Welcome, this blog post aims to explore people's opinions towards the process of outsourcing. I am trying to establish who gets the blame when an issue or crisis occurs - the organisation who has outsourced the service/(s), or the contractor who is now responsible for the service? An interesting topic of discussion, I'm sure you will agree.
For those of you like me who love definitions, here's a good one! "Outsourcing is the contracted use and leverage of third-party resources, assets and skills. It involves delivering services previously provided in-house".
In 2003, outsourcing companies around the world took in over $3 trillion and the market for these services tripled from 2000 to 2003. Research indicates that outsourcing is becoming a phenomenon and an enterprise that it set to benefit the UK’s economy. Even the Conservative party are campaigning that once in power, they will reduce Britain’s huge budget deficit by outsourcing more services to save money.
Despite its growing status as a mainstream business activity however, the process of outsourcing is under-researched and poorly understood -with more companies set to outsource more of their services this doesn’t look promising!
There is vast amount of literature supporting the opportunities that outsourcing creates but what are the reputational risks and challenges associated with the notion?
The government are seen to be outsourcing more of their services to third parties. Personally, I don’t see this as a problem, if they are not up for the task than it makes sense to contract out the service to an organisation who can carry out the task, right? However, some people argue that the government should be taking more responsibility over its services; providing better control and efficient mitigation if a crisis occurs.
In your view, when a crisis occurs during a third party association who is responsible? Is the contractor solely responsible? Or the organisation who has chosen to ‘contract-out’ that service? Are they both responsible for the crises? In terms of reputation, who is most affected?
To help you with you decision, here is a quick scenario to consider:
The MOD decided to outsource the servicing of a helicopter to a third party. The helicopter crashed causing three deaths. Investigations into the incident later found that this was due to poor maintenance/ servicing carried out on the helicopter. In this case, who is responsible and should carry the blame? Would this incident have happened if the service remained under the government’s control? What are the reputational implications associated with this crisis?
I look forward to reading your views on this highly debatable topic!
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The MOD is to blame for the above scenario. They should have selected a third party who were more than capable of servicing the helicopter and they should have overlooked that this job was done sufficiently. The government were probably being greedy and trying to save money by outsourcing this service unfortunately resulting in the three deaths. In terms of reputation, I think it always impacts badly on the organisation that has outsourced the work. Hope this helps!
ReplyDeleteI think the third party are entirely to blame for this. The cause of the crash was clearly its responsibility and it failed to do the job properly. The MOD should not be blamed as long as there is sufficient evidence to show that the third party was researched thoroughly before they were brought on board.
ReplyDeleteOutsourcing, a very interesting topic I agree. This industry has grown due mainly to inefficient management or staffing problems. Another similar industry is sub-contracting. This has similar problems, and can have the same legal implications as outsourceing. For example, should a customer slip on a wet floor in Tesco and broke a leg, they may sue Tesco for their injuries. In most cases Tesco would be using an outsourced cleaning company. In the majority of cases like this, the injured person would be using a no win, no fee solicitor. Tesco insurance company would settle this claim, the injured persons solicitor would deduct his fee, and forward the difference to his client (injured person). Tescos insurance company would then seek to recover their loss by claiming from the outsourced cleaning contractor. If tesco had not carried out their 'due diligence' when taking on the soutsourced cleaning company,it could subsequently be found that the cleaning company may be uninsured and did not have sufficient funds to repay Tescos insurance company. Therefore Tesco remains liable, and will be unable to recoup their losses.
ReplyDeleteIt is very important to carry out full inspection and due diligence and financial checks when contracting an outsourced company. If this has not been carried out correctly the you can be deemed liable for any problems the outsourced company has created whilst working for you.
This ism relevant to the MOD question in that, if they did not carry out the proper investigations and regular checks on work being carried out by the contractor, then they will be liable for any claim.
Wow what great comments, thank you! The first two comments take two different approaches which I love to see! One comment appears to be putting the blame on the MOD, whereas the other comment is putting the blame on the third party. The third comment provides a different perspective using Tesco as a case study, also placing the blame on the organisation that has 'contracted out' the work.
ReplyDeleteUsing the above scenario, you could say that the MOD were outsourcing this service in everyone's best interest and no doubt they went through a rigorous selection process to ensure that they chose the right contractor to carry out the work - after all this isn't cleaning floors, this is tough business! In their mind, they were doing the right thing - leading to unfortunate circumstances.
Many companies today are committed to showing that they are 'socially responsible' and they recognise their issues and try to combat them effectively.
With this in mind, should the MOD have put their hands up and said 'Yes, we made a mistake' (regardless of the incident being caused by poor servicing) taking full responsibility for the incident? Would this declaration have maintained the MOD's reputation in terms of managing this issue?
I really appreciate all the comments I have received so far, I look forward to reading more of your thoughts about this subject...
Having worked for many years within a NHS Trust which under PFI used contractors for many of it services, I believe that the service employing the contractor is accountable. It is my experience that when it comes to quality within large organisations the consumer or service user needs to know exactly who to turn to when things go wrong. Many would not be interested or appreciate the complexities of outsourcing when it comes to grievences. Also large organisations need to ensure quality, they need to work closely with their contractors when a crisis occurs, unfortunately unforeseen events are going to occur, in the event of this both parties need to have clear policies and procedures to ensure they reduce the risk of this happening and work in partnership to ensure these events if they happen they should not occur again. I believe that the organisation should take the blame (or consequences of the event) however they need to evaluate the work of the contractor to see if they need to re-tender or work with the contractor to improve quality. When a crisis happens in such working relationships, all are affected along with the service user.
ReplyDeleteThanks, another really valuable comment. What I would like to establish now is whether outsourcing is ethical?
ReplyDeleteBusiness ethics is defined at the "written and unwritten codes of principles and values that govern decisions and actions within a company".
We have touched on some of the advantages of outsourcing but what are the disadvantages?
Some disadvantages may include...
Offshore outsourcing: When companies make their employees redundant and offshore their services to India and other places that offer cheap labour.
Less Managerial Control: It's often difficult to replicate the same standards and missions. The third party may well adopt their own culture and set of values.
Security and Confidentiality: It's hard to ensure that confidential information will not be passed on to other organisations.
Choosing the wrong vendor: Your organisation may condemn corrupt practices but does your contractor?
Can you think of any other limitations or ramifications outsourcing may create? And, in your view, is outsourcing ethical or unethical?
Outsourcing would appear to be the best and most efficient solution for some large organisations and therefore of benefit to the economy. When things go wrong and it is attributable to the work of the outsourced contractor, they must be held responsible. However if the organisation who have chosen to outsource work or services, have not been stringent enough in their check of the 'outsource' nor excercised any form of supervision, they too must bear some responsibility. In any event when something does go amiss, it is likely that the reputations of both parties will suffer.
ReplyDelete