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IT Outsourcing in the Small and Medium Businesses

One of the objectives of many outsourcing deals is to reduce costs and in the past this often meant a reduction in IT labor expenses or layoffs, says analyst Allie Young of Dataquest. But today there is a much tighter labor market, a shortage of IT skills and a driving need by outsourcers to retain employees to meet the needs of their outsourcing business. Now companies look to outsourcing as one of the key mechanisms to help them gain and retain scarce and precious IT skills, not reduce them. What companies are avoiding these days is transitioning their employees right out the door when a function transfer occurs in any number of outsourcing relationships. And customers and vendors alike are anteing up to keep skilled labor.

"Besides the shortage of key personal, employees that are transitioned to an outsourcer have very critical corporate knowledge and an understanding of the systems that are critical to the outsourcer's success in making the overall deal work," says Young, who has done extensive research in the area. "Losing them would not be in the outsourcer's best interest."

Strategies for Retention

An increased level of corporate commitment to the role of human relationship management in outsourcing is on the rise, says analyst Susan Cournoyer, also of Dataquest. Higher-ups are stepping into the process, indicating the importance of successfully negotiating these deals, managing the transition process, and retaining the people that are necessary to ensure a successful arrangement.

And vendors have made significant efforts in time, money and employee commitment to get skilled people who design, develop and deploy HR transition policies and procedures, Young says. They now know what the big concerns will be and how to address them. They also take care to test employee satisfaction at various stages along the way.

Many major outsourcers have developed a formal methodology and process that looks at every stage of an employee transition, Young says. The refined procedure is developed based on the vendor's experience. This helps them foresee issues that may become problematic, so they can address them ahead of time.

The process begins with communications says analyst Caolan Mannion, also of Dataquest. "Over time outsourcers and their clients have come to believe that the earlier the employee knows about an imminent transition the better," he says. "Employees should be informed through every stage from negotiating and bidding to implementation. This forestalls any rumors around the water cooler and keeps morale up."

Blanket agreements that offer employment to 100 percent of the transitioned employees are being used regularly, Young says. "This takes away any concern over job loss, and it also ensures that key individuals don't go out and seek employment elsewhere because they don't recognize that their job is secure," she says.

Many companies base their outsourcing decisions on how the company has handled employee transitions in the past. So outsourcers need to be careful how they conduct business, Cournoyer says. "This is especially important in state and local government cases. Often employees have a say in what vendor is chosen," she says. "And journalists also pay attention to the situation and can have an influence on the selection of one outsourcer over another depending on the outsourcer's track record on transitioning employees."

Once the Employees Are There

Beyond retention, employers must find ways to keep employees happy once they make the switch. Vendors are designing very innovative work environments, which creates an entirely new job situation for the transitioned employee. These environments offer a multitude of new career opportunities and establishes an atmosphere that values creativity and technical excellence, Young says.

Employee satisfaction is a necessity considering that the back office job the employees once held becomes the core reason they are there. "Outsourcers often emphasize to the employees that though they where previously a cost to that employer, their job now is to make money," Cournoyer says. "The focus of their job becomes the mission of the company they are joining. They now are transitioning from a cost center mentality to a revenue generating mentality."

Many times the transitioned employee's place of work stays the same, Young says. For example, the outsourcer may buy the client's data center and the employee's place of work will essentially remain unchanged. What probably does change is that now their paycheck comes from the outsourcer as opposed to their old employer, Young continues. But sometime the employees are placed in service centers where they will handle several accounts. This is part of the career development opportunity that presents itself.

"We have seen examples of many employees that come from the client to the outsourcer," she says. "The transitioned employee's knowledge of the industry or a particular technology skill can be widely leveraged. They may or may not work for their original employer. But many have far expanded their opportunities for an IT career with an outsourcer."

Lessons From the Outsourcing Primer:

• A shortage of skilled IT employees has led companies to take added measures to increase retention rates after an employee transition.
• Many major outsourcers have developed a formal methodology and process that looks at every stage of an employee's transition.
• The process of retention begins with communication from negotiations to implementation.

Publish Date: July 1999

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Copyright © 1999 - Everest Partners, L.P.

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