Competitive bidding, benchmarking and insourcing
An IACCM member recently told me about his company’s experience when they decided to insource a range of services which had been outsourced for more than 10 years. Despite the fact that these services had periodically been re-bid, they discovered that they are able to perform the activities internally with only half the numbers of staff and at almost 40% lower cost.
I do not know whether this experience is representative of others, but it certainly suggests a need for careful review. The problem for most companies is how to undertake such review. In this case at least, periodic competitive bidding was not effective.
In many ways, managing the level of resource at an outsourced provider is little different from controlling head count within an internal function. Periodically, most CEOs demand cuts, often demanding reductions in headcount that appear quite arbitrary. But the truth is, organizations have a way of growing and as they grow, resources remain busy, but steadily become less productive. They are also extremely talented when it comes to justifying their existence.
So I have reached the conclusion that occasional demands for sizeable cuts probably is the best way to ensure value for money. Without this, there really is no strong incentive for resources – internal or external – to become more efficient or to innovate in how their work is performed.