Outsourcing, reengineering and benchmarking

Outsourcing

Definition

Outsourcing could be defined, according to Dorban Chacón (1999), as the action of resorting to an external agency to operate a function that was previously carried out within the company. According to the article "The drop that spilled the oil" in the Product magazine, August 1997 edition in relation to the hiring of external agents by PDVSA (the formation of Intesa), Outsourcing is: "Transfer to third parties of activities not medullary ». In other words, commissioning external providers with activities that are not the backbone of the business. In the case of PDVSA, everything that has nothing to do with its main business, which is the exploitation of oil. For example: gas exploitation (Cevegas) systems management (Intesa), etc.

In a context of globalization of markets, companies must dedicate themselves to innovate and concentrate their resources on the core business. Therefore, outsourcing or outsourcing offers an optimal solution and is the reason for permanent strategic alliances.

Basically it is a modality, according to which certain organizations, groups or people outside the company are hired to take charge of "part of the business" or a specific service within it. The company delegates the management and operation of one of its processes or services to an external provider - Outsoucer-, in order to streamline it, optimize its quality and / or reduce its costs.

Thus, it transfers the risks to a third party that can provide guarantees of experience and seriousness in the matter. In a sense, this provider becomes part of the company, but without being formally incorporated. The most frequent are product distribution services, telemarketing, IT services, selection and / or training of personnel, events, salary and wage settlements, among many other possible ones.

According to data provided by Xerox (1999), 80% of the Fortuna 500 companies are outsourcing their information technology and for some or all of their information management functions.

Make or Buy?

In Outsourcing, two managerial decisions must be considered: the decision on "Manufacture" or "Buy" and the correct setting of the size, that is, finding the ideal size, or the necessary number of personnel for an organization. Both decisions are central to the Outsourcing strategy.

The decision to "Manufacture" (continue to produce it within the company) or "Buy" (buy the service, hire an Outsource to provide it) is fundamental in the Outsourcing process. The question is valid both for companies and for the people themselves. How many of you, for example, would be better off if some of the things you do were transferred to others, which would leave more time for the vital aspects of your work?

Today, those who have worked for large corporations or government institutions know well that companies can prosper if people escape from what appeared to be a fundamental pillar of security into the reckless environment of positive action and success.

Looking back from self-employment to the world of employment, the various roles within organizations can seem even more adversarial than those seen in a traditional client-provider relationship. This brings to mind interesting ideas about the nature of competition.

Competition is a bit like advice or criticism, it can be constructive or destructive. Within organizations a certain degree of competitive activity is necessary, but it must not be destructive or negative to the organization's objectives. For example in the case of Procter & Gamble: each division competes with the others and this, although from one point may be positive, creates a wear and tear and a climate of tension among employees, which according to the Marketing Director of Tío Rico, division of Helados de Unilever Andina, María Teresa Naranjo (1998), a former P&G employee, "to work there you must necessarily be single, because all married people end up divorcing because of the pressures of work." That's why P&G is restructuring and changing many of its traditional policies.

Destructive competition is virtually non-existent in a healthy customer-supplier relationship, making this potentially the most positive and profitable of all relationships. The decision to "Make" or "Buy" begins with the organization itself.

Outsourcing is recognized as a vital mechanism to stimulate local employment through what are known as national links. The new customer-supplier relationship is beneficial as each shares the same goals.

The use of outside staff, and the new and fresh dialogue that results, gives rise to creativity and potential or spontaneity that were previously difficult to obtain. What has happened is that the advantages of economies of scale have been neutralized with what could be called movement paralysis, because bureaucratic administrative structures have made creativity and flexibility difficult to obtain. New processes for flattening organizations and creating closer relationships with suppliers have helped ensure that the decision to "Buy" can be more favorable than the decision to manufacture, except in cases where there are enormous economies of scale.

Outsourcing and Reengineering

There are several elements that have promoted the Outsourcing process, many of which are developed with world techniques such as: Reengineering of business processes, Organizational Restructuring, Benchmarking, which lead to more real societies, and the process of a slimmer administration, which is being encouraged and supported by rules and regulations.

