- •In praise of the fourth edition
- •CONTENTS
- •FOREWORD
- •The concept of consulting
- •Purpose of the book
- •Terminology
- •Plan of the book
- •ABBREVIATIONS AND ACRONYMS
- •1.1 What is consulting?
- •Box 1.1 On giving and receiving advice
- •1.2 Why are consultants used? Five generic purposes
- •Figure 1.1 Generic consulting purposes
- •Box 1.2 Define the purpose, not the problem
- •1.3 How are consultants used? Ten principal ways
- •Box 1.3 Should consultants justify management decisions?
- •1.4 The consulting process
- •Figure 1.2 Phases of the consulting process
- •1.5 Evolving concepts and scope of management consulting
- •2 THE CONSULTING INDUSTRY
- •2.1 A historical perspective
- •2.2 The current consulting scene
- •2.3 Range of services provided
- •2.4 Generalist and specialist services
- •2.5 Main types of consulting organization
- •2.6 Internal consultants
- •2.7 Management consulting and other professions
- •Figure 2.1 Professional service infrastructure
- •2.8 Management consulting, training and research
- •Box 2.1 Factors differentiating research and consulting
- •3.1 Defining expectations and roles
- •Box 3.1 What it feels like to be a buyer
- •3.2 The client and the consultant systems
- •Box 3.2 Various categories of clients within a client system
- •Box 3.3 Attributes of trusted advisers
- •3.4 Behavioural roles of the consultant
- •Box 3.4 Why process consultation must be a part of every consultation
- •3.5 Further refinement of the role concept
- •3.6 Methods of influencing the client system
- •3.7 Counselling and coaching as tools of consulting
- •Box 3.5 The ICF on coaching and consulting
- •4 CONSULTING AND CHANGE
- •4.1 Understanding the nature of change
- •Figure 4.1 Time span and level of difficulty involved for various levels of change
- •Box 4.1 Which change comes first?
- •Box 4.2 Reasons for resistance to change
- •4.2 How organizations approach change
- •Box 4.3 What is addressed in planning change?
- •Box 4.4 Ten overlapping management styles, from no participation to complete participation
- •4.3 Gaining support for change
- •4.4 Managing conflict
- •Box 4.5 How to manage conflict
- •4.5 Structural arrangements and interventions for assisting change
- •5 CONSULTING AND CULTURE
- •5.1 Understanding and respecting culture
- •Box 5.1 What do we mean by culture?
- •5.2 Levels of culture
- •Box 5.2 Cultural factors affecting management
- •Box 5.3 Japanese culture and management consulting
- •Box 5.4 Cultural values and norms in organizations
- •5.3 Facing culture in consulting assignments
- •Box 5.5 Characteristics of “high-tech” company cultures
- •6.1 Is management consulting a profession?
- •6.2 The professional approach
- •Box 6.1 The power of the professional adviser
- •Box 6.2 Is there conflict of interest? Test your value system.
