Inside Business: The future of outsourcing could lie within the firm
Sunday 02 May 1999
It started with support services such as cleaning and catering - thereby playing a significant part in the growth of the likes of Rentokil-Initial and Compass. But it really took off when information technology took business by the scruff of the neck.
Perhaps oddly, given that outsourcing is supposed to happen to activities that are deemed peripheral to the main business, this seemed to begin when IT ceased to be a small support function that helped a few clerical staff keep on top of things and became what is now termed a "key business driver". It was almost as if it had grown too important to be left to the companies' managers and had to be hived off to people who at least claimed to know what they were doing.
Though some might argue that mastery of IT - and of the market intelligence it produces - is too central to be left to outsiders, it appears that organisations from investment banks to international oil companies see the benefits of having specialists run that side of things; the companies are then left free to extract the so-called competitive advantage from what results.
It is on such an attitude that the rapid expansion in recent years of outsourcing specialists, such as Andersen Consulting and EDS, has largely been founded.
What gives outsourcing its staying power is its seemingly constant capacity to produce new twists. The latest stems from signs of a desire on the part of organisations to get rid of responsibility for the premises from which they operate. Regus, the fast-growing provider of managed offices around the world, expects much of its future expansion to be fuelled by the desire of businesses to improve their earnings capacity by ceasing to own the properties from which they operate.
The company sees a particularly ready market in professional services firms on the grounds, according to one executive, that they recognise the importance for their reputations of having administrative and reception staff meeting the standards that they expect of the fee earners but do not always have the ability or motivation to achieve.
Such an approach can be seen to fit in with the general thinking about core and support activities. But consultants at Booz-Allen & Hamilton have spotted signs of a trend that perhaps strikes at the heart of the core/non-core debate even more than IT did.
In the latest edition of their firm's quarterly journal Strategy & Business, Charles E Lucier and Janet D Torsilieri suggest that a new division of labour is needed to achieve the improvements in productivity that initiatives such as re-engineering and quality improvement have often failed to deliver.
Their article, entitled "The End of Overhead", calls for companies to cast out those workers many would term invaluable - those at the top of their fields. Challenging the orthodoxy in the way consultants love, Mr Lucier and Ms Torsilieri claim that in most companies a good deal of work does not properly tax those who are most expert at it. Far better, they say, to allow more junior people - or even the customer or client - to do this, freeing the true experts to concentrate on the complex things.
The problem? Most organisations do not have enough really taxing things to keep these people occupied, so they become too expensive to hang on to.
The solution? Hive them of into super specialist organisations where they can spend all their time selling the benefits of their expertise and honing it in ways that would not have been possible within the confines of their more conventional employers.
In this way, say the authors, "Companies will both eliminate expertise- driven overhead and better manage the productivity of knowledge workers." Sounds like great news for professional firms, especially the management consultancies, which must have been the main beneficiaries of the outsourcing boom.
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