One of the grossly misunderstood human resource and management concepts and processes is outsourcing, more so, is the wrongful classification of outsourcing a global management practice alongside casualization or “contractualization”.
Opinions on the appropriateness or otherwise of outsourcing as an acceptable global practice differ depending on the leaning and ideological camps of the writers. To a unionist, it is seen as nothing but a precarious employment relationship while a labor activist will prefer to refer to it as a non-standard work arrangement (NSWA). On the other hands, an industrialist or a liberal human resource consultant would rather call it a standard work arrangement or a global management practice seen as an offshoot of globalization and offshoring.
This article is aimed at pointing out the usefulness of outsourcing to todays business, helping business leaders and HR practitioners, in particular, to understand this concept and its relevance in staffing their organizations while working within the ambit of acceptable and global prescriptions.
Across the world, governments and corporate giants have continued to engage in one level of outsourcing or the others, business processes have been moved from one country to another, this has been largely witnessed in manufacturing, information technology, engineering, and even in call centers operations. Outsourcing has been with us right from the beginning of management profession even when we did not recognize it as such.
However, this is not to say that there are no abuses here and there particularly in view of the lack of regulatory frameworks and the loopholes in National laws, by and large, when carried out with some of the guidelines that will be championed in this article; it could be a veritable tools for generating employment, cutting down on cost, supporting specialization, promoting national productivity and organizational development.
ORIGIN OF OUTSOURCING
The industrial revolution which began in Britain in late 1700s brought about a shift from a society that was largely agrarian to what is today known as industrialization; it was a revolution that brought about prosperity and opens up mass production, design of high capacity machinery, building of factories and the subsequent need for sourcing of raw materials and exportation of goods and services beyond England.
During the 18th and 19th centuries Britain enjoyed a stable political system and its expansionist strategies extended to colonized territories and with the advantage of its large deposit of coal and iron ore, she was able to expand her industrial base and took maximum benefit to develop infrastructure, build factories, developed the steam engine, promotes the development of the textile industry and subsequently her export market.
Although Britain enacted laws to prevent the export of its technology and skilled workers to other countries, however, by the 19th-century industrialization had spread to other countries such as Belgium, Germany, France and other European Nations. And, the United States of America by the early 20th century had become the number one industrialized Nation in the world.
The spread of industrialization opens the world to international trade and globalization: businesses expanding their markets and products-reach to other territories. And, because no business is self-sufficient, the late 1980s and early 90s business focus started changing; paying attention to cost reduction strategy and concentrating more attention to what is known as core or critical business thereby necessitating what is today known as outsourcing and off shoring.
In tracing the origin of outsourcing, Rob Handfield, in his publication of June 01, 2006
Brief History of Outsourcing states:
Outsourcing was not formally identified as a business strategy until 1989 (Mullin, 1996). However, most organizations were not totally self-sufficient; they outsourced those functions for which they had no competency internally. Publishers, for example, have often purchased composition, printing, and fulfillment services. The use of external suppliers for these essential but ancillary services might be termed the baseline stage in the evolution of outsourcing. Outsourcing support services are the next stage. In the 1990s, as organizations began to focus more on cost-saving measures, they started to outsource those functions necessary to run a company but not related specifically to the core business. Managers contracted with emerging service companies to deliver accounting, human resources, data processing, internal mail distribution, security, plant maintenance, and the like as a matter of good housekeeping. Outsourcing components to affect cost savings in key functions is yet another stage as managers seek to improve their finances.
From the foregoing, it could be seen that outsourcing is a modern day business practice aimed at better and improved delivery and not the exploitative tendencies with which she is wrongly accused of.
WHAT ARE THE DIFFERENCES BETWEEN OUTSOURCING AND CASUALIZATION?
For the sake of clarity, I will like to start by looking at what is a standard employment relationship, according to the International Labour Organization (ILO), a standard employment relationship is one where workers are employed under an employment contract for an indefinite period.
From the above definition, we can deduce some basic elements of Standard Employment Relationship as:
1. Full-time work.
For an employment relationship to be defined as standard employment it must be on a full-time basis and not part-time. This means that the contract of employment must specify that it is a full-time job. Mind you such working relationships that are fixed-term in nature are not necessarily inappropriate but would meet the test of standard employment.