- •Box 6.3 On audit and consulting
- •6.3 Professional associations and codes of conduct
- •6.4 Certification and licensing
- •Box 6.4 International model for consultant certification (CMC)
- •6.5 Legal liability and professional responsibility
- •7 ENTRY
- •7.1 Initial contacts
- •Box 7.1 What a buyer looks for
- •7.2 Preliminary problem diagnosis
- •Figure 7.1 The consultant’s approach to a management survey
- •Box 7.2 Information materials for preliminary surveys
- •7.3 Terms of reference
- •Box 7.3 Terms of reference – checklist
- •7.4 Assignment strategy and plan
- •Box 7.4 Concepts and terms used in international technical cooperation projects
- •7.5 Proposal to the client
- •7.6 The consulting contract
- •Box 7.5 Confidential information on the client organization
- •Box 7.6 What to cover in a contract – checklist
- •8 DIAGNOSIS
- •8.1 Conceptual framework of diagnosis
- •8.2 Diagnosing purposes and problems
- •Box 8.1 The focus purpose – an example
- •Box 8.2 Issues in problem identification
- •8.3 Defining necessary facts
- •8.4 Sources and ways of obtaining facts
- •Box 8.3 Principles of effective interviewing
- •8.5 Data analysis
- •Box 8.4 Cultural factors in data-gathering – some examples
- •Box 8.5 Difficulties and pitfalls of causal analysis
- •Figure 8.1 Force-field analysis
- •Figure 8.2 Various bases for comparison
- •8.6 Feedback to the client
- •9 ACTION PLANNING
- •9.1 Searching for possible solutions
- •Box 9.1 Checklist of preliminary considerations
- •Box 9.2 Variables for developing new forms of transport
- •9.2 Developing and evaluating alternatives
- •Box 9.3 Searching for an ideal solution – three checklists
- •9.3 Presenting action proposals to the client
- •10 IMPLEMENTATION
- •10.1 The consultant’s role in implementation
- •10.2 Planning and monitoring implementation
- •10.3 Training and developing client staff
- •10.4 Some tactical guidelines for introducing changes in work methods
- •Figure 10.1 Comparison of the effects on eventual performance when using individualized versus conformed initial approaches
- •Figure 10.2 Comparison of spaced practice with a continuous or massed practice approach in terms of performance
- •Figure 10.3 Generalized illustration of the high points in attention level of a captive audience
- •10.5 Maintenance and control of the new practice
- •11.1 Time for withdrawal
- •11.2 Evaluation
- •11.3 Follow-up
- •11.4 Final reporting
- •12.1 Nature and scope of consulting in corporate strategy and general management
- •12.2 Corporate strategy
- •12.3 Processes, systems and structures
- •12.4 Corporate culture and management style
- •12.5 Corporate governance
- •13.1 The developing role of information technology
- •13.2 Scope and special features of IT consulting
- •13.3 An overall model of information systems consulting
- •Figure 13.1 A model of IT consulting
- •Figure 13.2 An IT systems portfolio
- •13.4 Quality of information systems
- •13.5 The providers of IT consulting services
- •Box 13.1 Choosing an IT consultant
- •13.6 Managing an IT consulting project
- •13.7 IT consulting to small businesses
- •13.8 Future perspectives
- •14.1 Creating value
- •14.2 The basic tools
- •14.3 Working capital and liquidity management
- •14.4 Capital structure and the financial markets
- •14.5 Mergers and acquisitions
- •14.6 Finance and operations: capital investment analysis
- •14.7 Accounting systems and budgetary control
- •14.8 Financial management under inflation
- •15.1 The marketing strategy level
- •15.2 Marketing operations
- •15.3 Consulting in commercial enterprises
- •15.4 International marketing
- •15.5 Physical distribution
- •15.6 Public relations
- •16 CONSULTING IN E-BUSINESS
- •16.1 The scope of e-business consulting
- •Figure 16.1 Classification of the connected relationship
- •Box 16.1 British Telecom entering new markets
- •Box 16.2 Pricing models
- •Box 16.3 EasyRentaCar.com breaks the industry rules
- •Box 16.4 The ThomasCook.com story
- •16.4 Dot.com organizations
- •16.5 Internet research
- •17.1 Developing an operations strategy
- •Box 17.1 Performance criteria of operations
- •Box 17.2 Major types of manufacturing choice
- •17.2 The product perspective
- •Box 17.3 Central themes in ineffective and effective development projects
- •17.3 The process perspective
- •17.4 The human aspects of operations
- •18.1 The changing nature of the personnel function
- •18.2 Policies, practices and the human resource audit
- •Box 18.1 The human resource audit (data for the past 12 months)
- •18.3 Human resource planning
- •18.4 Recruitment and selection
- •18.5 Motivation and remuneration
- •18.6 Human resource development
- •18.7 Labour–management relations
- •18.8 New areas and issues
- •Box 18.2 Current issues in Japanese human resource management
- •Box 18.3 Current issues in European HR management
- •19.1 Managing in the knowledge economy
- •Figure 19.1 Knowledge: a key resource of the post-industrial area
- •19.2 Knowledge-based value creation
- •Figure 19.2 The competence ladder
- •Figure 19.3 Four modes of knowledge transformation
- •Figure 19.4 Components of intellectual capital
- •Figure 19.5 What is your strategy to manage knowledge?