Reengineering is the fundamental revision and radical redesign of business processes to achieve spectacular improvements in critical and contemporary performance measures such as cost, quality of service, and process speed.

Organizations that are really prepared to go back to the beginning and think about the best way to produce, market and distribute a product or a service will be forced to ask themselves what are the best ways to do it, and at the same time if they really need to have all processes within your company.

Reengineering offers companies the opportunity to consider Outsourcing as one of the tools that they can use in the new process. The principles are sound and solid, but there are still few Reengineering projects that are spectacularly successful, due to internal resistance in organizations to this potentially enormous and slow assimilation change. Therefore, Outsourcing can be an easier route than "Internal Reengineering". In fact, Outsource providers will often achieve their benefits through Process Reengineering to make it more efficient once they get the contract.

The development of Outsourcing is the inevitable result of many pressures, new and greater, on the industry and on all the resources of a world where internal regulatory requirements or multiple management levels can no longer be allowed. The process is being driven so much by demand, as management seeks better ways to do routine work and take on more and more of its clients' workloads.

Outsourcing: Results of your process

The Outsourcing process has been implemented in manufacturing companies, in the service area, in the financial sector and in various general organizations.

In what has become a growth trend, many organizations are making the strategic decision to put all or part of their systems function in the hands of specialists, allowing them to focus on what they do best - maximizing performance while minimizing costs. Banks, companies and public sector organizations have entrusted us with all or part of their computing, including applications, hardware and personnel, nationally and internationally.

In the public sector, Outsourcing is considered a Benchmark. In other countries they have already shown what this process can achieve, which is also considered a privatization, to benefit an economy and reduce the national debt. This effect was immediate since some state-owned companies that were losing money and were a burden on the economy began to make a profit after this style of privatization.

In most of the corporations we find that they are carrying out some type of Outsourcing, while many others have large Reengineering and downsizing programs.

Instead of buying several electrical parts from different suppliers, Outsourcing offers the possibility of making an agreement with a single company that performs the production of the complete part, which reduces costs and assembly time, which has the advantage of requiring a product of higher quality every day.

Take for example the impact on the financial sector. Some banks and other financial institutions are also outsourcing. However, for them it is much more delicate, since many banks are trying to get rid of staff with great seniority and high salaries, and very little is known about their outsourcing projects. One of the areas in which the bank is doing more outsourcing work is in information processing.

A recent study on the experiences and points of view about Outsourcing held by business and IT directors obtained the following findings:

• There is a wide and growing use of Outsourcing in the area of ​​information technology from strategy to delivery.

• This use is tactical type

• The benefits of Outsourcing are not simply in the reduction of costs.

• Obtaining these benefits is by no means easy and simple

• Outsourcing of information technology is increasingly common.

Greater caution is being shown, which is possibly what is known as smart outsourcing, Smart / Outsourcing, or the fragmentation of operations into more manageable parts so that they can be evaluated separately and independently as candidates for Outsourcing.

Technology organizations are experiencing the transition from internally focused management information systems to service-oriented systems. This change means that they are concentrating on the performance of services offered to users, as opposed to traditional data center operations, this is allowing to choose the services that can be outsourced more easily.

What should be contracted and what should not be contracted?

According to a recent study, these are the services that are highly considered to carry out an Outsourcing:

• Systems and technical strategyBusiness analysisSystems analysis and designApplication development and implementationNetwork design and implementationData center operationsNetwork operationsTechnical supportEnd user support and support department

After the Second World War, companies tried to concentrate as many activities as possible on themselves, so as not to have to depend on external suppliers. However, this strategy, which in principle was effective, with the development of technology, became obsolete, since the departments of a company could never stay as updated and competitive as independent agencies specialized in an area did. This is how in the 70s the boom of consulting agencies and Outsourcing emerged. Companies began to find it easier to hire an external consultant expert in an area, than to have to maintain and develop that department internally. Not only did it allow them to reduce the personnel costs that maintaining that department generated,rather, the quality offered by these expert advisors is better than that of the internal department.

