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					                                                                                      OUTSOURCINGSERVICES

                                                                 functions has become so pervasive that we rarely think
                                                                 about them when we hear the term “outsourcing.”
                                                                     More complex services have also recently become candi-
                                                                 dates for outsourcing, including functions such as finance
                                                                 and accounting services. Today, organizations are taking a
                                                                 closer look at all of the services they perform internally in
                                                                 order to evaluate the benefits of an external group taking
                                                                 over certain functions. As a result we are now seeing func-
                                                                 tions previously believed to be core to the organization –
                                                                 such as marketing, finance and human resources – being
                                                                 outsourced to partner firms. While outsourcing is already
                                                                 an established business practice in the food and beverage
                                                                 industry, it’s also a growing trend because of the many ben-
                                                                 efits outsourcing can offer organizations, such as reduced
                                                                 costs, improved service, increased flexibility and reduced
                                                                 corporate complexity.
                                                                     While there are a variety of reasons why organizations
                                                                 outsource, companies beginning the outsourcing journey



Take it
                                                                 do have the opportunity to learn from those that have gone
                                                                 before them.

                                                                 Lessons learned: success stories



Outside
                                                                 While outsourcing often leads to significant benefits for an
                                                                 organization, it isn’t without risks. Following are some key
                                                                 lessons regarding outsourcing that should be considered
                                                                 when planning, implementing and managing a successful
Considering outsourcing services?                                relationship.
                                                                 Accurately define the service – It may seem trite to suggest
Make sure you understand the risks and opportunities             that the service to be outsourced should be properly
before taking the plunge                                         defined and documented before proceeding, but often this
BY ROB DICK AND JASON MORSINK                                    is not done with the type of rigour and depth that will pre-
                                                                 vent future issues. The tasks that are performed, the
                                                                 responsibilities for those tasks, and the anticipated out-

T  he business world is abuzz these days with stories about
   outsourcing. We’re constantly hearing about how
organizations are achieving significant cost reductions
                                                                 comes, should be well documented and agreed upon
                                                                 between the two parties before signing any deals. A simple
                                                                 checklist of who is accountable for what tasks goes a long
through outsourcing and offshoring, but at the same time         way to defining the split of activities. It will also help delin-
we hear about significant outsourcing failures. Why then         eate the service, so that it can be more easily detached from
are some organizations succeeding at outsourcing while           other services within the organization with minimal dis-
others are failing? Generally, there are identifiable reasons    ruption.
why these relationships succeed, as well as common mis-          Agree on relevant service levels – Organizations that success-
takes leading to failures. By considering these factors before   fully outsource services invest the time to confirm that the
making the commitment to outsource, businesses will have         service levels included in the contract are relevant to the
a better chance of success, while being prepared for any         client’s business. Companies should not just accept the
challenges they may face.                                        metrics the supplier proposes, as they may not represent
                                                                 what is truly important to their business. Effective organi-
Setting the stage                                                zations resist this temptation – they ensure that these meas-
Outsourcing is loosely defined as entering into a contrac-       ures are appropriate for their own organization’s business
tual obligation with another firm to carry out a function or     goals. Organizations should also work with the outsourcing
service previously performed internally. It’s a concept that     partner to develop the most appropriate metrics for their
has been around for several decades, and most companies          organization.
already outsource functions or processes to one degree or        Establish an appropriate governance model – Successful
another, and to varying complexities. For example, most          organizations establish effective governance models that
organizations have outsourced simple tasks such as janitor-      outline the roles, structures and mechanisms used to over-
ial or security services. The outsourcing of these types of      see the vendor’s performance. Remember too that per-

