Downsizing, Rightsizing, Capsizing The Outsourcing Saga Roy M. Dalebozik, Eng., Executive Director, Facilities Development McGill University University presidents are finding vision, positive attitude and creative solution-making increasingly difficult attributes to sustain. The option to outsource often fills this void, providing fast answers and enthusiasm. Downsizing, Rightsizing, Capsizing The Outsourcing Saga will draw on the experiences of McGill University and other institutions to highlight the concerns and benefits of outsourcing. A model for a structured approach to evaluating outsourcing will be presented, one which supports change management. An environmental scan of core competencies related to available internal versus external expertise which forms a framework for selection of outsourcing potential will then be discussed. The need to establish performance measures, both quantitative and qualitative, prior to outsourcing will also be highlighted. And lastly, the criteria for partner/contractor selection and the processes of recent selections in universities will be presented. The opportunities, the future and the results of the outsourcing trend will form the vision of the next decade. Outsourcing Concerns The reality of the situation, as stated by Peter Drucker, is that: In another 10 to 15 years, organizations may be outsourcing all work that is support rather than revenue producing and all activities that do not offer career opportunities into senior management. Many of us chose to describe the experience, or expected experience, of outsourcing as hell. This is rooted in our perceived loss of control, and perhaps authority. Outsourcing is change and as statistics tell us, we Canadians typically loathe change. As a result, employee moral continues to drop as outsourcing continues to be discussed. Employees with job security are suspicious, and fear that their jobs may be taken away and outsourced. Others fear losing the benefits that they have enjoyed and worked for. These sentiments will culminate in union resistance, based on the feelings of fear and loss amongst members; unions which have no history of cooperative change can feel no other way. The perceived loss of control in management is particularly acute at the first and middle levels of management. The very idea of someone else telling our employees what to do, distributing work orders, and verifying performance is perceived by many of us as a loss of our day to day control. We find ourselves questioning the decisions made by our senior administrators. Where are we going? Strategic planning is being given to outsiders that don't know our university. I've spent years balancing client service with a decreasing budget. Now an outsourcer will take over control?! Do they think it will cost less to hire an outsider to do our job? But the reality is that universities are under financial, ideological, and cultural attack which have resulted from a lack of consistency in purpose (slide 4). This deadly disease will keep universities mired in mediocrity unless it is accurately and appropriately addressed. The challenge of outsourcing for facilities managers is to focus on the benefits, and help senior administration direct the process. Outsourcing Benefits Outsourcing may be our gate to heaven if we can recognize its strategic role and make use of its benefits.
As perceived by several levels of university administration, the benefits of outsourcing can be summarized under the categories of: employee, operational, strategic and economic. Employees working in an outsourced situation have the advantage of working in an industry that allows them to progress to higher levels of responsibility and challenge and or transfer. These opportunities are not available in the physical resource departments of universities where jobs are being downsized and there is little in the way of upward mobility. Operationally, the benefits of best practice knowledge and experience can be transferred from one location to another. The ability to structure processes and the delivery of quality of <R>service are benefits well established within successful outsourcing companies. These skills can be utilized to improve the efficiency and effectiveness of the services we provide to our clients. Strategically, outsourcers can help university senior management develop long term plans. Their credibility a consultant's capital can be used to help us sell the need for adequate funding for physical resources to our senior administrators. Economically, most university senior administrators believe outsourcing will lead to a decrease in costs. By how much and how to measure this decrease are two major outsourcing considerations. Unfortunately, the level of service for a price and value of money issues often degenerate into solely price and money issues. Structured Approach A structured approach to outsourcing is often hoped for. As facilities administrators we can present a logical framework that will facilitate our university's stewardship of physical resources. Management of change is the process of modeling the change in facilities to be in sync with the changes in the strategic growth or compression of the university. A dissection of a university's holdings and resources, facilities management, is a process needed to define business functions or groups of functions that can be outsourced. This structural self-analysis can be executed internally by tools such as cyclical review, internal audit, APPA peer review, or by a number of consultants in the field of organizational development. The significant outcome of this phase is a list of business units to be evaluated in the outsourcing decision. The