- •19.3 Developing a knowledge organization
- •Figure 19.6 Implementation paths for knowledge management
- •Box 19.1 The Siemens Business Services knowledge management framework
- •20.1 Shifts in productivity concepts, factors and conditions
- •Figure 20.1 An integrated model of productivity factors
- •Figure 20.2 A results-oriented human resource development cycle
- •20.2 Productivity and performance measurement
- •Figure 20.3 The contribution of productivity to profits
- •20.3 Approaches and strategies to improve productivity
- •Figure 20.4 Kaizen building-blocks
- •Box 20.1 Green productivity practices
- •Figure 20.5 Nokia’s corporate fitness rating
- •Box 20.2 Benchmarking process
- •20.4 Designing and implementing productivity and performance improvement programmes
- •Figure 20.6 The performance improvement planning process
- •Figure 20.7 The “royal road” of productivity improvement
- •20.5 Tools and techniques for productivity improvement
- •Box 20.3 Some simple productivity tools
- •Box 20.4 Multipurpose productivity techniques
- •Box 20.5 Tools used by most successful companies
- •21.1 Understanding TQM
- •21.2 Cost of quality – quality is free
- •Figure 21.1 Typical quality cost reduction
- •Box 21.1 Cost items of non-conformance associated with internal and external failures
- •Box 21.2 The cost items of conformance
- •21.3 Principles and building-blocks of TQM
- •Figure 21.2 TQM business structures
- •21.4 Implementing TQM
- •Box 21.3 The road to TQM
- •Figure 21.3 TQM process blocks
- •21.5 Principal TQM tools
- •Box 21.4 Tools for simple tasks in quality improvement
- •Figure 21.4 Quality tools according to quality improvement steps
- •Box 21.5 Powerful tools for company-wide TQM
- •21.6 ISO 9000 as a vehicle to TQM
- •21.7 Pitfalls and problems of TQM
- •21.8 Impact on management
- •21.9 Consulting competencies for TQM
- •22.1 What is organizational transformation?
- •22.2 Preparing for transformation
- •Figure 22.1 The change-resistant organization
- •22.3 Strategies and processes of transformation
- •Figure 22.2 Linkage between transformation types and organizational conditions
- •Figure 22.3 Relationships between business performance and types of transformation
- •Box 22.1 Eight stages for transforming an organization
- •22.4 Company turnarounds
- •Box 22.2 Implementing a turnaround plan
- •22.5 Downsizing
- •22.6 Business process re-engineering (BPR)
- •22.7 Outsourcing and insourcing
- •22.8 Joint ventures for transformation
- •22.9 Mergers and acquisitions
- •Box 22.3 Restructuring through acquisitions: the case of Cisco Systems
- •22.10 Networking arrangements
- •22.11 Transforming organizational structures
- •22.12 Ownership restructuring
- •22.13 Privatization
- •22.14 Pitfalls and errors to avoid in transformation
- •23.1 The social dimension of business
- •23.2 Current concepts and trends
- •Box 23.1 International guidelines on socially responsible business
- •23.3 Consulting services
- •Box 23.2 Typology of corporate citizenship consulting
- •23.4 A strategic approach to corporate responsibility
- •Figure 23.1 The total responsibility management system
- •23.5 Consulting in specific functions and areas of business
- •23.6 Future perspectives
- •24.1 Characteristics of small enterprises
- •24.2 The role and profile of the consultant
- •24.4 Areas of special concern
- •24.5 An enabling environment
- •24.6 Innovations in small-business consulting
- •25.1 What is different about micro-enterprises?