2. It involves an employer and an employee
A standard employment relationship should exist between two parties, namely the employer and the employee or worker. It means that a contract of employment should states in clear term who is the employer to whom the employee is engaged. A situation where an employee is contracted to multiple employers would and cannot be described as a standard employment. The standard practice is for the employee to enter into a contract with either the outsourcing firm or with the firm to which he or she is outsourced to.
3. It must be under a contract ( Offer and Acceptance), written or implied
One fundamental character of a standard employment relationship is the presence of a contract of employment. Such contract may be written or implied. Preferably, it should be written and contains the basic elements of the employers name, terms of employment, remuneration, the location of work and so on.
4. Unlimited in Scope as against fixed-term
A standard employment relationship according to the ILO convention must be unlimited in scope. This means that it is not part-time neither is it fixed term. It is not a contract of service but employment.
5. Single employer
Another distinguishing element of a standard employment relationship is the presence of a single employer. An employee cannot be said to be a justifiable employment having more than one employer.
6. Protected against unjustified dismissal and other forms of discrimination
In all, the intention of the ILO Convention on employment practices is to protect the employee against discriminatory tendencies and unjust treatment by the employer. It is believed that once the above measures are in place the workers right will be protected.
If the above conditions are met we can rightly say that the employment relationship is appropriate and standard. Contrasting this however with casualization and this will help us to properly delineate the boundary between precarious employment practices and the position of outsourcing as a global employment practice.
WHAT IS CASUALIZATION OR CONTRACTUALIZATION?
Casualization or contractualization is the practice of hiring temporary, seasonal and fixed term contract workers. It is a practice through which employment shifts from a preponderance of full time and permanent positions to higher levels of casual positions
The International Labour Organization, ILO (2007) defines casuals as workers who have an explicit or implicit contract of employment which is not expected to continue for more than a short period, whose duration is to be determined by national circumstances.
However, in the words of ODonnell (2004), — legally, a casual employee is seen as a worker engaged for a period less than six months and who is paid at the end of each day
In the United States of America and Europe casualization is refer to as Non-Standard Work Arrangement (NSWA). It has also been classified as a precarious employment, a relatively new term that is used to describe a whole range of employment conditions that are not standard or seen as a regular employment arrangement.
CHARACTERISTICS OF CASUALIZATION
• Non-written employment contract or implied after the statutory probationary period
• Termination of employment with little or no prior notice
• Irregular work hours or intermittent work schedule
• Lower wages compared to regular workers in the same organization
• Income risks due to unstable or uncertainty of payment
• Short duration or instability of contract
• Denial of non-wage benefits which regular employees of the organization enjoy
• Exposure to health risk
• Denial of membership of a union if it is the practice in the company or industry
WHAT IS OUTSOURCING?
Outsourcing is a location neutral business process in which noncore business operation is contracted to specialized and skilled persons or organization to handle on behalf of another business entity.
According to the Business Dictionary, outsourcing is defined as The contracting or subcontracting of non-core business activities to free up cash, personnel, time, and facilities for activities in which a company holds a competitive advantage. Companies having strengths in other areas may contract out data processing, legal, manufacturing, marketing, payroll, accounting or other aspects of the businesses to concentrate on what they do best and thus reduce average unit cost. Outsourcing is often an integral part of downsizing or re-engineering, also, called contracting out.
According to Deloitte, In its simplest term, outsourcing is the contracting out of a business function to an external supplier, involving the transfer of people, processes, and assets. This contracting out can be undertaken at either an on-shore, or off-shore location, and to one (single-sourced) or more (multi-sourced) outsourcing partners.
There are two broad classifications of outsourcing business around the world, namely:
• Business Process Outsourcing ( BPO)
Under the business process outsourcing is human resources management functions outsourcing, finance, accounting, procurement, back office function outsourcing, and customer services and so on. This will also include claim processing services as seen in the insurance Industry and mortgaging processing for banks. Business process outsourcing is gaining ground across the world and Nigeria inclusive.
• Information Technology Outsourcing ( ITO)
Information Technology Outsourcing (ITO) is a well-established practice across the globe due to specialization, availability of skilled labor in some countries and the present of facilities to support delivery of services such as programming, web design, cloud technology and other specialized IT functions.
WHY ORGANIZATIONS DO OUTSOURCED PARTS OF THEIR OPERATIONS?
• The need to concentrate on core business and deploy scare resources to critical areas of the companys operations.
