Externalisation

The externalisation , also called outsourcing , indicates the transfer of whole or part of a function of a company towards an external partner. It very often consists of the Sous-traitance of the nonessential and nonstrategic activities (those which are not producing incomes) of a company. It is about a strategic tool of management which results in the Restructuration of a company around its sphere of activity: its basic competences and its core activity ( core business in English).

In Canada, the term of impartition is used to indicate the externalisation.

The externalisation differs from the simple service external of services, and from the simple subcontracting, insofar as there is

• narrow piloting by the company client,
• engagement of the external person receiving benefits.

The term of Infogérance indicates as for him the services of data-processing externalisation suggested by software firm.

The opposite process, i.e. the recovery with the intern of the company of the externalized activities is sometimes observed. One speaks then about Backsourcing.

Approaches economic and legal of the externalisation

From an economic standpoint externalisation is an agreement made between an organization and a third for the assumption of responsibility, the exploitation, management continues and the improvement:

• of whole functions of the organization (e.g.: data processing, cleaning, human resources, pay/wages, invoicing, compatability, marketing and communication),
• of infrastructures (e.g.: information system, security systems, telecommunication networks),
• of operational processes (e.g.: raw material exploitation, industrial production, exploitation of a telecommunication network, storage, logistics, transport) upstream or downstream of the organization.

This process allows the organization which externalize to center itself on its trades, specialities, and finally its added-value.

The externalisation rests in legal terms on a contract at duration fixed relating to the transfer of all or left the function, the service and/or the infrastructure or the operational process of the organization between the organization owner and an operator. The reversibility or no protest clauses are the key of a successful externalisation.

This contract can include a transfer of credits and/or personnel. The customer concentrates on the definition of the results to reach, leaving to the external person receiving benefits the responsibility deliver them.

The externalisation touches as much the public organizations as private. Concerning the public services, the externalisation is constituted since the selected management style of a service is not managed any more in-house (concept of " in-house services") under the responsibility of the public authority. One speaks then about delegated management, concession and more generally about public-private Partenariat or in Anglo-Saxon terms of CLUB-FOOTED.

Step followed by the idea of externalisation to the contract

Validation of the economic model

To have recourse to a solution of externalisation is similar to the adoption of all new process. The initial stages include/understand the establishment of guiding lines, the definition of a list of functions likely to be externalized and the selection of suppliers. It can be also necessary to carry out an analysis cost benefits to include/understand the value of the model of externalisation as well as an analysis of risks (Risk management).

A growing number of companies study the model of externalisation to see whether it is appropriate to them because to follow an effect of mode is to be proscribed. It can be worth the sorrow to make a pilot scheme for a function important, but nonfundamental, in order to evaluate the externalisation before extending it to a growing number of process.

Certain cabinets specialized in the strategic studies regularly publish statistics on the markets and the tendencies of the externalisation by sectors; this information can be consulted usefully for the person in charge of such a step in a company to take retreat and to mature its decision.

Confirmation of the model in detail of the contract

The implementation near a service provider is a complex process which is studied seriously and in general given place after feasibility studies, comprising measurable indicators of services and reciprocal matrices of responsibilities, with the drafting of a convention of services.

From the point of view of the contractual technique, a legal council proves to be essential to examine the critical points of the contract namely:

• the definition of the service awaited according to the state of the art, the technical specifications measurable objectively and practices to be perfectly apprehended,
• the definition of the level of (S) performance (S) which will condition the maluses and no-claims bonus in terms of remuneration of the person receiving benefits,
• the responsibility for the parts and the covers of transfers of risks (insurance, etc) according to the grid of risks applied to the operation of externalisation,
• procedure of transfer of the externalized activity who will include/understand validated audits and preliminary inventories,
• methods allowing the continuity of the service and the performance (in the event of progressive, brutal change of activity even in the event of crisis),
• methods as for the implementation of the clause of reversibility of the externalisation (Backsourcing),
• audit processes of the externalisation (followed, To that the S).

Lastly, in terms of Project management and whereas the contract from now on is signed after a call for tender whose negotiation will take time, any successful externalisation requires an internal and external communication perfectly prepared and implemented by the contracting ones to avoid always possible blockings of the recipients (other suppliers, customers, employees, trade unions, third) in particular in the event of Délocalisation total or partial.

