The conundrum of outsourcing

Answer

Introduction

One of the fundamental issues that business leaders need to apply their minds to is what constitutes their ‘core business’ and what are the elements that are needed to facilitate the core business, but are not in and of themselves part of the core business.

An example here will help:

Rose & Giovanni LLP is a law firm. Its core business, obviously, is delivering legal advice to clients.  However, in order to be able to give that legal advice, lots of other things are required, such as:

• an IT system;
• office cleaners; and
• facilities management staff.

So, the managing partner has a decision to make around who will deliver their core business (in this example, lawyers) and who will deliver the ‘ancillary’ services, such as IT.

This thought process and decision making is the very basis of outsourcing. Outsourcing simply means to give a part of your business (that is typically not your core business) to a third party to run on your behalf. So, in our example above, the managing partner of Rose & Giovanni LLP will likely not want to outsource lawyers, given their crucial importance to giving market-leading legal advice, but they may well look at what other services they can outsource.

Lawyers up and down the country routinely advise their clients on outsourcing, but fundamentally this is not a legal decision. The advice is the very definition of commerciality – advising the client on:

• what they need to consider as a business;
• what the process will look like;
• what the costs are likely to be; and
• what the pros and cons are.

Now, there are some technical legal issues to advise on, which we’ll touch on below, but even those issues are heavily wrapped in commerciality and it is advising on this commercial landscape where lawyers can really add value to their clients.

What are the pros and cons of outsourcing?

Despite what many in the industry would have you believe, outsourcing is not a no brainer!

In its purest theoretical form, arguably it is. You give ancillary parts of your business to an organisation that is expert in providing those services and they then provide those services back to you better than you could have provided them yourselves (because you are not an expert in these areas, given they are not you core business) and, to make things even better, they do it more cheaply that you can do it yourself (because expertise makes them more efficient than you are and have more economy of scale) so you end up saving money to boot. So, you get a better service, for less money – these are the most often touted benefits of outsourcing and ultimately the reason underpinning most organisations decision to go down this route.

Alongside service improvement and cost reduction, perhaps the greatest benefit is a reduction in management time dealing with the ancillary parts of the business and the attendant ability to refocus that saved management time on growing and improvement the core business, which is where the company makes its money.

So, in this utopian scenario you are surely thinking “why would I not outsource, the benefits seem many and persuasive”? Well, the problem is that we don’t live in a utopia and things in the real world are never that straightforward.

We must remember that the organisations providing outsourcing services are business themselves (and outsourcing is their core business) and they are in that business to make a profit. In seeking to achieve that profit there is the possibility that they may not spend the time and effort on your outsourced service that you would do yourself (particularly if you have run a competition for your outsourced service, which inevitably has the effect of making potential suppliers drop their prices in an effort to secure the work), and so customers can sometimes see a drop in the level of service once an outsourcing is live.

The saving of management time can sometimes also be a mirage. If the service is going smoothly the customer can afford to be hands off. However, if the service is not meeting expectations the customer’s staff will tire very quickly (imagine our lawyers at Rose & Giovanni LLP being unable to use their computers because the IT service is poor, meaning they can’t receive emails from clients or draft documents) and management will quickly be dragged into often long and painful conversations with the outsourcer about how to fix the service.

The reality, of course, is that the real world is usually somewhere in between the utopian and dystopian visions set out above. That being the case, how do we as lawyers help our clients and use our legal and commercial stills to guide them through the decision making and outsourcing process?

The lawyer as the business adviser

We use our experience and expertise to quickly and concisely articulate to our clients the points they need to consider at each stage of the process. Importantly this is not just about raising legal issues (eg, in an outsourcing discussion they are legal issues around regulatory compliance, transfer of employees between organisations under TUPE, compliance with procurement regulations, contract law and many others) but about giving clients the confidence you have been through the process before, you have learnt the hard lessons so that they don’t need to and, perhaps most importantly, that you understand how the various decisions that will need to be taken will impact the client’s business. It is in this ‘commercial’ space that we move from being legal advisers to trusted business partners.

Ash Woodcock (he/him) is a partner at Bevan Brittan LLP.