We have a clear example in the advertising area. Many companies developed so-called "House Agencies" in order to develop all the advertising they needed internally. This seemed especially effective for very large companies with a lot of advertising volume, but over time the companies ended up realizing that it was much more effective, hiring an agency, in addition, that by handling a variety of clients, they could contribute cooler ideas than the firm's own employees: «Shoemaker to your shoes».

Another area that companies try to keep "In House" are Telemarketing (800) centers or customer call centers. However, over time, companies like Bigott have discovered that it is preferable to hire an Outsource that has greater Know How about how the business should be managed and kept up to date.

Obviously there are areas that should not be subcontracted to external entities to the organization, such as finance, according to their direct impact on the quality of the business, however, each company makes its own formula according to the case. The Marketing Manager of DHL Venezuela, Valeria Grunbaum, resigned from the company a few months ago to become independent and form her own company IMC Consultores. DHL Marketing management offered him to work with a Marketing consultant (this is one of the areas that experts recommend not to outsource).

One of the areas that most lend itself to Outsourcing is technology and systems. However, certain technology managers were reluctant to see the benefits of outsourcing for fear that it could cost them their job. Recently it was discovered that this was not true, but on the contrary it was the CIOs who showed the way of outsourcing. The greatest benefit reported was greater access to the skills of technology specialists. Outsourcing is not only about cost reduction; it can also provide improvements in business and technology services.

Outsourcing of business operations may have been partially promoted by suppliers who had to move from managing computer operations to systems integration, through which they are responsible for the development and operation of all businesses related to computer technology.

Although the current IT Outsourcing market is much more mature than others, the Outsourcing of business operations tends to grow faster.

The main reasons that led to outsourcing business functions:

• Business concentration

• Need for cost savings

• As a result of Benchmarking

• An exercise in Reengineering

The Outsourcing methodology is the incorporation of good practice in managerial decision making. Like any good decision, it needs to be subject to an appropriate administrative process and not simply made, as is the case with many other decisions on financial or technical grounds.

The methodology includes the simple steps of any administrative process such as the evaluation, planning and execution of a set of decisions. What the Outsourcing methodology will do is help to plan and set expectations and indicate those areas where specialized knowledge is needed to carry out the different activities of the organization.

3. Five key questions about outsourcing

• Why do organizations choose to outsource their information systems?

A few years ago, reducing the cost of IT processes was the main goal: economies of scale could be achieved by centralizing systems. Outsourcing allows companies to recover between 20% and 30% of the cost of data processing, and allows them to access a flexible and reliable infrastructure. The decentralization of information systems, and the resulting administrative complexity, have made professional alliances even more attractive.

Today, information systems are strategic for most organizations and competitive positions depend on the ability to meet increasing customer demand with immediate response. Outsourcing in the medium and long term is the most appropriate way to provide a service with a multiplicity of requirements in today's information technology.

Advanced networks, electronic commerce, customer service, solutions integration and migration / evolution of existing systems are some of the activities that are most contracted under the Outsourcing modality.

• Can Outsource take care of running all business functions, not just computer systems?

Outsourcing is being applied to all business processes in an organization. Areas such as accounting, personnel and payroll, call centers are candidates for "business service management" contracts.

• How are performance and profits measured in an Outsourcing?

Flexibility and quality of service are the most frequent parameters to measure Outsourcing performance. These criteria are measured and compared with the level of service agreed in the contract with a clear and systematic monitoring, and identifying the benefits achieved.

• What are the keys to success in Outsourcing projects?

Each project has its own characteristics, but there are some factors that tend to favor success. For example, it is essential to create a strong and rigorous project management structure. Experience in the area proves that an appropriate solution can be developed to manage the relationship with each of the clients, based on proven processes developed over the years.

Building a sense of commitment to the staff that is transferred from the client is another key that ensures success. The wide range of opportunities in terms of skills, responsibilities and opportunities abroad help smooth the transition.

• Can an international outsourcing be carried out?