• Short term contracts or operations that are seasonal in nature. An organization who has been given a responsibility to manage a project for a short period of time may not necessarily consider it as economical to employee full term staff in addition to their regular workforce.
• It is an opportunity to develop small and medium scale enterprises and create employment. This is one point in addition to others, which the Association of Outsourcing Practitioners of Nigeria (AOPN) led by Dr. Austin Nweze has strongly supported.
• Outsourcing is a tool for innovation and creativity. It gives an organization second perspective to issues.
• Outsourcing is a dictate of modern market economy and globalization. For example, offshoring that is the relocation of a business process from one country to another is now an acceptable business practice hence the need to also embrace it in Nigeria.
• It is seen as a cost saving system. According to, Tom Murcko, Outsourcing will continue to grow in popularity over the long term. As transaction costs approach (but never reach) zero, every entity benefits by focusing on their core competencies; that is, whatever they do relatively best. This is analogous to countries which are trading partners and import and export goods based on which is cheaper or expensive for them on a relative basis.
• It provides specialization and promotes competitive advantage. According to the 4th richest man in the United Kingdom, Sir. Richard Branson, everything in your business can be outsourced if youre not emotionally attached to doing it all.
HOW TO RUN OUTSOURCING AS A LEGALLY DEFENSIBLE BUSINESS
In the forward to the Deloitte publication, titled: The Outsourcing Handbook, A Guide to Outsourcing, Version 2.0, an insightful opening was made, and I quote Love it or loathe it, outsourcing is now a permanent feature of business life. As companies search for cheaper and more effective ways of working, handing over non-core functions to lower cost specialists can be an alluring prospect.
While the above statement is true and undisputable, the questions that should trigger our interest are what is the standard practice in outsourcing business or services? Legitimate businesses are regulated by law whether international, national or local. Because businesses are governed by relevant laws then it means that outsourcing business must operate within the confines of the law.
KEY CONSIDERATIONS IN RECRUITMENT OUTSOURCING OR MANAGED SERVICES
1. Proper business registration and documentation: Any outsourcing business that must be reckoned with and considered a proper business must be registered with the Corporate Affairs Commission, (CAC) and certified by the Ministry of Labour and Productivity. The minimum should be a business name registration or enterprise. It is instructive, to note, the provision of section 71 (1) of the Nigerian Labour Acts No person shall establish or operate a fee-charging agency save with the written consent of the Minister
Further down, section 71 (3) explained Fee charging agency to mean a) an agency or any person who acts as an intermediary for the purpose of procuring employment for a worker to an employer with a view to deriving or either directly or indirectly any pecuniary or other material advantage from either employer or worker.
2. Business Plan: Outsourcing derives its strength from reputation, ability to cut down on cost and render services promptly and all these require proper planning and should not be left to chances. If you must be successful in the outsourcing business you must be an organization of diligence and attention to details. In crafting your plan the major consideration should be your legacy and stability plan.
3. Infrastructure and Technological Requirements: Until you become the Accenture, Infosys, CBRE, Kelly outsourcing, or Philips Consults of this world you dont need big or an expensive office all you need is a presentable and well-managed office. You will need a location or an office and basic technologies such as computer system, well-designed website, record and information management system. If you are not on the ground you cannot be said to exist.
4. Qualified Personnel: Having managed business functions for leading brands such as Samsung Electronics West Africa, West Africa Tobacco Company, LOreal West African, Deekay Group, Reynolds Construction Company (RCC) I can boldly say that outsourcing is largely a specialized service business that requires the employment of qualified and highly competent personnel.
5. Reporting and Communication System: Information management and readiness to communicate accurately and promptly is another key consideration in outsourcing management. Good front and back office are needed to function effectively and to commands the confidence and trust of your clients.
6. A decision on your niche and market: Outsourcing is gaining greater attention day-in-day-out across the world and the scope is widening as more demands to satisfy the customer and reduce the cost of doing business is seen as a priority by organizations. You cannot play in every market; hence, you need to be circumspect and focus on the area of outsourcing where your expertise can be well served.
KEY CONSIDERATION WHEN SELECTING AN OUTSOURCING PROVIDER
• Check for approval to provide outsourcing services. This can be in the form of the companys certificate of incorporation.
