Outsourcing can produce a variety of impacts on the customer's people and tasks. Often, these impacts come as a complete surprise to the customer. Some work during the early stages of the outsourcing acquisition can reduce the number of surprises and minimize the negative impacts of people and what they do.
Work Matrix
Against every position in the organization, we can build a "work matrix" of people and the tasks that they perform.
| A | B | C | D | E | FTE | Cost | |
|---|---|---|---|---|---|---|---|
| Allan | 0.2 | 0.2 | 0.3 | 0.3 | 1.0 | $120,000 | |
| Brian | 0.1 | 0.5 | 0.4 | 1.0 | $100,000 | ||
| Carol | 0.3 | 0.7 | 1.0 | $120,000 |
Table 32.1: Tasks
In this example, three staff (Allan, Brian and Carol) work on a number of tasks, which, to save space, have
been coded as Task A, Task B, and so on.
Allan spends 20% of his normal working time on Task A, 20% on Task
B, and so on.
It is worth noting how these percentages are reached. If your organization uses time-sheets, then it is a
simple task to capture the information from those sheets. My own time-sheets would enable an analysis of the percentage of my
time spent on administration, on training, on marketing, on proposals, and on assignments.
If you do not have a
time-sheet, then you can ask staff to record the amount of time that they spend on each of a list of tasks.
There is no
need for rigour in this exercise. You will not be concerned with whether someone is drinking coffee in time that they have put
down against a productive task. Everyone needs refreshment, and it is still true that, for Allan to complete his work for Task A,
he will need to have 20% of a working day available for it.
You can add all the columns to get the full-time equivalent
for each person.
| A | B | C | D | E | FTE | ||
|---|---|---|---|---|---|---|---|
| Allan | 0.2 | 0.2 | 0.3 | 0.3 | 1.0 | ||
| Brian | 0.1 | 0.5 | 0.4 | 1.0 | |||
| Carol | 0.3 | 0.7 | 1.0 |
Table 32.2: FTEs
In this case, the three members of staff work full-time, but you will also be able to record part-time and casual
workers in this way.
Some staff will score more than 1 FTE, some less.
We can also add in the costs of
employing the people involved.
| A | B | C | D | E | FTE | Cost | |
|---|---|---|---|---|---|---|---|
| Allan | 0.2 | 0.2 | 0.3 | 0.3 | 1.0 | $120,000 | |
| Brian | 0.1 | 0.5 | 0.4 | 1.0 | $100,000 | ||
| Carol | 0.3 | 0.7 | 1.0 | $120,000 |
Table 32.3: Cost
Now, if Tasks A, B and C are to be outsourced, those tasks will be removed from the
organization.
We can therefore highlight those tasks and examine the consequences of their removal in more
detail.
| A | B | C | D | E | FTE | Cost | |
|---|---|---|---|---|---|---|---|
| Allan | 0.2 | 0.2 | 0.3 | 0.3 | 1.0 | $120,000 | |
| Brian | 0.1 | 0.5 | 0.4 | 1.0 | $100,000 | ||
| Carol | 0.3 | 0.7 | 1.0 | $120,000 |
Table 32.4: Outsourced tasks
When these tasks are removed, all the work undertaken by Brian will be removed.
| A | B | C | D | E | FTE | Cost | |
|---|---|---|---|---|---|---|---|
| Allan | 0.3 | 0.3 | $120,000 | ||||
| Brian | 0.0 | $100,000 | |||||
| Carol | 0.7 | 0.7 | $120,000 |
Table 32.5: Remaining tasks
It is likely that we already knew and understood this, as Brian is clearly employed only on those three tasks.
This is the simple method of outsourcing. It relies on taking account only of those people who are totally engaged in the tasks to
be outsourced.
Brian can either be made redundant or transferred to the outsourcer. This is unlikely to raise any legal
problems: redundancy is applicable in Brian's case.
If you had not carried out this procedure before outsourcing, you
could imagine that Brian was the only person to be affected by outsourcing.
We can now look at what Allan is left
with. He now performs only one task, Task E, and is engaged on it for 30% of his time.
You will also see that Carol
is now only employed for one task, Task D, and that she spends 70% of her time on it.
Together, Allan and Carol
make up 1 FTE.
In effect, the outsourcing exercise has shed one person but removed the work of two people. The
problem lies in the fact that the "second person" is not a single whole person at all.
Options for under-employed staff
The options that management has for Allan are to:
- re-assign his work on Task E to someone else (such as Carol), so that Allan may be dismissed
- do nothing
- assign him additional work associated with the outsourcing of the other tasks.
If management is unaware of this situation, they will be unable to select the first option, of re-assigning work and dismissing him.
If they are aware of the situation, management may assign Allan additional work associated with the outsourcing exercise. This will be a new supervising task. We can be fairly certain that, whatever the real extent of Allan's new responsibilities, their performance will occupy the remaining 70% of his time.
The three options therefore become:
- minimize costs by removing those who no longer represent the work of a full time person
- ignore costs by maintaining the current staff levels, except for those "directly" involved in the outsourcing
- hide costs by giving people additional, new tasks.
