Wednesday, June 8, 2011

Strategic sourcing- Shouldn't employee morale be a factor in evaluating the success of outsourcing

The article on “Strategic sourcing” talks about the importance of sourcing in this ever-changing landscape. It also points out some successful sourcing strategies adopted by companies like Chrysler, American express and 7-eleven. Hewlett Packard (HP) is one such company that has successfully – in terms of revenues and profits – outsourced many of it functions.

HP used an approach, which combined external outsourcing with internal outsourcing using a shared services approach. Most of us are familiar with external outsourcing, but what is internal outsourcing? Doesn’t outsourcing mean transferring the job to an external service provider? No. Not always. Internal outsourcing means creating a separate entity within the organization to perform specified internal tasks. This helps the organization consolidate specific operations in a single location, enabling the company to gain economies of scale. An example of internal sourcing is consolidation of teams providing PC support; previously every business unit had their own team to provide PC support.

According to the “Strategic sourcing” article, a company’s success in outsourcing is measured by sales, revenues and profits. Shouldn’t employee morale also be a parameter? As a former employee of HP, I have seen from close quarters the impact of mismanaged outsourcing on employee morale. One such example was the mismanagement of outsourcing the travel desk operations to Carlson Wagonlit Travel (CWT). The travel desk call centers were consolidated at two locations worldwide and the employees from all over the world were required to call into one of these locations. During the initial days, the process was smooth and the business unit heads were touting a huge cost saving. But gradually the quality of service declined - and it was frustrating for the employees to wait on the phone to book a ticket. It was easier and more comfortable to book the tickets with the local travel desk at your own building.

I have seen similar problems arising from internal sourcing (at HP) - shared service provided from PC support. The consolidation of the team at few locations meant that employees had to deal with a longer turnaround time if they had issues with their PC. This lead to drop in productivity and employee morale.

However, I agree with the article in that, the role of sourcing is changing and it has almost become imperative that organizations outsource some or most of its non-core functions. But, don’t you all think that employee morale must also be a factor in addition to sales, revenue and profit when a company success in outsourcing is evaluated?

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