- •Box 25.1 Consulting in the informal sector – a mini case study
- •25.3 The special skills of micro-enterprise consultants
- •Box 25.2 Private consulting services for micro-enterprises
- •26.1 The evolving role of government
- •Box 26.1 Reinventing government
- •26.2 Understanding the public sector environment
- •Figure 26.1 The public sector decision-making process
- •Box 26.2 The consultant–client relationship in support of decision-making
- •Box 26.3 “Shoulds” and “should nots” in consulting to government
- •26.3 Working with public sector clients throughout the consulting cycle
- •26.4 The service providers
- •26.5 Some current challenges
- •27.1 The management challenge of the professions
- •27.2 Managing a professional service
- •Box 27.1 Challenges in people management
- •27.3 Managing a professional business
- •Box 27.2 Leverage and profitability
- •Box 27.3 Hunters and farmers
- •27.4 Achieving excellence professionally and in business
- •28.1 The strategic approach
- •28.2 The scope of client services
- •Box 28.1 Could consultants live without fads?
- •28.3 The client base
- •28.4 Growth and expansion
- •28.5 Going international
- •28.6 Profile and image of the firm
- •Box 28.2 Five prototypes of consulting firms
- •28.7 Strategic management in practice
- •Box 28.3 Strategic audit of a consulting firm: checklist of questions
- •Box 28.4 What do we want to know about competitors?
- •Box 28.5 Environmental factors affecting strategy
- •29.1 The marketing approach in consulting
- •Box 29.1 Marketing of consulting: seven fundamental principles
- •29.2 A client’s perspective
- •29.3 Techniques for marketing the consulting firm
- •Box 29.2 Criteria for selecting consultants
- •Box 29.3 Branding – the new myth of marketing?
- •29.4 Techniques for marketing consulting assignments
- •29.5 Marketing to existing clients
- •Box 29.4 The cost of marketing efforts: an example
- •29.6 Managing the marketing process
- •Box 29.5 Information about clients
- •30 COSTS AND FEES
- •30.1 Income-generating activities
- •Table 30.1 Chargeable time
- •30.2 Costing chargeable services
- •30.3 Marketing-policy considerations
- •30.4 Principal fee-setting methods
- •30.5 Fair play in fee-setting and billing
- •30.6 Towards value billing
- •30.7 Costing and pricing an assignment
- •30.8 Billing clients and collecting fees
- •Box 30.1 Information to be provided in a bill
- •31 ASSIGNMENT MANAGEMENT
- •31.1 Structuring and scheduling an assignment
- •31.2 Preparing for an assignment
- •Box 31.1 Checklist of points for briefing
- •31.3 Managing assignment execution
- •31.4 Controlling costs and budgets
- •31.5 Assignment records and reports
- •Figure 31.1 Notification of assignment
- •Box 31.2 Assignment reference report – a checklist
- •31.6 Closing an assignment
- •32.1 What is quality management in consulting?
- •Box 32.1 Primary stakeholders’ needs
- •Box 32.2 Responsibility for quality
- •32.2 Key elements of a quality assurance programme
- •Box 32.3 Introducing a quality assurance programme
- •Box 32.4 Assuring quality during assignments
- •32.3 Quality certification
- •32.4 Sustaining quality
- •33.1 Operating workplan and budget
- •Box 33.1 Ways of improving efficiency and raising profits
- •Table 33.2 Typical structure of expenses and income
- •33.2 Performance monitoring
- •Box 33.2 Monthly controls: a checklist
- •Figure 33.1 Expanded profit model for consulting firms
- •33.3 Bookkeeping and accounting
- •34.1 Drivers for knowledge management in consulting
- •34.2 Factors inherent in the consulting process
- •34.3 A knowledge management programme
- •34.4 Sharing knowledge with clients
- •Box 34.1 Checklist for applying knowledge management in a small or medium-sized consulting firm
- •35.1 Legal forms of business
- •35.2 Management and operations structure
- •Figure 35.1 Possible organizational structure of a consulting company
- •Figure 35.2 Professional core of a consulting unit
- •35.3 IT support and outsourcing
- •35.4 Office facilities
- •36.1 Personal characteristics of consultants
- •36.2 Recruitment and selection
- •Box 36.1 Qualities of a consultant
- •36.3 Career development
- •Box 36.2 Career structure in a consulting firm
- •36.4 Compensation policies and practices
- •Box 36.3 Criteria for partners’ compensation
- •Box 36.4 Ideas for improving compensation policies
- •37.1 What should consultants learn?
