Outsourcing as a Productivity Tool
There are sound economic reasons for outsourcing, but management experts advise caution.
The ebb and flow of economics always play havoc on staffing. When business is up, managers hire like crazy. When it goes down, they cut like threshers in the fall. Outsourcing is a flexible management tool that helps stem the cost of staffing, but oh, how core employee morale suffers when done poorly.
That’s why management experts caution: outsource in a way that doesn’t damage company morale and productivity. Why? Because where confidence goes, so too goes productivity.
Maybe it’s too obvious a point that strong confidence equals good productivity. However, a surprising number of managers I’ve met over the years believe that good productivity can happen overnight after a good pep talk. Employees are constant worriers. They worry about the implications of new hires. They fear that the new hires could take their jobs during reductions. According to many HR consultants, a healthy dose of staff stability over time (9 months or more) is a prerequisite before companies can expect a change in employee confidence and a measurable uptick in productivity. There are ample case studies and anecdotes that confirm this point. Not to mention that adage about getting back what you put into the cow. We haven’t gone very far away from the farm.
Even when you think you’re doing the right thing for productivity, outsourcing can trigger management problems unpredictably. Consider this scenario: an engineering firm where I once worked as a tech writer scaled up and down so often that they needed two separate HR managers: one to handle on-boarding and another to manage off-boarding. The tasks were only some of what you’d call low-level tasks. The firm required engineers with professional experience in petroleum extraction and North Sea drilling platform operations. Management believed they were supporting the in-house staff. Still, the high churn rate of contractors affected morale because the permanent staff could only reach their production goals if they were constantly training the contractors. In situations like this, goals stretch further and further into the future, what some managers call the ‘never-ending horizon.’
Some companies never stop training. In these cases, they staff whole departments dedicated to training the trainers. In some cases, this may be desirable. Walmart, for instance, has long since figured out that it doesn’t take much training to restock shelves and point to various locations in the store. They also realized that the longer an employee sticks around, the higher their costs (e.g., training, higher salaries, benefits). Thus, the high turnover and the expense of training is a reasonable tradeoff.
Expenditure, Utilization, Benefits
I learned from HR experts and recruiters that outsourcing should revolve around three essential factors: expenses, utilization, and – most importantly – benefits (return on investment) to the employer. Expenditures and utilization depend upon what you need and how much you are willing to invest. It’s easier to negotiate with freelancers/contract workers; costs are always lower because the tax and benefits profile is simpler than full-time employees. Utilization is a simple math problem: calculate the project scope (how long and for what purpose/outcome), and the result may look promising. Return on investment is wholly subjective. All questions concerning your ROI begin and end with your business type and the mode of services (e.g., direct or indirect). Going back to the engineering firm as an example—outsourcing for engineers would be a “direct expense” because it is in the direct production line. The problem with direct-mode outsourcing is that many employers run into productivity issues because in-house procedures and processes (project requirements) may be so unique that even highly skilled contractors require lots of high-level training.
This brings us to the problem of shortages within the talent pool itself. Sometimes, when skillsets are unique to your company (engineering or software programming, for instance), it’s nearly impossible to find enough skilled candidates to interview. In desperate times, employers enlist talent recruiters, which tends to drive up costs. Employers may even turn to existing staff to structure outsourcing to specific aspects of a project rather than turn the whole thing over to a contractor.
Similarly, we can avoid some specialization issues for indirect functions like support staff or accounting services. These are positions that usually do not require a great deal of training and on-the-job acclimation. In these cases, employers may exert more control by limiting outsourced tasks to specific functions (e.g., clerical, inventory control, logistics) so that the ask-for service matches readily available pools of freelancers or contract workers.
I could write another post about other estimates, such as the cost for a given area of the business compared to ideal costing models (i.e., at what point do we review the task for flaws). But let’s assume we’ve covered these more in-depth questions and dwell a bit more on assessing outsourced jobs based on available talent (e.g., their skillsets and expertise rather than the ones we wish they had). Employers drive themselves crazy searching for someone to fulfill specific project requirements. In my field of marketing communications, I’ve seen organizations assume that they need the “exact match” talent and experience. Knowing you need a needle is okay, but why drop a haystack on top of it?
Some freelance talent is a bit more “universal.” In marketing communications, the written language is by no means proprietary. Expertise, therefore, depends more on the assumption that a professional freelance writer has the skills to be effective in various situations and within related fields. Otherwise, a freelance writer does not freelance for long.
I have a vested interest in using this example – but the rationale applies to a wide range of functions that are in use in your business today. Consider various places in your company where you have gainfully outsourced already: human resource management, business planning, business management and productivity, general accounting (e.g., payroll, tax preparation, audits), and legal. I attended HR symposiums on behalf of a client (itself, a firm that offered HR outsourcing services), where these issues were laid bare and analyzed to the ‘nth’ degree. They concluded that there are no simple answers. As one HR consultant said, “Sometimes you have to punt.”
Freelancers can help you end that crazy cycle of upsizing and downsizing and its inevitable effect on core employee morale (and productivity). By consistently outsourcing specific tasks to freelancers, you can do three things that will help you drive up productivity while keeping expenses low:
First, the word ‘freelancer is ubiquitous to ‘temporary’ – freelancers come in, finish a job, and then they’re gone. The term is usually disarming and poses no threat to all but your most sensitive staff members. They’re happy, and you’re so glad! Worrying over job security eases up, hopefully encouraging a rise in productivity. As an added special bonus, a consistent freelance policy gives you continuity. As you assign freelancers for specific jobs, your employees are freed up to engage in that all-important function of maintaining quality assurance and care vital to your core company operations and customer/client satisfaction.
Second, because freelancers are temporary, you don’t pay taxes, insurance, and other fixed costs associated with permanent staffing.
Third, you don’t pay for training because if you choose your professional freelancer carefully, you will have a fully trained expert who will hit the pavement running.
Outsourcing is one of those things that you either love or hate. Given its adverse effects on company morale and productivity, it is best to hold outsourcing at arms reach as a tool of necessity.