The roots of inside-outsourcing
In 1974, in the dark of night, I walked onto the rooftop of an automotive assembly plant, was handed a high-pressure water-blasting gun, and was introduced to outsourcing. It is somewhat ironic that 40 years later the root cause of why I was on that rooftop in 1974 still applies. The unionised employees of the plant did not want to do the work, did not have the skill to do the work, and when they did do the work there were too many accidents. So as a manufacturer, what do you do? You outsource. You outsource to a service provider who has the equipment, people, and general know-how to perform the necessary scope of work both promptly and safely.
Some 40 years later, what has really changed? The actual root behind the decision is really the same. Manufacturers are looking for service providers to commit to completion of a scope of services where they feel they do not have the expertise, or in areas where they no longer wish to invest their time and energy. Does it really make sense for the manufacturer of a luxury car, or any manufactured product for that matter, to spend time and energy locating the best means to clean their facility, perform maintenance duties, clear snow, repair their roadways, and deliver products to their assembly lines? Probably not. A manufacturer’s value stems from production of a best-in-class product that is “right priced.” Any activities that deter their resources from this goal place them in a non-competitive mode.
One difference, though, between 1974 and today is that the employees of the manufacturer did not like work being outsourced back in ’74, but really like the work manufacturers look to outsource today.
This simple difference, and the ability of service providers to recognise this, differentiates why some service providers become very successful while others struggle to grow and eventually fail. We started to call this form of outsourcing “inside outsourcing” to focus the required attention to this unique difference. Inside outsourcing is when the service provider’s scope of services places them into the facility of their customer, be it a manufacturer or other institution, like a hospital or university. The employees of the inside outsourcing service provider (IOSP) work in and along side the employees of the company.
As each decade passed from 1974 to today, it became more and more critical for the IOSPs to fully understand the true need of why the manufacturers were outsourcing chosen services, and to align their processes and people with those needs. Over the course of the 40 years, we began to simply put this into a simple formula of: Purpose, Process and People. The true purpose for the inside outsourcing decision needed to be understood so we could align our processes to that purpose and train our people on those processes. Alignment became a big buzzword, and inside outsourcing customers jumped on this requirement quickly.
Alignment brought a reasonable level of labour harmony within a facility. The early years of inside outsourcing had an undercurrent of tension where the manufacturer’s employees looked down on the lesser-paid employees of the IOSP. The incorporation of the Purpose, Process, People formula developed a culture of service within the IOSP to gain a level of respect and admiration from the manufacturer’s employees, as well as an understanding that the services provided, although important, were not as critical as the actual manufacturing of the product. Is this the case with all of the manufacturers? Absolutely not.
Japanese auto manufacturers were the first to implement and focus on the importance of a cultural alignment with their IOSPs. They understood quickly that by having alignment, the IOSP could be held responsible for delivering not only the contracted scope of services but also a level of cost savings, making the manufacturer more cost competitive. As the cultural alignment grew over the years, IOSP management teams became fluent in the management style of customers, and were able to fully align their processes and people to that need. European auto manufacturers who located plants in the US, Canada and Mexico also followed this same line of thinking and realised the same benefits.
So, between 1974 and today, much of the root for the decision to outsource is the same: a higher level of expertise with functions/services that are not core to the manufacturer. One component has shifted and continues to shift. Jobs being outsourced are attractive to manufacturers’ employees. They can be performed at a lower cost by an inside outsourcing service provider. The IOSP brings a level of skill, focus, and commitment to the service, but both the manufacturer and IOSP must be culturally aligned for this root to grow.
The key to being culturally aligned is to embrace the formula of Purpose, Process and People, resulting in a team dedicated to the mission of their customer while meeting the mission of the IOSP.
About the Author
Damian Scallon is currently a consultant with Pathway Guidance in Cincinnati, Ohio and is finishing a book called The Outsourcing Conundrum. Prior to recently moving into being a writer and a consultant he was the Vice President of Operations at Robinson Solutions & Voith Industrial Service and had responsibility for several hundred locations located throughout Canada, USA and Mexico. For the past forty years he has spent a majority of his time servicing the automotive industry and has witnessed and participated in the growth of what is known as inside-outsourcing, where the services are performed within the walls of the customer’s facility.