BLOG BEAT NEWS AND COMMENTARY FROM BLOGGERS AROUND THE WORLD OUTSOURCING AND SUBCONTRACTING: SAME DIFFERENCE? www.outsourcing101.wordpress.com
Since the explosion onboard Transocean’s Deepwater Horizon drilling rig in the US Gulf of Mexico on April 20, 2010, we have been witness to daily reports of the far-reaching catastrophic effects of the disaster, both environmental and economic. It seems that the immediate reaction of the three parties involved—BP, Transocean, and Halliburton—was to point the finger of blame, instead of accepting responsibility and immediately leaping into action to gain control of the situation, and, therefore, attempt to mitigate the effects of the disaster as much as possible. The presence of multiple players has raised the issue of accountability. Should BP be solely responsible? Transocean? Halliburton? Should all parties accept some of the responsibility, and if so, to what degree should each one be liable? To answer these questions, we need to understand the relationships between the three parties. Unfortunately, it has been due to a lack of understanding of these relationships that has unjustly dragged our industry’s name and its reputation through the mud during this tragedy. Shortly after the Deepwater explosion, many hailed the incident as not only an environmental disaster, but also an outsourcing one. However, outsourcing did not play any role in the equation. According to BP, its relationship with Transocean and Halliburton, which operated and maintained the offshore rig, was of a subcontractual nature, not an outsourcing one. When subcontracting, the end-user—BP in this instance—provides the details and exact specifications of the service (or product) that it needs delivered, including the quality standards, pricing, timeframe, etc. that the subcontractor needs to adhere to. These are often called input contracts because every detail is specified. It may be easier to understand subcontracting in relation to the car
industry that uses many subcontractors. For example, a body panel, say a wing, might be constructed by a subcontractor, but its specification (once agreed) will be detailed to the smallest degree because that wing not only has to fit in with the rest of the car—it also has to meet the requirements of the manufacturer’s automation systems. If the car manufacturer decides to outsource car production, then it would give the supplier a specification of what the car should look like, its performance levels and cost, relying on the supplier’s expertise to construct and fit the wing in line with the overall requirement. Meanwhile, in an outsourcing arrangement, the end-user looks to the supplier to deliver an output or outcome and is not normally concerned about how this is done exactly, provided the specified output or outcome is delivered. So there is a significant and clear distinction between outsourcing and subcontracting. Though the BP case was not even one of outsourcing, I find it frustrating that the wider public almost never hears about the numerous examples where outsourcing is positively affecting the industry. Instead, we only hear about isolated instances where it has not gone smoothly. I suspect that good news doesn’t sell. Remember, the key to any successful relationship is clearly defining and agreeing with the desired outcomes at the outset and having a clear understanding of the roles of each party. However, this is not enough. Whether a business partnership involves subcontracting or outsourcing, it is also necessary to have contingency plans in place. As we’ve seen most with BP, should the unforeseen arise as it inevitably does, an established crisis procedure should help limit the repercussions when things do go wrong, with all parties knowing their exact roles and responsibilities. This can only help to improve outsourcing partnerships and the reputation of our industry.
THE GREEN GRASS OF OUTSOURCING www.noa.co.uk
Every cloud has a silver lining. Stripping away the bureaucracy that so often blights the decision-making process will empower more companies to take a holistic view on the environmental impact they have on outsourcing. In its broader sense, outsourcing has become one of the buzzwords of 2010. Despite popular belief often perpetuated by the media, its value-added impact is a lot more than just cost-saving. Risk mitigation and reducing carbon emissions also have a key role to play. As we see the green shoots of recovery, green, which has been on the backburner for many companies, is now firmly back on the agenda. With a new government also come a new competitive landscape and a commitment to green issues. Exploring the green challenges facing the outsourcing community is increasing. And despite the turbulence surrounding any cost-cutting exercise from No. 10, David Cameron and Nick Clegg’s new coalition stance on outsourcing, it’s likely to shape Britain’s economy over the next four years. Green procurement can deliver significant benefits while addressing climate change, and for this reason, I would invite more people to look beyond the glass ceiling of conventional business practices. Reducing wastage, increasing
efficiency, and simplifying compliance all marinade well to helping companies bolster their bottom line, as well as stimulating their corporate social responsibility (CSR). I’m pleased that more companies are looking beyond the taboo and prepared to go green by offsetting their overheads in favor of something more honorable and tax-efficient. Admittedly, the government’s stance to reduce carbon emissions by 34 percent by 2020 (source: CRC EES) is certainly ambitious, but in truth, it will require nearly every company in the British Isles to engage in some form of outsourcing. Therefore, the green agenda is more important than ever. Clearly, there needs to be an additional layer of transparency thrown on the issue of green sourcing and helping to define the incentive surrounding it. Uniformity is paramount in enabling companies to make informed decisions on how to go about their business and the impact they have on the environment. Once a standard has been determined, it would serve to create a safer and greener market for more companies to engage in. Suffice to say, organizations need to explore the supply chain in greater depth. globalizationtoday.com
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