Our success in business is traditionally measured by how many people we have working for us.
It goes further than that though, as a statement like, "We now employ 20% more people than last year," is a measure of a company's growth and, therefore, success. But who in their right mind would explain positively, "Our overheads have just gone up by x amount and we are now locked into that for the foreseeable future, unless we want to face significant redundancy payments?"
It is not surprising that as a result of this mindset we have ended up with organisations that grow to fit an available budget. We generate more turnover, therefore we need more people.
Is this simple logic or simply madness? What proportion of this increased headcount creates revenue as opposed to supplying a supporting service? What proportion is directly critical to the growth of revenues? Why not get other people, not directly on the payroll to do the work instead?
These points may start to explain the inherent reluctance of so many to use outsourcing. Cynics of the concept may argue, "We are so big that we create our own economies of scale and therefore outsourcing our requirements would not be sensible." However, could all these extensive in-house functions bid competitively against outside suppliers? Are they managed to make a profit? Is the management, particularly in those departments that are not considered to be profit centres, incentivised to run the operation on a commercial basis?
The definition of what is core competency is key to the outsourcing debate. Too few organisations discuss this within their management forum, for fairly apparent reasons, as even having the debate raises the hackles of those heads of departments that might be considered to be non-core operations to the business.
Herein lies the biggest problem of all. There is little or no incentive for a department head to put their hand up and say that by reducing their headcount they can make a significant contribution to the corporate bottom line, as 9.9 times out of 10 their salaried position is based not on effectiveness, but how big their operation is in terms of headcount.
Outsourcing applies to all facets of a business and is not simply about reducing expense - in many cases there may not be an appreciable saving. The focus should be twofold. First, identify who can deliver the best package of service and prices (in-house or external). Second, look to remove fixed expense from the business and move to a variable transaction-based cost structure. As a result, as your business changes shape in size and scope, you flex your expense base accordingly while minimising the amount of "non-core baggage" you carry.
In considering the business, we need to replace the traditional view that lots of people equals big office, big car and large salary. In an increasingly agile business world, flexibility, the ability to flex up and down in scale of operation, is vital to the corporate health of an organisation.
Mike Smart is managing director of software development consultancy Gowi Group