The impetus for outsourcing aspects of a company’s business comes from the chief executive and the management team, deciding on what is core business for the utility and what can better be provided by others. That was the conclusion of a group of utility executives brought together by Utility Week to talk about outsourcing.
The aim had been to explore the best balance between the options, but what quickly became clear was that – at least in the utility context – companies tended to go through a cycle. They increased the proportion of outsourced activities, sometimes leaving a thin management structure, and then began insourcing again. What was important was to be aware of that process and manage it.
Paul Bircham, regulation director at Electricity North West, had experience of outsourcing and insourcing – most recently adding around 1,500 operations staff to the 100 or so in the asset-owning part of his company. He said the process could be a “real catalyst for change”, and setting out the outsourcing contract could give very good understanding of the goals and incentives within the contract. But you have to be aware of the potential for perverse behaviours and make careful arrangements for who owns and maintains data and systems around the contract.
Alison Brearey, a partner at lawyer Eversheds, echoed those points. In her experience, she said “contracts are rarely well-specified” and it was possible to swap real partnership for a “cottage industry of key performance indicators”. She said some of the issues that were being identified by the group as key to success, like planning exit and contract-end strategies, or dealing with the people affected, were least considered.
Consultant Brian McNamee also talked about the effect of the change on the people involved. Think about the people and the processes, and put customers at the centre for both partners, he said. Then think about what’s required, for example in IT. “What is the problem that you are trying to solve?” he asked.
Neil Finnie, business development director at Project One, highlighted an issue that had been mentioned by several delegates: the organisation that remained after the outsourcing was as important as the outsourcing contract. Several delegates could recall situations where the outsourced activity had been very well-specified during the process, and was now much better understood by the company management than the activities that remained.
That had interesting implications for managing the people involved too. In some ways the people doing the outsourced jobs would see least change – they would do the same job, although it might be under a different logo. But the retained staff had to live in a culture where change was being managed.
Delegates took away some key messages from the discussion. Outsourcing and insourcing can both be useful activities and can help define goals and move the company forward. But it’s not possible to outsource risk, even if some aspects are taken on. You should never outsource a mess – it will not get less messy. And you must pay as much attention to the activities and people remaining in the company as you do to setting up the outsourcing.
This article first appeared in Utility Week’s print edition of 9th November 2012.
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