One common reoccurrence on social media commentaries is the ever-persistent question of just what management is seized with at our respective organisations; so much so the a, b, c of the company must be developed externally.
This ultimately boils down to outsourcing, particularly when the company is moving into an innovation trajectory.
The Corporate Finance Institute defines outsourcing as a strategic decision to increase efficiency by hiring another individual or company to perform tasks, provide services or handle operations that were previously done by employees within the company to reduce costs.
Indeed, considering the principle of structure follows strategy, strategic decisions ordinarily at the organisation’s design phase, or the strategic review determines which functions will be core and non-core to the business as well as which functions will be insourced and outsourced and what will be more efficient
for the organisation from a cost and profitability perspective.
Various indicators signal whether or not the companies should outsource. Forbes posits that the company may outsource due to a lack of time for innovation, which is key to sustained growth.
The team is maxed out in their capacities, and projects are coming to a stall.
Inability to deal with specialised tasks is also one reason to outsource, and the company does not gain a competitive advantage by keeping it in-house.
A company that is scaling up too fast may outsource to produce or provide services on a larger scale and generate more revenue.
Forbes also suggested that if skills and needs do not match – and the company is behind schedule for several weeks or months, it is a sign to outsource.
Most companies prefer to oil the wheels and focus on their core economic engine, where they derive most value and increase profitability, as it is not always possible to control the entire business value chain.
Hence, even in a function where there may be dedicated resources and the portfolio is understaffed, it is critical to assess whether it is more prudent and cost-effective to outsource than falling into the temptation of adding another headcount to the payroll, which may end up not being optimally utilised.
In Namibia, it would appear some of our institutions are still navigating the intricacies of outsourcing, coupled with a negative connotation that outsourcing can cause a downward spiral and cost the company more than it will save it. Needless to say, it is not an unfair consideration because as companies realise the benefits of outsourcing; the practice may be open to exploitation.
The entity may be outsourcing beyond reasonability and without doing the homework to appreciate the cost-and-the benefit of outsourcing at the organisational level holistically before making the call.
Undeniably, there have been such cases, and it is not unusual to find more than 70% of the job function outsourced, reducing the custodian to a paper pusher; there being no plans to relegate.
This may be attributed to several factors: the outsourcing culture may entertain quick fixes towards internal weakness – and outsourcing is done arbitrarily, which may pose a threat to institutional knowledge and in-house capacity building.
A company may have underestimated its capacity at the organisational design phase, or there is a misalignment between the organisational strategy and structure to realise its objectives.
The company has erroneously hired or the organisation is hampered by a poor performance culture and productivity ratios are low, which may call for a performance management system rather than outsourcing.
This is often true in bloated structures, where the lines of accountability are blurred, resulting in shifting organisation execution challenges to third parties.
Neither of these failure factors is ideal, as not only is the ownership lost through outsourcing but the organisation subsequently has two costs to absorb, the payroll cost and the contractor’s costs, whereas the intention of outsourcing is often to reduce labour or operational costs.
This simply means organisations need to constantly monitor their environments and reassess their capacity at strategic review intervals and avoid arbitrary outsourcing when implementing strategies to succour growth.