Justifications

The reasons for externalisation in a company are multiple:

• to ensure a greater availability to concentrate on the core activity (on the activities with added-value),
• to profit from wide competences : by-report/ratio with the internal structure, the service provider can put the best specialists opposite sometimes complex problems,
• a better flexibility in the event of increase or of reduction of the number of collaborateurs/d' line of business; the person receiving benefits can adapt more easily to any modification of the walk of the company,
• a better flexibility in term of availability of the resources (not of preoccupations with an absence of the internal personnel for holidays, disease or other),
• finally and especially with the rise to power of a Compétitivité globalized, a better control of the costs related on the function, the infrastructure, the externalized process; being contractual, therefore known in advance and fixed (engagement very often contractual), they can be in the long term less low than internal costs thanks to their mutualisation,

Risks

There exist also certain risks as regards externalisation:

• loss of substance within the company by the loss of the control of the operations or the fundamental loss of consciousness in the company, of immaterial sound Capital
• reduction in the control of information by the loss of the confidentiality of sensitive informations,
• reliability and perenniality of the selected external partner.
• bad reversibility of the operation in the event of " réinternalisation" (or Backsourcing).

It is necessary to examine these risks of close later on with its supplier before signing any contract. It is also important to diagnose the usual rate/rhythm of evolution of the perimeter with externaliser; the more frequent this change is, the better will have to be by contract defined with the service provider which are the methods of study and realization of these changes.

It is necessary to take account of the strategies of limitation of the risks in the contract of externalisation. For example, it is possible to regulate the problem of the lack of confidentiality by giving only access to relevant information to the externalized process.

The effect of mode or imitation of competition is in all the cases to be proscribed as that could be the data-processing case as regards infogérance with " the Kodak" effect; between Kodak and IBM.

Externalisation and delocalization

The externalisation is sometimes in an often erroneous way associated with the phenomenon of the Délocalisation.

The two phenomena of management of the organizations should not be confused for as much:

• any externalisation does not involve delocalization, since it often makes call only to local subcontracting,
• any delocalization is not inevitably of the externalisation, for example in case where it is the company itself which moves one of its own sites of production.

Externalisation without delocalization

As illustration according to an investigation 2006 into the externalisation of certain functions of the companies, the externalisation in France thus without delocalization related to 96% of the functions of pay and RH and 85% of the countable and financial functions.

Among the advantages of a externalisation without delocalization, the local expertises, the observance of the national regulations and the control of the costs without exchange bill are with the hit parade of the reasons for the leaders.

Externalisation with delocalization

In the field of the production, the Textile sector and Confection is undoubtedly the first industrial sector has to have known this phenomenon as of the Seventies. Other sector followed: Leather working, Shoe for example to gain sectors more sophisticated as today that of the Automobile where the delocalizations towards the European east are not any more of the dreams.

In the field of the services, it is especially in the IT sector that the movement became very strong extensive in particular towards India and the Eastern European countries (Russia) taking into account the capacity to carry out intellectual services remotely. One speaks then about externalisation " offshore" or delocalized.

According to an observer, Luc Beech of review 01 Data processing, this movement is visible since 2004. " Of the whole pieces of the worldwide economy changes deeply because of the offshore oil rig. The movement started in the United States became extensive in Great Britain and Germany. For the moment, it is still sporadic in France. But it is clear, from now on, that few developed countries will escape from it. According to McKinsey, 40% of the first 500 european companies started to delocalize part of their operations. Only in data processing, according to an investigation CRM Buyer, 30% of the questioned companies envisaged to pass their infrastructure offshore in the twelve next months, and 30% are in phase of evaluation; as for the development of software, two thirds of the guarantors think the externaliser from here of one year! " .

For any offshore oil rig externalition it is necessary to know well to identify the country and the person receiving benefits according to the strategy undertaken. Certain destinations are ready and other not according to the part of the process which you identified for the offshore oil rig externaliser.

Movements opposite

But of the movements of reinternalisation or Backsourcing are already proven including in France in particular in the field Informatique, that of the Centres of call like that of the insurance companies. Simon Scarott de Compass MC indicates for this sector:

• " the increases in the costs of personnel can reach from now on up to 15% per annum in countries like India, thus reducing the economic interest of the offshore oil rig ".
• " As for any service of outsourcing, “It is insufficient simply to discharge from the problematic operations and the ineffective processes towards other countries, in the hope to see them to improve. Too many examples show that these practices can put in danger the quality of the service and do not lead to the awaited economies”, adds it. In fact, it is a question of knowing the economies up to what point is real and durable and will continue to satisfy the consumer. ".

In addition to the pure and simple reinternalisation, the externalisation with relocalization are not rare any more.

These movements illustrate a return of natural beam since the initial benefits of the externalisation were lost. The initial optimum at the origin of the first decision is thus changed for the economic decision maker.

Like any modification of a process, these movements each time have economic costs and sociological which it is necessary to reinstate in the calculation economic of the actors like authorities in charge to establish the applicable regulation.

Internal bonds

• Backsourcing
• Delocalization
• Infogérance
• Offshoring
• Partnership
• public-private Partnership
• Reorganization