- •Box 37.1 Areas of consultant knowledge and skills
- •37.2 Training of new consultants
- •Figure 37.1 Consultant development matrix
- •37.3 Training methods
- •Box 37.2 Training in process consulting
- •37.4 Further training and development of consultants
- •37.5 Motivation for consultant development
- •37.6 Learning options available to sole practitioners
- •38 PREPARING FOR THE FUTURE
- •38.1 Your market
- •Box 38.1 Change in the consulting business
- •38.2 Your profession
- •38.3 Your self-development
- •38.4 Conclusion
- •APPENDICES
- •4 TERMS OF A CONSULTING CONTRACT
- •5 CONSULTING AND INTELLECTUAL PROPERTY
- •7 WRITING REPORTS
- •SUBJECT INDEX
Management consulting
22.5 Downsizing
Downsizing is a reduction of the workforce, often as a result of financial losses, cash flow difficulties, loss of contracts, technological changes, or action taken by competition. This reduction can be achieved by attrition, early retirement, and transfers within the company, as well as by layoffs. Indeed, downsizing – if it is managed in a socially responsible way – can be and often is a good opportunity to reduce costs, improve competitiveness and reinvigorate an organization. Radical downsizing has been a popular strategy and financial markets have usually applauded these drastic efforts.
However, downsizing can also strip an organization of valuable human assets and lead to deteriorating productivity, morale and loyalty. Downsizing can be planned and systematic, but often layoffs are done as a spectacular “quick fix” to send highly visible signals to investors. The actual impact of such layoffs on profitability may then be negligible in comparison to their magnitude. In many cases, downsizing fails to increase long-term shareholder value. The hidden economic and social costs of downsizing include the loss of key talent and valuable corporate memory, higher turnover and absenteeism, loss of customers due to a decline in quality and service, decline in entrepreneurship, innovation and risk-taking, and even an erosion of external reputation and brand image, and increased legal and administrative costs. High social costs usually stem from the effects of job insecurity, increased resistance to change, decreased motivation, stress, and loss of trust and loyalty.
Nevertheless, in certain cases downsizing is difficult to avoid. It can be both economically effective and socially responsible if it is conceived and executed as a part of wider transformation efforts. A good strategy may be continuous downsizing, with no major layoffs and a lean management philosophy and culture. The best downsizing practices normally emphasize:
●corporate social responsibility reflected in the corporate ethics and code of conduct;
●business vision, mission, strategy and goals, and aligning actions around them;
●leading transformation, not just downsizing, based on continuous improvement;
●focusing on people, communication, partnership and participation.
It is important for a management consultant to be well prepared to help with recovery measures after downsizing. These may involve defining a new shared vision and focusing on the future rather than the past, providing support to survivors as well as those laid off, facilitating changes in organization, job design, work-shifts and responsibilities, mapping out and updating in-house skills and translating them into company competencies, revitalizing sales and improving customer relationship management.
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Recently there has been a shift from downsizing to the concept of rightsizing, which begins with clarification of business strategy and core activities, and definition of the optimum organizational structure and staffing requirements. This contrasts sharply with the previous tendency to carry out broad and brutal staff reductions across the board, sometimes referred to as “dumb-sizing”.
22.6 Business process re-engineering (BPR)
Re-engineering was developed and launched in the mid-1980s as a technique for making radical and rapid changes in operating strategy that result in immediate competitive advantage. In this concept, changes in business processes must cross old organizational barriers; job descriptions must be rewritten; reward systems must be revised to foster individuality and internal competitiveness; new information systems must be designed and tested. There is a strong focus on cutting costs – particularly on making large numbers of staff redundant.