next step in the process is the evaluation of the performance measures for each of the business units. The functional aspects of delivering facilities and property services are critically examined against local and world-class providers. The evaluation can be at the level of units as large as facilities, e.g. the University of British Columbia, or as detailed as the painting trade shop at U of T and the University of Sherbrooke. The output of this phase should be parameters and standards that are measurable and well founded. Measures that are recognizable and believable to senior management. These measures can then serve two purposes. The first is to decide which units will be considered for outsourcing and which, because of their strategic value or quality of performance, should be retained. The second purpose is to establish the criteria for contractor/partner selection. The selection phase of the process can range from partnership to contracting or a combination thereof. Partnerships are the most common due to the difficulty to universities in determining clear performance criteria. When performance criteria are clear, contract is the preferred route. Then comes the never ending step in the process of monitoring the results. This step is the most difficult to sustain over the long run. Firstly, the energy and effort to get to this point makes reassessment an onerous task. Secondly, once outsourced, the knowledge base of our organization has been depleted. Many of the people involved in the original decision to outsource will be outside the organization, as well as those with the knowledge to evaluate success. Environmental Scan
C. C. Sullivan, in his assessment of outsourcing of facilities at Ameritech Corporation, suggests that successful strategies arise from outsourcing only those functions not critical to an organization's main mission. Sullivan uses an evaluation tool which relates degree of core relevance to available outside expertise. High core relevance to the strategic plan of the university and the accompanying strategic plan for defining the future needs of facilities to support the academic mission. Equally relevant is the availability of outside expertise as compared to inside expertise. Strategic planning requires a level of integration with the university mission that is seldom found in outside expertise. Sullivan suggests that this function has a core relevance that should not be outsourced. Space planning and asset management are two fields that are common to most companies and therefore an area where outside expertise is readily available. The objective is to articulate the linkage between strategic planning and these functions. Retaining the lead and leveraging a core internal group or individual with external resources could produce optimum long term results. In functions of lesser degree core competence and having limited outside expertise available in the university sector, contracting and/or outsourcing has benefit. These functions include operations, maintenance, engineering, security, food services and mailroom delivery. At McGill, the security function has been contracted for the last 60 years, with general success which has depended more upon the McGill management, rather than the contracted staff. During the last decade, when customer services has been an important measure of security delivery, changes in management (resulting from early retirement) and structural changes in dispatching services have improved overall customer service. Returning to an all McGill staff has not been considered. The Engineering & Design department at McGill, created some 10 years ago, has progressively become an outsourced function. Maintenance and custodial services became candidates for contracting at the management level in 1995, and McGill is now in the process of outsourcing campus services (custodial, mail, and special events) and maintenance management. The process is arduous but strategically, there is no turning back. Outsourcing Considerations In our journey through the process, no fixed formula exists. There are as many arrangements as there are universities and service providers. Needs assessment has proven to be a serious challenge. An APPA audit was conducted in 1995. In 1996, downsizing occurred, such that the positions of facilities manager, Macdonald College, director, facilities management, and associate-vice principal, physical resources, were eliminated. The positions of manager, operations and manager, building services, were vacant and in this situation, a company was contracted to supply a manager of building services. A manager for operations was hired on contract. The needs assessment for building services was brought together by Service Associates, a consulting form. The remaining potential outsourcing options are ongoing. Personalities of the McGill senior administration, as well as the representatives of service providers, require note. The chemistry, trust factor, how outsourcer and internal decision makes have been critical success factors. This experience has clearly demonstrated the need for acceptance and support from senior management is imperative. McGill is also in a period of unionization. Middle management, clerical staff and technical staff (design and project coordinators) are currently in contract negotiation with the university. Contracts expired in November 1996 for trades, cleaners and operators. This time of change in labor relations provides an opportunity for outsourcing, that in combination with the new management may permit a high probability of success. The outsourcers experience with existing unions can further help to expedite the union negotiation process.
