Partners can deliver more for less

It is a sign of the relentless march of outsourcing that even the job of looking after Britain’s nuclear weapons has been outsourced.

The contract to design, build, maintain, and eventually decommission the Trident warheads was awarded twelve years ago to Serco, Lockheed Martin and Jacobs Engineering Group. It is a happy arrangement and in May the Ministry of Defence signed a further extension, awarding the trio the contact until 2018.

If this surprises you then I’m afraid you are a little out of touch. Outsourcing is affecting almost every facet of British life.

Take the police. Back in the day of Dixon of Dock Green, everything was done in-house from manning the lock-ups to ordering the tea bags. Now the situation is almost reversed.

In Lincolnshire the custody services are run by G4S, as are procurement and finance. Surrey Police are looking to outsource crime investigation, detaining suspects, victim support and neighbourhood patrols. Translation services in the courts have been outsourced to Applied Language Solutions.

The private sector is even more advanced. When Clarks shoe shops close for the night, it is Mitie’s workers who arrive to clean the windows and polish the floor. When Sky customers ring about upgrading their subscriptions, they talk to the employees of Glasgow firm HeroTSC. The vertical integration model is dead.

Outsourcing is affecting almost every facet of British life

So what’s going on? Why is outsourcing so popular?

The best clue is written on the back of the £20 note, where you’ll find Adam Smith’s quote on the division of labour. Smith noticed that in a pin factory, productivity could be increased if each worker stuck to a single task. This is the logic of outsourcing: you concentrate on what you are good at and delegate all other activities to specialists, then costs will fall and quality will rise.

The first thing to do is to get to grips with the vocabulary of the outsourcing industry, in particular, the acronyms which identify each segment.

Information technology outsourcing (ITO) is technology-specific work like managing networks and developing software. ITO has been around since Ross Perot founded EDS in 1962.

Business process outsourcing (BPO) refers to outsourcing operational functions, such as logistics, procurement, handling paperwork and human resources. BPO is usually divided into back-office functions, such as supply chain or HR, and customer-facing front-office functions, often requiring voice services. India is the homeland of BPO, where firms such as Genpact, Wipro and Infosys are household names.

Knowledge process outsourcing (KPO) is more technically challenging than BPO. It includes analysis and research, and usually requires graduates capable of working on their own initiative. KPO work tends to encroach more closely on the core activities of the commissioning firm than BPO, which covers more peripheral duties.

Marketing process outsourcing (MPO) off-loads one or all of the marketing functions from PR, branding, research, search engine optimisation and web analytics.

Legal process outsourcing (LPO) replaces in-house legal counsel with external support, often based overseas, and includes routine cases, such as bankruptcies, and process-driven services, such as research and compliance.

In all these areas there is one common characteristic, in addition to delegation; they are partnerships. The client and outsourcer work together to achieve a defined goal. This is what makes outsourcing different to mere purchasing. After all, most companies buy their light bulbs and espresso machines, but these functions aren’t “outsourced”.

Outsourcing is about bringing together two parties, both experts in their domain, and combining their talents. Get it right and the potential for productivity gains is mouthwatering.