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Competitive bidding, benchmarking and insourcing

October 28, 2013

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.

  1. Sahil Garg permalink

    This is a good read and I think a major stumble for a number of organizarions.

    I think what we should not be looking here just at cost factor, but also the capability of the organization. When we talk about insourcing – outsourcing, the first step according to me should be – Does the organization has the capability to perform the task? Does the task has a strategic advantage for the organization or is it just a task that needs to be done in order to complete the othrs? Does any other other org has a better capability of doing the same for you? And then the last step would be to take (what we call) Industrial engineering and Productivity management based on various ergonomic and other factors which can give us a better idea of resources required to do the task.

  2. Mike C permalink

    Need to be careful around “So I have reached the conclusion that occasional demands for sizeable cuts probably is the best way to ensure value for money”.
    Having worked for 2 x lglobal IT companies that moved from occasional demands to annual demands, we need to be mindful that the opposite can happen in that employees intitially are motivated to keep there jobs, however this rapidly becomes de-motivating as a could not care less attitude takes hold.
    Both went from outsourcing to insourcing, and back to outsourcing to move the costs around (nothing to do with productivity).

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