Outsourcing Gains Momentum in Competitive Corporate World

Though not for all, it can be more inexpensive and efficient over the long haul

Certainly the main reason that business executives choose to outsource their training function to an external service provider is because of its bottom-line (read financial) advantages. But another good reason is that a training partner can provide an organization’s employees with access to cutting-edge philosophies, tools and practices. In addition, outsourcing the training function can free up or facilitate reallocation of a company’s existing resources.

“While outsourcing isn’t right for every organization, it is an option that should be considered and evaluated by managers on a periodic basis,” notes Josh Bersin, president of Bersin & Associates. “Studies show significant cost and strategic benefits.”

This is not to say that internal training organizations are inferior.

“Many internal training organizations do a great job of meeting their customers’ needs,” adds Dan Miller, vice president of General Physics Corp. “They just aren’t as efficient, effective or as experienced as a company whose core business is training.”

WHY OUTSOURCE?

Bersin points to the money-saving advantages of outsourcing the training function:

>> LMS implementation costs: Research shows that in the first year of LMS implementation, companies with inhouse training spend an average of $392 per learner, compared to $328 for companies that outsource.
>> Operational costs: Outsourcers can take advantage of economies of scale and efficiencies of centralization that are not available to in-house staffs.
 >> Reduction in technical staff: “Research shows that companies that use outsourced technology platforms are able to reduce their technical staffs by almost half, compared to companies with internally managed systems,” Bersin notes. And don’t overlook peripheral values to your company.
 >> Focus on core business: “After all, every company has a limited number of human resources,” Miller observes.

“These resources should be focused on servicing your customers and improving your product, not implementing [in-house] systems.”

HOW TO CHOOSE
 
The first step in outsourcing, obviously, is to determine whether your company is capable or prepared to outsource training and if, indeed, the move would pay off in improved performance and efficiencies. More often than not, this involves a thorough internal assessment of your operations.

Once you’ve determined that outsourcing is the proper option, you must decide what activities should be included in your model. It may involve consolidating decentralized training functions, identifying a leadership team and developing a project plan.

These two initial steps are not easy. Because they must be thorough, they are often quite involved and usually require the attention and input from various inhouse employees.

The next step is to identify possible training partners best match your particular needs. This can best be accomplished by providing vendors with a “Request for Information” (RFI), which includes an executive summary of the operation to be outsourced, in three to five pages.  

In order to “apply” to possible partners, you must compose a 15- to 30-page “Request for Proposal” (RFP). Its intent is to provide outsource companies with the information they need to submit a comprehensive solution to your request. The higher the quality of the RFP, the higher the quality of proposal you will receive. RFPs include an executive summary; a detailed description of the process to be outsourced; volume and value metrics for the most recent one to three years; specific process and performance expectations of the outsourcing supply partner; a responsibility matrix defining expected responsibilities of both you and your partner; and proposal guidelines.

With these two documents in hand, vendors can then exactly match to your request the services they offer, how they are implemented, and how effective similar efforts have been with other companies.

The final document you will need is a “Request for Quote” (RFQ), which you will send to your final one, two or three choices. Its purpose is to provide you with specific pricing and/or cost information. The response(s) you receive from the vendor( s) will help you finalize your choice.

FINAL PREPARATIONS

Once you have chosen a training partner, you must thoroughly exercise due diligence before signing the dotted line. In large and complex transactions, this includes the legal tracking and disclosure of specific reports, documents and databases. In smaller transactions, the process is less formal.

If your top choice for a training partner appears at this time to be the correct one, initial negotiations can begin. With your new partner, define specific terms of the agreement and devise a formal document. This stage is often the most strategic, most demanding and most lengthy, depending on the sophistication, scope and scale of the agreement.

Two forms of contracts comprise most corporate agreements: a Master Services Agreement (MSA) that defines generic terms to each functional area; and a Service Level Agreement (SLA) that defines specific deliverables and service requirements. A pricing schedule is included in the SLA. The contract also should stipulate a system to determine if the employee is actually applying the knowledge and skills and thus if the outsourcing partner is being effective. Finally, it should spell out the conditions under which either party can terminate the relationship, as well as an orderly process by which operations can be returned to the business or transferred to another outsourcing firm upon termination.

Contracts are executed for a period of one to five years, depending on your demands and the capabilities of your partner. Once the contract is signed, there follows a transitory period. Thereafter, you must work with the partner to monitor and evaluate its continuing performance. Near the end of the contract, of course, comes a time when you must make your final decision: continue the existing relationship with your training partner, bring training back inhouse, or seek a new training partner. At that point, the decision may be an easy one.

MOVE CAREFULLY

 Particularly if you are a small business, you have to exercise good judgment in making your training decisions.

“Ideally, an outsourcer will treat your business and its data at least as carefully as you would,” opined an article in Business Week magazine. “But in reality, a small business is just one of the outsourcing company’s many clients, and probably not the largest one. Moreover, the outsourcing company’s standard contract often doesn’t provide for the kind of care and priority that a small business would place on its own operations.”

Bersin notes that the disadvantages to outsourcing include the challenge of making and following decentralized budgets, and limitations on the technical flexibility of your training program.

“At best, and outsourcing company can become a ready partner, providing access to revenue-enhancing technology without incurring up-front training and equipment costs,” notes a leading business magazine. “Done improperly, it can result in delayed operations, unhappy customers and significant costs.”

The lesson? Move carefully!

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