Outsourcing – why’s everyone doing it?
I’ve been thinking about this a lot lately since I read about O2 outsourcing to Capita and a few other companies outsourcing to large firms.
I’m not sure I really understand the decision-making process here…
Say you you’re choosing an outsource partner and it’s down to 2 choices. A big multinational outsourcer with a few hundred thousand people, or an SME with a few thousand people.
Assume price and capability are about the same – who do you award the contract to? In my experience, companies tend to pick the bigger firm. But is this the best decision?
It seems to me that if you’re a big multinational turning over £5 billion a year, how much are you going to care about a single outsourcing contract worth £10 million? That’s around 0.2% of your turnover.
If they provide a terrible service – will it cripple the big outsourcer? Or will they barely even notice? (clearly, lots of failures add up to a big problem, but my question here is how much does one single failure mean to a big company?)
On the flip side, a small outsourcer who turns over £20 million annually is probably going to care more about your business. A lot more. Your contract is worth half their annual turnover. They will bleed for you. A failure to provide you with excellent service could easily destroy them.
Less bureaucracy. Quicker to react. Faster to change.
I kind of get it when it comes to selecting a supplier that provides a physical product. They might have a manufacturing advantage or a purchasing power that come from sheer scale.
But a service provider…?
A big outsourcer is pretty much going to have the same costs as a small outsourcer – which is primarily wages.
Why is bigger better when it comes to selecting service suppliers? Am I missing something?