During a recent dinner presentation, a hospital CEO from another state commented about her NFP’s strong profit orientation and how its sustainment necessitated a critical review of all processes. The leadership team’s decision was to outsource several functions that are traditionally performed in-house, specifically laundry, environmental and maintenance services. The CEO commented that she struggled with the decision because outsourcing runs counter to the traditional mentality of a community hospital. “We had to remember that we’re not a linen company,” she explained. “That’s not one of our core competencies. We’re a hospital. Providing excellent patient care is our mission.”
The strategic decision to outsource – or insource – is never easy. It involves the systematic dissection of all the sequential processes and activities involved in the delivery of a product or service – analyzing the organization’s value chain – to identify how and where the organization brings value to its market. The subsequent analysis should yield areas where costs can be lowered and/or value increased in the quest for a competitive advantage. Often the illusion of control balances perceived cost-effectiveness. How much of your company’s resources (dollars, time, management) are devoted to activities that support the primary processes that meet your overall mission? How much value does your organization (and its constituents) receive from that investment of resources?
Deciding whether to outsource doesn’t so much require thinking outside the box, but of blowing up the box and perhaps creating a triangle or a circle. The exercise turns traditional business on its head in the search for better: better processes, better activities, better value, better efficiency, better quality and better margin. Some issues to consider include:
- Often the centralization and economies achieved by outsourcing firms – such as linen, billing or IT companies – allow them to provide your organization with superior, specialized services at a lower cost. Just factoring personnel costs – the price tag to recruit, hire, train, supervise and compensate the provision of services – can be a huge persuader toward outsourcing.
- In order to stay competitive with each other and with the organization’s in-sourcing tendencies, these specialized companies need a commitment to continuous education in their field. They have/should have access to the latest technology and stay current on the latest trends in their field, benefits that your organization receives at no additional cost.
- Finally, contracts with external companies should contain provisions for accountability. Here, an organization can build performance guidelines into its vendor relationship with less potential for variability than that which occurs in an employment relationship.
Given pressure to continue decreasing overall costs while achieving higher and higher quality standards, scrutinizing your internal value chain might warrant new consideration as you debate whether every single activity adds to your mission or distracts you from it.