The earlier concepts of BPR were clearly centred on information technology (IT). The key message was that IT systems should be designed around the processes of an organization rather than localized within organizational units, as was usually the case. The view was soon extended to the organization as a whole to counteract the negative impact of functions, hierarchy and commandtype structures. A modernized BPR is meant to be a fundamental analysis and radical redesign of business processes to achieve dramatic improvements in performance, including costs, quality, service and speed. It also aims to eliminate all activities that are not central to process goals, to automate all activities that do not require human judgement, and, where necessary, to facilitate such judgement at reduced costs. It is a series of interrelated activities that cut across functional boundaries in the delivery of output.
The essential idea of BPR is to redesign the core processes of the enterprise so that the organizational barriers and operational impediments between processes are eliminated. Instead of a piecemeal approach – improving the efficiency of each separate business activity or operation – re-engineering starts with the premise that companies consist of processes, or combinations of activities, that, linked together, produce an output in the form of goods and services for customers. In re-engineering, therefore, the focus is on how best to organize and assemble these processes as a whole, in order to maximize benefits for customers while ensuring efficient use of company resources.
BPR consists of two main elements. Business re-engineering involves the development of an organizational architecture: identifying and linking business strategy with the required processes to ensure that the strategy is delivered. Business process redesign refers to the redesign of any organizational process, from the total supply chain process to a single process within an individual functional department. Process redesign normally includes eliminating all non- value-added activities, simplifying the process, integrating it and finally
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automating it where appropriate. The whole effort is usually structured in five stages as follows:
●Stage 1. Restructuring. Organizational renewal generally begins with a turnaround effort focused on restructuring by downsizing and/or delayering to cut “fat” and improve productivity. The main staff reductions come from retirements, closing of plants, reorganizations, consolidations, and greater span of control.
●Stage 2. Bureaucracy bashing. Get rid of unnecessary reports, approvals, meetings, measures, policies, procedures, and other activities that create backlogs.
●Stage 3. Employee empowerment. Empowering employees helps to remove barriers between employees and managers, and builds openness and dialogue. Self-directed work-teams and employee involvement should be woven into the fabric of the organization.
●Stage 4. Continuous improvement. Begin by focusing on actively detecting and preventing errors using available productivity and quality techniques.
●Stage 5. Cultural change. Employees’ mind-set – the way they think about their work – needs to be shifted.
Re-engineering programmes often seek to achieve short-term results within four to six months and to complete delivery of longer-term results within one or two years. A major advantage of the BPR approach is that it avoids or bypasses the departmental rivalries and politics that can interfere with the smooth running of more organizationor process-wide projects. In designing the re-engineering processes, it is important to focus on operations – irrespective of business functions, departments, geography, authority etc. – that run across all business areas, from raw materials procurement and manufacturing, through all the internal processes to contact with customers via sales, distribution, after-sales services and customer relationship management.
Successful BPR practices indicate that the following factors should be presented or developed:
●A preoccupation with change is important for employees to feel the urgency or see the benefits of change. The key drivers for re-engineering are customer demands, regulatory changes, increasing competition, dissatisfaction with internal operations, and costs.
●The need for clear goals is paramount for implementing a successful BPR. The business objectives need to drive the technology, and not the other way around.
●Re-engineering is a top-down approach, requiring continuing top management involvement, understanding and committed leadership. Companies must focus on redesigning processes rather than functions or departments, in order to gain maximum improvements from the BPR.
●Managing the pace of BPR is critical; a pilot project approach can help the organization gain “early wins” to validate certain concepts and techniques.
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●The re-engineering task does not end once the newly re-engineered process is up and running. A monitoring system should be installed and the new process further fine-tuned and improved.