Minimize costs
In this scenario, we are aware that Allan will be useful for only 30% of the time, and arrange to
reassign his work to Carol.
Our total saving on personnel will be $220,000 per annum.
Our costs will be the
one-off redundancy costs for Allan and Brian.
This illustrates how great the impact of outsourcing can be. If we are
going to remove the work of two full time equivalents, we need to remove two people.
Ignore costs
In this scenario, we are not aware of how much work Allan and Carol will be
doing.
Only Brian will be lost, providing a saving of $100,000 per annum.
There will be one-off redundancy
costs for Brian.
There will be the cost of employing Allan for 70% of the time and Carol for 30% of the time,
$120,000 per annum, of which we shall remain unaware.
On an ongoing basis, we shall be losing $20,000 each
year.
This is the position of total ignorance. We are not going to admit the true situation (or we are simply not aware
of it), so we just ignore it.
Hide costs
In this scenario, we are aware only of the fact that some of work previously performed by Allan
will no longer be required. We may not be aware that this will be 70% of Allan's work.
We shall therefore assign a
new supervising task to Allan. Whatever we may imagine the time required for Allan to perform this new teak, the task will
undoubtedly occupy 70% of Allan's time eventually.
Like the previous scenario, this one will lose $20,000 each
year.
This will be offset by the perceived value of the supervising task performed by Allan. We shall discuss this
"value" shortly.
This will never be the optimum solution, but it may appear to be better than the
"ignore costs" scenario, which costs the same but which adds no value from a supervising task assigned to Allan.
Unfortunately, as we shall see below, this value is negative, so that this solution is usually the worst of the three, by a
considerable margin. Even more unfortunately, it is a solution that is very easy to choose and justify.
Summary of the three scenarios
The simple approach of losing Brian will be expected to save us $100,000
per annum.
With the first scenario, we can save $220,000 per annum. With the second and third, we shall lose
$20,000 per annum.
With the third, we have invented a supervising task for Allan which may continue to increase our
losses. We shall now examine how.
Invention of "supervising" tasks
The calculations that we have demonstrated in the three scenarios
have been primary savings and primary costs. They have been directly brought about by the fact of outsourcing.
Once
we have invented the supervising task for Allan, we have started to provide an entry for secondary costs. These are the costs
that will come into being following the outsourcing exercise. They will not be directly caused by the fact of
outsourcing.
We shall now examine how some secondary costs can come into being.
The first new role
Assume that Allan has been given a supervising role for the tasks that have been
outsourced.
This means that
- Allan is now in a supervising role, rather than his previous operational role. The skills required to be a supervisor are different from those to be an operator.
- Allan may now be supervising tasks that he did not previously perform. He may not understand what those tasks entail, and familiarity may divert his concentration towards those tasks that he used to perform.
- Allan is now working at the activity level, rather than at the task level. His view needs to be broader and less concerned with the detail of individual tasks.
- Allan will not be retrained as a supervisor. He will not produce meaningful reports on the outsourcer's performance of the activity.
- Allan will devote time to learning about the tasks that he does not understand. As he cannot operate as a supervisor of the activity, he will continue to try to understand the activity's tasks.
- Allan will not be retained to work at the activity level. He will be concerned with examining the outputs from each task, rather than the overall output from the activity.
This is an astounding situation, and one that management would never allow to happen in the normal course of events. Allan would not normally be promoted to a supervising role without being training in that role and in the view that he would need to take, as a supervisor, of the tasks within his responsibility.
The second new role
Because we shall not be getting relevant, summarized information from Allan, we shall
feel a need to improve our reporting.
You will notice that the unreality of the situation has taken another pace forward.
Originally, when we decided to keep Allan and to allot him the supervising role, we did it in order to keep Allan working. Now,
we have decided that there should be a useful result out of what Allan is doing and that we should endeavour to obtain that
result.
In fact, there never was any value to Allan's role as supervisor, and there never was any useful result that would
ever emerge from it.
Whatever the reality of the situation may be, we shall continue to seek that result.
We
can do this by increasing Allan's work on the supervising role, by providing him with assistants to help, or by inventing further
supervising roles in the positions higher up the management hierarchy than Allan.
This gives us a whole new second
tier of roles.
Allan may be relieved of any remaining tasks he was doing, so that he can devote himself 100% to
supervising. This means that he will finally break away from the tasks that he could do, and will be working full-time on tasks
that he cannot do effectively.
Additional staff may be employed to help Allan, or they may be removed from other
tasks within the organization, so that we shall be creating a pool of incompetence.
Those above Allan will now be
using him to collect information, that they will then convert into a form that would be useful, if the whole supervising exercise
had any use whatsoever. This will divert them from the tasks that they should be working on.
This situation is even
more astounding, for, having placed Allan in a role that he cannot perform effectively, we are now going to add other people
who will perform it. In normal circumstances, we would not allow this to happen and Allan's de facto redundancy would be
obvious. Again, we have not investigated whether this supervisory role has any value to us whatsoever.
The nth new role
It is easy to imagine this situation continuing upwards through the organization, as increasing numbers of managers get involved in supervising.
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