W W W. F O O D I N C A N A D A . C O M                                                             FOOD IN CANADA •           53
OUTSOURCINGSERVICES                                                   fits of reducing management attention on non-core opera-
                                                                      tions, and the exposure to leading practices brought to the
formance includes more than just managing service levels.             organization by the outsourcing partner. Whether or not
It includes other elements such as the health of the rela-            the expected benefits outweigh the costs and risks, and if
tionship between the two organizations, and achievement               there are other alternatives that must be considered, should
of the company’s objectives for outsourcing (both financial           be documented and discussed by the appropriate client
and non-financial). Relationships that are effective also             executive team before making a decision.
have appropriate levels of senior executive involvement in            Poor management of the relationship – Companies can make
the governance structure, both client and vendor.                     the correct decisions prior to outsourcing a specific set of
    There are numerous examples of situations where fol-              corporate tasks, only to later fail in monitoring and man-
lowing these suggestions have helped produce successful               aging the relationship. One common and often fatal mis-
outsourcing relationships. Take, for example,                                            take is to outsource the service with the belief
the case of a large consumer packaged goods            Company management                that it is now the vendor’s problem to correct.
company that decided to outsource a number                                               It is critical that companies allocate appropri-
                                                      must remember that they
of less complex corporate services, including                                            ate people to manage and nurture the out-
printing and copying, as well as its mailroom          may be outsourcing the            sourcing relationship, and to ensure that
and courier functions. Ultimately, the compa-            responsibility for the          changes the outsourcer makes will not nega-
ny received better service at a lower price             performance of certain           tively impact the business. This doesn’t mean
through outsourcing, and had a better ability          functions, but they can           micro-managing the day-to-day activities. It
to scale these services up and down as they hit       never really outsource the         means managing the contract, the service
peak periods in their operating cycle.                                                   levels and the relationship between the two
                                                       accountability that they
                                                                                         firms. Company management must remem-
Lessons learned: common mistakes                        have for their business          ber that they may be outsourcing the respon-
While there are many good reasons to out-                     operations.                sibility for the performance of certain func-
source, and many ways to help ensure a suc-                                              tions, but they can never really outsource the
cessful outcome, the list of reasons an outsourcing deal can          accountability that they have for their business operations.
fail can be just as long. Following are some of the more              Since stakeholders expect management to maintain
common mistakes that contribute to failed outsourcing                 accountability for the effective operations of the firm, it’s
relationships.                                                        critical that sufficient effort be given to managing and nur-
Rushing into an outsourcing relationship because of business          turing an outsourced relationship.
pressures – A frequent impediment to outsourcing success is                Unfortunately, examples of poor outsourcing relation-
through rushing to respond to pressure or a crisis. This              ships abound. One consumer packaged goods company,
sometimes happens when a business is either in accelerated            for instance, decided to outsource its sales function rather
growth mode, or looking to reduce costs through out-                  than ramp up the function internally. In a move that was
sourcing as a way to somehow release the pressure in the              not unusual within its industry, the company contracted
short term. In addition, organizations sometimes out-                 with an outside sales force to represent its brands.
source functions that are not operating properly under                Unfortunately, the relationship soured, largely because the
their own management, with the belief that handing over               company had not allocated enough of their own people’s
the disorder to a third party will remove them from the               time to manage the relationship. They made the common
responsibility of fixing it. In either case, making a decision        mistake of believing that once the service had been out-
in a time of crisis or chaos should be handled delicately.            sourced it no longer needed to be nurtured. FC
While this is sometimes necessary, the amount of due dili-
gence taken should be increased when an organization is               Rob Dick and Jason Morsink are senior practitioners in KPMG’s
forced to make a decision in an unstable environment.                 Advisory Services practice, and have extensive experience assist-
Failing to do so often makes things much worse, rather                ing clients throughout the outsourcing lifecycle. They are based
than better.                                                          in Toronto.
Failing to build an appropriate business case – We often see
firms proceed without a well-thought-out and articulated                The views and opinions expressed herein are those of the author and
business case. Building a business case for outsourcing                 do not necessarily represent the views and opinions of KPMG LLP. The
should be a formal process that assesses the tangible and               information contained herein is of a general nature and is not intended to
intangible costs, benefits and risks associated with handing            address the circumstances of any particular individual or entity. Although
over responsibility for a certain function to an outside sup-           we endeavor to provide accurate and timely information, there can be
plier. Tangible costs and benefits are fairly easy to calculate,        no guarantee that such information is accurate as of the date it is received
for example the cost of the service, and the savings of the             or that it will continue to be accurate in the future. No one should act
adjustment to headcount. However, intangible costs and                  on such information without appropriate professional advice after a thor-
benefits are harder to calculate and include issues such as             ough examination of the particular situation.
the cost of a short-term impact on staff morale, the bene-

54   • SEPTEMBER         2006                                                                                  W W W. F O O D I N C A N A D A . C O M

				
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