• Meet or engage with the outsourcing company and ask relevant questions
• Ask for references from companies that such services have been rendered to by the service provider
• Ask for demonstration on the processes and deliverable
• Ensure that your expectations and pledges of services are well documented
• Have a contract in place with an exit clause when they are unable to meet up with the agreed service covenant having considered all constraining factors
• Meet at interval to review performance level and standard
DARACH ASSOCIATE AND MARKETING CONSULTING NIGERIA LIMITED, ITS BRAND OF OUTSOURCING AND BUSINESS PROCESS SERVICES
With a management team of HR, Sales and Marketing communication experts and experienced in providing managed services for both local and international organizations, Darach Associate is one organization that we can boldly recommend to organizations. Darach Associate has outsourced and managed over 250 personnel. They have successfully launched products and ensure that businesses succeed. With tested tools and constantly reinvented processes, I will recommend Darach Associate as a business partner to manage your outsourced services.
See details @ www.darachassociate.com
CONCLUSION
Efforts have been made in this write-up to highlight the value of outsourcing to organizations-big or small, to those who will like to pursue an outsourcing business and to the Nation at large in terms of its contribution to the promotion of business practices, cost reduction, specialization, and employment generation. It has been copiously demonstrated that outsourcing is a global practice and should not in any way be equated with “precarious employment relationship”, casualization or contractualization.
It is interesting to note that an outsourcing policy bills written by the Director General of the Nigeria Technology Development Agency (NITDA) in collaboration with the Association of Outsourcing Practitioners of Nigeria (AOPN) is presently before the National Assembly, this goes further to show that Nigeria is now ready to set the framework for the management and regulations of outsourcing businesses.
To drive the value of outsourcing home, I will like us to take a tour of ISS Group, an outsourcing company who for the second year consecutively has been ranked number one outsourcing company in the world by The International Association of Outsourcing Professionals (IAOP).
• Founded in Copenhagen (Denmark) in 1901
• ISS offers services that include cleaning, catering, security, property and support services and HR
• It has a staff strength that is in excess of 527,199 in more than 74 countries of the world
• Its global revenue in 2016 was DKK 70.2 billion at the rate of 6.9823 Danish Krone to 1 US Dollar
I believe the above is a strong proof that if properly managed and regulated outsourcing should be a strong tool for National development and GDP expansion.
In the final analysis, let us considered the words of Tom Murcko, Because entrepreneurs typically operate on a shoestring budget, they must learn to benefit from resources that they dont directly control. This is done primarily by outsourcing any needs which are temporary or fluctuating, which require specialized skills that arent the core focus of the business.
About the writer
Kayode Ibukunoluwa-Micah is the CEO and Principal Consultant of Darach Associate and Marketing Consulting Nigeria Limited; he has consulted extensively for organizations both in Nigeria. He is the business partner of the International Purchasing and Supply Chain Management Institute and a Certified International Training Professional to the American Certification Institute, Lewes Delaware, USA. His firm is business partners with Deekay Group the brand owners of Nexus Home Appliances. On the list of organization that he had rendered outsourcing support services are Samsung Electronics West Africa (SEWA), West African Tobacco Company, Loreal West Africa Limited, FMCG Distribution Company, Medvac Pharmaceutical Company Limited and so on.
Kayode holds a master degree in managerial psychology with 19 years post qualification work experience.
Kayode can be contacted for your internal training exercise and outsourcing related functions at askkayodemicah@gmail.com or via his twitter handle @kayodemicah.
REFERENCES
Business Dictionary ( www.businessdictionary.com/definition/outsourcing/html
Deloitte The Outsourcing Handbook: A Guide to Outsourcing. Version 2.0
Dr. Austin Nwaze, President Association of Outsourcing Practitioners of Nigeria (AOPN)
International Labour Organization ILO (2007)
Michael Evans, Contribution to Forbes Magazine ( www.forbes.com/sites
Nigerian Labour Acts Part 11, Section 23, 24 and 25 and Part 111 section 71
Prince Okafor (2017) Outsourcing can Generate More Jobs in Nigeria Vanguard Newspaper, June 1, 2017
Rob Handfield (2006) A Brief History of Outsourcing
The International Association of Outsourcing Professionals
Tom Murcko, Notable Quotable, www.businessdictionary.com/definition/outsourcing/html www.issworld.com/press/news/2014/06/03
Sharing is caring!
Leave a Reply
You must be logged in to post a comment.