Legal issues, including responsibility to the ongoing excellence in teaching and research are also serious concerns. Through the 1990's, McGill set up private corporations to operate the Gault Estate, Morgan Arboretum, the revenue portfolio and several other services. These arm's length organizations have improved operability, but have created human resource concerns, with the relocation of staff having employment security. Criteria for Selection The three main criteria for selection are management, experience and philosophy. In management, the providers systems for financial control are the main concern of the VP Finance. Does the provider have similar operations? If so, these sites should be visited to ensure comparisons are valid. What of the clients they have lost? What support services will be there to ensure success? The experience of the provider and the experience of the manager and support staff on site are joint university/provider decisions. Experience is not limited to delivering services. Contract negotiations, labour relations, public relations, and in-house transition experience are all key to a successful change. The basic value system and company philosophy must be in tune with the university culture. Does the supplier understand out business? Are they committed to partnership, or are they committed to their way of doing things? Is the company employee oriented and how do they show it? And finally, can they change with the university in its continuous negotiations with government and funding sources? Opportunity 2000 The Future The year 2000 is nearing and with it at McGill, a new VP Resources, possibly a new Principal, certainly funding reductions and possibly fewer students. The delivery of service will remain crucial to the attraction and retention of world class researchers and professors in a global economy. Outsourcing is one tool for universities to stay competitive. It is our challenge as facilities administrators to use that tool to ensure that our core competencies are retained and that our universities excel in their individual and collective mission. Bibliography Deal, T. E. and W. A. Jenkins, Managing the Hidden Organization. New York: Warner Books, <+><+>1994. Druker, Peter, article which appeared in The Wall Street Journal, March 29, 1995. Peters, Tom. In Search of Excellence, New York: Warner Books, 1988. Serge, P. M., et al., The Fifth Discipline Fieldbook. New York: Bantam Doubleday Dell <+><+>Publishing Co., 1994. Sullivan, C. C., Outsourcing: A Winning Strategy? Buildings, August 1996. Outsourcing Points: A Legal Checklist According to Richard Raysman, partner at Brown, Raysman & Millstein, a law firm in New York City, effective outsourcing agreement should protect the contractee (outsourcing company) against severe risks that could adversely impact operations. Among the most critical elements? 1. Definition of the relationship, goals, and objectives of both parties; 2. Services to be provided; 3. Terms of agreement; 4. Personnel (including restrictions on hiring other party's personnel); 5. Use of customer facilities;
6. Customer-owned and customer-leased equipment; 7. Data processing services and sharing of computer resources; 8. Vendor intellectual property; 9. Third-party services; 10. Customer projects ongoing at execution; 11. Management of projects and other services; 12. Customer responsibilities; 13. Confidentiality obligations; 14. Customer data; 15. Procedures to change scope of services or include additional services; 16. Performance goals and initiatives; 17. Conversion services (moving from customer's procedures to vendor's); 18. Training; 19. Liability issues; 20. Dispute resolution; 21. Assignment of vendor-customer agreement, and independent contractor status; 22. Insurance requirements; 23. Taxes and audit issues; 24. Disaster recovery/emergency backup; and last, but never least: 25. Fee structure. C.C. Sullivan, Buildings, August 1996 Outsourcing and Employment Law Before an outsourcing program is recommended and certainly before contracts are signed a good understanding of its relation to employment law, [...] must be firmly established. According to Richard Raysman, Brown, Raysman & Millstein, New York, effective outsourcing agreements should protect the contractee (outsourcing company) from a labour backlash of claims, whether legitimate or not. Some of the most critical elements follow: 1. Identifying and Preventing Potential Discrimination Claims The employer must use its best business judgment in all decisions, except where state and federal statues forbid the employer from discriminating against certain protected groups. 2. Reviewing the Individual Candidates and Making or Not Making Employment Offers. Some transactions give the vendor the right to select positions and candidates; some do not. 3. Identifying and Preventing Claims for Severance. Some the outsourcing company is required to pay severance to affected employees even those that are transferred to employment with the vendor. 4. Notice Requirements Sometimes the outsourcing plan must be announced in advance to employees. 5. Timing and Substance of Employment Offers Outsourcing companies must be careful to offer jobs at about the same time that the outsourcing plan is announced without suggestion that new jobs are guaranteed. 6. Post-Outsourcing Status The impacted employees can become independent contractors, but this status is subject to scrutiny by courts.
@FOOTNOTE = C.C. Sullivan, Buildings, August 1996