits to form a thriving,
· The capability to transfer responsibility back
growing organisation in the North West of the UK. Not
to HP or to another company if required
a single member of the outsourced ICL staff has left the
· The availability of technical and management
new company except for natural reasons such as
skills
retirement.
· The ability to add value to the service
· The price
HEWLETT PACKARD CASE
Benefits
STUDY
The main reasons for the ultimate selection of Kudos
were as follows:
HP is supporting the communications industry by
supplying communications IT infrastructure to every
· Kudos demonstrated a track record in
Fortune 500 telecommunications company in the world
documentation outsourcing. Most importantly,
they showed they understood the difference
between partnership outsourcing and the
Dave Griffiths
provisioning of resources
Information Consultant
· Kudos demonstrated they had a methodology
Kudos Information Ltd
that was relevant to TID's situation
Emerson Court, Alderley Road
· Kudos were prepared to invest for the long-
Wilmslow, Cheshire, SK91NX
England
term; they stated they would open a French
44 (0) 1625 522107
subsidiary of the parent company
· Kudos stated they were not intending to set up
a group of contract writers who could leave at
Dave works for Kudos Information Ltd, which is one of
short notice. Instead they stated that technical
the United Kingdom's leading suppliers of information
documentation was a core competency of
solutions. He is currently advising Nortel Networks.
theirs, and committed to employ a team of
Dave is a former president of the ISTC (The UK's
mainly permanent staff, once the knowledge
equivalent to the STC) and has given many talks at
transfer phase was complete
ISTC and other conferences.
Maintaining a quality service
The Kudos France organisation was established, and
the new office opened on May 3rd 1999 - less than 100
days after selection.
Every month, Kudos and TID hold a review meeting,
where progress against plan, deliverables, processes,
tools and costs are thoroughly reviewed. The first
quarterly review of the relationship took place in mid-
July. Here are the conclusions of this review:
HP and Kudos decided to work together to better
determine the short and long term needed skills and
knowledge for technical writers to serve the booming
Telecoms market. Mainly this concerns Telecoms IN
and SS7 technical understanding. The Kudos team is
perceived as efficient, positive, and the quality of work
is considered better. Costs are as expected in the first
three months, despite additional late-breaking work
being done. The tools and support infrastructure are
both cheaper and easier to maintain, backup procedures
are in place, and a senior Kudos support person is
permanently available to support the writing team. The
group being off-site has worked well, helping to
formalize the relationship. Both Kudos and HP are
ensuring that people talk and use the efficient
electronic communications infrastructure. HP has
declared the transition phase officially over.
Kudos is seen as developing a culture of openness,
based on regular and proactive communication within
the team, and committed to high standards of quality.
REFERENCES
(1) "Survey of Current and Potential Outsourcing End-
Users, The Outsourcing Institute Membership, 1998"
(2) "Gartner Group Outsourcing Study and report
1997"
Document Outline