22.7 Outsourcing and insourcing
Outsourcing involves contracting with outside organizations to undertake specific activities that were previously carried out by the firm itself. It is a form of restructuring since it implies fundamental changes in strategy, organization and staffing. Specialized service companies can often provide better quality services more cheaply and more reliably, particularly in activities that require a different set of skills than the mainstream business of the company. For some time, activities such as cleaning and maintenance have routinely been contracted to specialized firms. More recently many firms have outsourced data processing, accounting, and facility management, and there is an increasing trend in manufacturing to outsource production of parts and subassembly supply. Under an outsourcing agreement, one firm purchases the ongoing provision of a product and services from another without taking a direct financial stake. It is a strategic opportunity that offers benefits over and above lower costs as a result of greater economy of scale for specialized external producers.
A management consultant has to be able to explain to the client the possible advantages and problems of outsourcing. When a product or service costs less, it frees up capital for alternative uses, or accrues to investor wealth in the longer term, and improves cash flow in the short term, as well as earnings per share.
An important source of user value is access to economies of scale and the unique expertise that a large provider can deliver. Brand or reputation value can also improve when providers deliver products and services more competently than internal personnel. Firms enter into outsourcing agreements for strategic gain as well. Value may come from an outsourcing contract if it provides for good complementarity between a user’s and a provider’s capabilities; if it allows the user to stay abreast of fast-changing technologies that it could not develop itself. Other key potential advantages include reduced capital intensity, transformation of fixed capital to variable costs, freeing-up of management time to focus on core, high-value-added activities and customer needs, and benefits that can be gained from supplier innovations.
A large and growing subset of outsourcing is contract manufacturing (between 10 and 20 per cent in some new economy sectors). The advantage of this lies in higher productivity, lower overheads and better use of expensive high-technology factories and specialized equipment. This dramatic and recent development is changing the shape of the value chain and relationships with suppliers.
PricewaterhouseCoopers proposed the following sequence of steps for business outsourcing:
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1.Analyse possibilities and cost-benefits of business process outsourcing.
Review the company’s current state and define core and non-core activities. Identify effective solutions for the company’s non-core operations.
2.Define roles, responsibilities and controls. Consider relationships between the corporation and the outsource company as a strategic, integrated partnership. Analyse various outsourcing options, identifying objectives, studying the current processes, and developing solutions. The contract must clearly address the scope of services, business processes, roles and responsibilities, organization and staffing, work plans, deliverables, schedules, budgets for time and expenses, and other management matters. It must also ensure that the company retains sufficient control.
3.Establish measurements tied to results. Include the means to provide information concerning the objectives. The contract should include jointly agreed performance targets for outputs, services, costs, and performance reporting as well as the outsource company’s effectiveness.
4.Plan for a smooth transition. Formulate a detailed transition plan, and apply the firm’s management methods to ensure a smooth, orderly hand-over of selected business processes from the firm to the outsource company.
5.Launch the partnership. Once the contract has been signed, a transition plan prepared, and internal communications plans put in place, the firm and the outsource company can initiate the new strategic partnership.
6.Monitor and benchmark for continuous improvement. The firm and the outsource company should provide for monitoring of processes and relationships; periodic evaluation of the outsource company’s performance; execution of necessary adjustments; transformation of the outsourced functions into “centres of excellence” and use of performance benchmarking against world-class companies.
Companies must also be aware of a possible downside of outsourcing – creating a bureaucracy around it that is more unwieldy than, for example, running the IT department entirely in house. As companies increasingly compete in terms of responsiveness and flexibility, and for human talent, some observers worry that outsourcing may lead to “hollowing-out”. With their value-generating activities no longer under their own roof, enterprises no longer possess the cutting edge to create innovative products, develop fresh services, or find new profit zones.
A new trend is currently leading some firms to bring their processes back in house – to “insource”. Insourcing is often realized as shared services. Companies strip out routine, transaction-based processes common to several business divisions, and group them together in a stand-alone shared service centre (SSC). The SSC then provides the service to the company’s divisions, charging each a pro rata fee for the service used. Typical processes to be insourced are financial (expenses processing, payroll, etc.), human resources (updating employee records, training, etc.), and information systems (systems support, training, etc.).
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