Absolutely. One of the greatest needs of Outsourcing in multinational companies is that they can be in a position to offer multinational organizations a worldwide service, with a consistent quality of service. The daily access of thousands of users to a network of databases. Outsourcing is inevitably moving towards the globalization of services and information systems.

4. Benchmarking

Definition

The idea of ​​Benchmarking is simple, it means being so humble to admit that someone can do better than you, and so ambitious to try to reach and overcome it.

Let's try to explain its concept that is worth clarifying, it is not static but dynamic and adaptable to different needs. According to Alicia A. Benesch, professor at the Florence Nightingale College, It is a process that stimulates changes and improvements in organizations based on information collected, thus measuring performance, both its own and that of others. This process must be systematic, formal and organized to promote a set of actions in a particular order, being a coherent and expected sequence that any member of the organization can repeat. It is continuous because it takes place over a more or less extensive period of time, in order to demonstrate the dynamism of commercial strategies or their results. It allows diagnosing, measuring, comparing and evaluating, among other things, services, work processes, functions,etc., facilitating learning about oneself and others, focusing the study of the latter on how services are provided or performed and not so much on what service is performed or provided.

Let us add to the foregoing that the Benchmarking process can be applied to any organization, institution or establishment that produces similar results or not; seeking in its research the best commercial practices to implement in the areas to improve.

The different definitions of Benchmarking share the following elements:

• Develop competitive advantages Study the best practices in organizations of any industry or country Compare the performance of one organization with that of others, to obtain information that, creatively adapted, leads to improving its performance.

From the aforementioned, we obtain that Benchmarking is a tool to develop competitive advantages in an organization, based on the creative or innovative adaptation of existing best practices.

Originally the expression "Benchmark" seems to come from topography. It is a mark that surveyors make on a rock or a concrete pole, to compare levels. The term Benchmarking entered the business lexicon in the early 1980s, when the Xerox Company used it to refer to comparing a company with its direct competitors, or with companies recognized as leaders in their industry. Then its meaning is broadened: The comparison would go beyond local competition and the industry, in search of best practices where they are.

It's worth digging a little deeper into the case of Xerox. What did you adopt and from which companies?:

There is no standard design of the benchmarking process that fits all organizations. The most important thing is that the adopted design works within the current culture of the organization and contributes to generating a culture of continuous improvement.

In general, the first step is to identify those areas or processes that you want to improve: core competencies of the organization, core processes, or critical areas, on whose performance customer satisfaction depends. It is important to start by asking who is the client of the area or process evaluated and what are their needs? This ensures that customers and their needs are not lost sight of.

The second question that must be asked is: What to evaluate? What are the most critical aspects for the success of the organization? Which are causing the greatest problems? Which ones contribute the most to customer satisfaction and which ones do not satisfy their expectations? Which ones have the greatest potential to differentiate the organization from the competition?

The Investigation Process

The Benchmarking process starts from an initial investigation to detect the companies that are known in the examined area and thus establish the best in class or representatives of the best practices.

The heart of Benchmarking is the process of collecting and analyzing information regarding the practices whose adoption can improve the organization's performance, in the selected areas. The research team will be responsible for planning and executing the benchmarking of the organization's performance. Information gathering is not limited to visiting other organizations. An important part of the research work consists of the review of documents, files and publications, as well as visits, surveys, interviews and meetings. The analysis of the data will depend on each case, its nature and the needs of the organization.

All the previous analysis allows establishing organizational comparisons and determining the strategies to follow towards the improvement of the area in question.

Benchmarking and Reengineering

The goal of any reengineering effort is to create a profitable and sustainable competitive advantage. In any case, it is crucial to identify those practices that generate competitive advantages and pursue ambitious objectives that go beyond the practices of current competitors. For this reason, Benchmarking is a key tool for Reengineering: the identification of the practices used by organizations that have shown outstanding performance, in any industry or country, allows accelerating the Reengineering process by formulating performance objectives.

The advantage of Benchmarking is that the objectives and opportunities are defined in concrete terms, and not from an abstract design, whose goodness and feasibility is more difficult to communicate and accept.

5. Conclusion