The Great Outsourcing Debate
No question, the session that left the biggest impression on attendees of IPMA 2018 was the outsourcing debate that pitted consultants Howie Fenton and Barb Pellow against one another, arguing the merits and pitfalls of outsourcing.
While Pellow told the packed auditorium what in-plant managers’ bosses were hearing about outsourcing from business publications and their peers, Fenton countered with examples of broken promises and outsourcing failures, and told attendees how to prepare.
Though in truth neither is pro-outsourcing, Pellow gamely began the debate by citing Wall Street Journal and Forbes articles touting the benefits of outsourcing and contending that the most successful firms outsource non-strategic services. A study by the Gartner Group concluded outsourcing can save between 9-13%. This is what in-plant managers’ bosses are hearing, she said. (Listen to IPG's podcast of the entire debate here.)
Fenton parried by noting, “if it sounds too good to be true, it is too good to be true.”
Those who make such claims, he insisted, are twisting the facts. In reality, the expected best practices, quality and flexibility rarely materialize.
“Everybody thinks and assumes that outsourcing all by itself will always save money, and it doesn’t,” he insisted, “and you need to be able to articulate this to your bosses.”
One trick outsourcing companies use is to estimate just a portion of your work. Anything that doesn’t fit into that category is an exception, and they’ll charge more for it. Fenton cited a recent consulting job where he counted 279 such exceptions, worth an estimated $488,000/year in additional cost.
“That happens all the time,” he stressed; that’s why outsourcing proposals look so good, because they don’t take this into account. “When the companies were asked to bid on work [for] overnight turn, their prices went way up.”
Pellow then dampened attendees’ rising spirits with the news that outsourcing is expected to grow, citing a study showing that 90% of firms view outsourcing as crucial to their growth strategies. Facilities management (FM) firms tell executives the downsides of in-house printing: volumes are declining, which will make the in-plant’s costs rise; replacing aging equipment is costly; and — by the way — the world is moving to digital communications.
“That in-plant could be an impediment to you making that digital transition,” she said, paraphrasing the FMs.
They will say they can offer companies a reduced cost for print and delivery, she noted, give them access to new technology, help them accelerate the digital transition and let them focus on their core business.
Outsourcing: It's All Just Empty Promises
Taking a breath, Fenton challenged these challenges, saying they betrayed a “fundamental misunderstanding” of the way print and mail operations are run. To “prove” the in-plant’s inefficiency, the FMs will set unrealistic goals, he said, like insisting they must achieve 80% utilization on their equipment or they are losing money.
“No company I’ve ever been in has achieved 80% utilization on their equipment,” he observed.
The FM, he added, is promising to use that same equipment, same staff and same electricity, yet sell the work for 20% less.
“How can they do that?” he asked, incredulously. The only way, he answered, is by paying those people a lot less.
“And they’re saying the quality is going to go up? The reliability is going to go up?” he asked. “The fact of the matter is … the turnover increases significantly and the number of mistakes goes up significantly. All these claims about better quality, less mistakes, better SLAs [service level agreements] are actually not true.”
The way you defend yourself, he told managers, is by using metrics and reporting your benefits and savings to upper management. Otherwise they will only hear the pro-outsourcing side.
“Be prepared to defend the in-plant even though you might never need to,” he encouraged.
Outsourcing Helps You Compete
Still, Pellow delivered a litany of benefits that outsourcing companies list for curious company executives: Outsourcing gives you access to a larger talent pool than you can find in your limited local market; you’ll have less overhead and lower real estate costs since some printing can be done offsite; you’ll have less risk, access to the best technology and 24/7 service through the use of the FM’s other print facilities.
“Outsourcing is going to give your business a competitive edge,” Pellow said. “It’s going to increase the overall productivity while managing those internal resources much more effectively. And that’s the scenario that your bosses are going to be told day in and day out if you haven’t done a good job of being proactive early on.”
And they very often will have a receptive ear in an executive that has seen outsourcing work at other companies.
“You’ve got a senior executive staff that has experience … with outsourcing everything from food services to some portion of IT, and you just happen to be next on the list,” she remarked.
It's All Just Theoretical
Fenton’s retort was swift.
“The theory is that it’s going to save money, reduce risk, increase flexibility, help you reengineer, turn around things faster, give you a better competitive edge. That’s the theory,” he snorted. “Show me a book that says that the best companies in the world are the companies that succeed because of their outsourcing. There are none. There is absolutely no evidence, looking back at successful companies, that outsourcing is one of the reasons why they are successful.
“But if you look at the value proposition of what in-plants offer, which you can point to as facts,” he continued. “They are convenient, they do save money, they don’t charge penalties for late delivery, they do provide compliance for regulations, there are no hidden costs, you do maintain control, and maintain and lower risk.”
Pro-outsourcing arguments are theoretical benefits looking forward, he concluded, but in-plants have evidence of past success to point to.
Pellow briefly countered one of Fenton’s assertions by citing a Bain & Co. study that reported the fastest growing companies have outsourced non-strategic services, but Fenton said those were IT services, restaurants or the truck fleet, not printing.
Pellow concluded by talking about how the outsourcing discussion often gets started. She listed some buzz words to pay attention to. If management says a consulting team is coming in to help with a “business transformation strategy,” beware. Other troublesome terms: business process outsourcing, customer communication management, enhancing digital services, user experience transformation or operations transformation.
“Ultimately, one of those buzzwords has always cascaded down to an evaluation of the in-plant,” she warned. (Listen to IPG's podcast of the entire debate here.)
Fenton ended with question designed to spur action.
“Do you have mechanisms in place that measure your progress [and] show that you’re improving?” he asked. Be prepared with data to defend against these four points that FMs will bring up, he urged:
- The in-plant is losing money or prices are too high.
- Print and mail are not company core competencies.
- Printing is not strategically aligned with the company mission.
- In-plant customers are unhappy.
- “Take the time to build the metrics and reporting structure,” Fenton advised. Once this is done, it will support the in-plant for a long time.
The debate ended (all too quickly) on a positive note with a list of 10 ways in-plants can avoid the outsourcing discussion.
- Drive ideas to improve business results for your organization.
- Educate management on how you are saving the organization money. Understand your costs, and communicate the impact you have on saving the organization money.
- Compare prices with outside printers regularly with periodic reports to upper management.
- Deliver high-value services to your user base.
- Market and promote your in-plant.
- Leverage your expertise to manage print outsourcing and copier fleets.
- Deliver innovative new products and services.
- Build an insourcing strategy to drive revenue.
- Have clear justification for any capital acquisition.
- Survey your user departments regularly.
The debate covered many other areas and included great advice. To hear the session in its entirety, listen to the podcast on the IPG website. You can also watch a video of the 60-minute session on the IPMA website.
Related story: The Outsourcing Debate
Bob has served as editor of In-plant Graphics since October of 1994. Prior to that he served for three years as managing editor of Printing Impressions, a commercial printing publication. Mr. Neubauer is very active in the U.S. in-plant industry. He attends all the major in-plant conferences and has visited more than 130 in-plant operations around the world. He has given presentations to numerous in-plant groups in the U.S., Canada and Australia, including the Association of College and University Printers and the In-plant Printing and Mailing Association. He also coordinates the annual In-Print contest, cosponsored by IPMA and In-plant Graphics.