Outsourcing - How to make it work for you
Sun Microsystems' Environment, Health and Safety Director Glenn Dirks and three associates at headquarters in Mountain View, Calif., handle strategic issues: regulatory compliance, new legislation, risk assessments for new business ventures, program development, data collection and analysis, and broad company goals -like raising ergonomic awareness among business units and versing Sun purchasing agents in environmental quality. But for day-to-day chores like hazard communication training, indoor air quality, repetitive strain problems at keyboards, groundwater monitoring, and hazardous materials disposal, Dirks relies totally on a San Jose consulting firm.
- 4% - Think all of a company's safety and healthfunctions can be outsourced withoutharming the program's effectiveness
- 72% - Think outsourcing more than one-fourthof a company's safety and health functionswould be harmful to a program's effectiveness
- 87% - Do not think their job security is threatenedby the outsourcing trend.
Far from being forced by downsizing to farm out his work (Sun is hiring to meet demand for the sizzling Java software), Dirks outsources by design. Just three years ago, a dozen in-house pros performed all of Sun's EHS work, from training forklift drivers to stocking first-aid cabinets. But two years ago, Sun execs set a goal to increase share earnings by 15 percent and determined many support functions were getting in the way. So Dirks began whittling his staff. Most left on their own; some were "redeployed," he says.
By last September, Dirks and three others were left. To take over routine health and safety operations at Sun's Massachusetts and Bay Area facilities, Dirks contracted with Environmental and Occupational Risk Management, (EORM) Inc., a 65-person consulting firm already working on some short-term projects for Sun. Another firm in London was hired to manage Sun's U.K. branches.
"Management's goal meant we needed to be more competitive," explains Dirks.
Outsourcing was the answer
Can outsourcing be a competitive advantage for you? This article shows how professionals like Glenn Dirks are capitalizing on consultants, and offers tips for you to consider.
BEHIND THE BUZZ
- 17% - Outsource to save money
- 54% - Outsource because they lack in-house staff
- 60% - Are currently outsourcing one or more safety and house activity
- 69% - Company will spend under $10,000 on outsourcing in 1996
The benefitsDirks says he contracted with EORM for three reasons: quality, flexibility, and price. In the lexicon of Silicon Valley, Dirks says his own staff had a "limited bandwith of expertise." EORM has "significantly expanded bandwith capabilities."
Under the terms of the contract, the consultant placed three full-time "EHS generalists" at Sun's Bay Area campuses, and one in Massachusetts. A fourth full-time West Coast position is shared by two ergonomists and an industrial hygienist. Plus, EORM's intellectual property, as Dirks calls the consultant's wealth of experience and library of written programs, is at his fingertips. If a confined space issue arises, for example, Sun can have a customized plan in a matter of hours, says Dirks. Indoor air questions can be quickly answered. "That's depth I didn't have before. That's quality," he says.
In the dynamic, fast-changing electronics business, having the flexibility to quickly add and drop resources is another benefit, he says. "I don't have to go through a hiring process; they do it all for me." For instance, to keep pace with Sun's expanding headcount this quarter, Dirks asked EORM to bring on one more full-timer. A new person was on site within eight days.
As for price, Dirks will only say the yearly-renewable EORM contract offers a "single-digit advantage" in cost savings compared to buying as-needed consulting or payrolling an equivalent in-house staff. Sun gets a lower rate by housing EORM personnel on-site, thus saving the consultant overhead costs. They have modular offices and come dressed in jeans, just like everyone else, says Dirks.
Surely, Sun-style outsourcing is not the norm among industrial EHS departments. Most respondents to an Industrial Safety & Hygiene News survey conducted for this article say they don't spend more than $10,000 annually on outsourcing. Almost three-quarters say relying on consultants for more than one-fourth of a company's safety and health functions would hurt the program.
Few consultants we talked to claim to have taken over a client's day-to-day EHS operations. In fact, Sun is the only one of EORM's customers with such a contract.
But, says EORM Vice President Glenn Fishler, the potential is certainly there. And as outsourcing gains popularity -a quarter of ISHN readers expect to increase their use of outsiders in the next year or two- EHS pros will likely find themselves doing less hands-on work and more managing of outside vendors. Are you in denial?
But are professionals in denial about the potential for outsourcing to change their jobs? According to our survey, they aren't gung-ho on the broad use of consultants: ·
- Sixty percent say companies that outsource are more likely to focus on short-term problem-solving rather than a long-term strategic perspective. "A consultant isn't going to lift up the rug, nor would a company let them," to see what's really going on, says Dr. Richard Fulwiler, who did very little outsourcing while running Procter & Gamble's worldwide health and safety program. ·
- Only four percent think total outsourcing could be pulled off without damaging their safety program. "Consultants make lovely recommendations without the funding or backing to get it done," says a safety and plant services director. ·
- And a striking majority -87 percent- don't think the boom in consulting threatens their own job security. "I would hate to speculate what would happen if there wasn't somebody here on a daily basis making sure jobs were done safely," says Eric DeMuth, a facility engineer for Karges Furniture Company.
Still, five out of six EHS consultants interviewed for this article say anyone ignoring the broader use of outsourcing does so at their own risk.
"This is not a fad," says Sun's Dirks.
There's plenty of evidence to back him up: ·
- Writing in the Wall Street Journal last year, total quality management prophet Peter Drucker forecasted, "In another 10 or 15 years, organizations may be outsourcing all work that is 'support' rather than revenue-producing..." That's because, Drucker says, individual companies don't have the money or the technology to meet their own needs. A study by the Washington, D.C.-based Corporate Leadership Council cited in Fortune magazine in January, 1996, concluded health and safety is among several human relations functions with "significant potential to outsource fully." Employing in-house specialists doesn't produce much of a competitive edge, and outsiders can do it for less, Fortune reported.
- Outsourcing contracts for all types of business services and supplies increased by about 40 percent in 1995, up from a 23 percent increase the year before, according to a Merrill Lynch estimate. ·
- The amount of safety and health training that is outsourced is expected to grow from 36 percent to 46 percent of all to be done in the next five years, according to Future Technology Surveys, Inc. ·
- Safety and health personnel headhunters now promote "alternative staffing" options such as using independent contractors, retirees, and student workers without putting them on your payroll. ·
- Consultants offer "technical temporaries" to do everything from permit applications, air and noise monitoring and safety inspections to writing safety manuals, organizing records, and developing EHS plans.
Indeed, outsourcing is old news to corporate medical departments and occupational health professionals. They've watched for years now as local clinics and hospitals have taken over their functions.
And in fact, many safety departments regularly use outside resources: 60 percent of our survey respondents currently outsource some safety and health activity. More than one-fourth go outside for training; one-fifth let consultants handle asbestos, lead and hazardous waste abatement.
Be proactiveSo there's nothing new about outsourcing safety and health functions. What is new is the pressure to push more work off company payrolls, and the growing array of services that will meet the need. How should you view these trends?
For starters, be realistic and open to the idea that more work can be done outside. "We professionals believe only 25 percent of our work can be outsourced, but we're not the decision-makers," says Fulwiler. "Health and safety professionals must be ready to identify what needs to be outsourced.
"The best defense is a good offense."In other words, get out in front of the outsourcing curve.
And don't be misled into thinking that health and safety is a "core competency" that management wouldn't mess with. Safety and environmental pros must be careful not to confuse the importance of embedding safety thinking into the corporate culture with maintaining an in-house staff, advises A.D. Little Safety and Risk Group Principal, Lisa Bendixen. "Thinking about safety in everything you do is a core competency, like thinking of quality. But once it's in the company's blood stream, there's a lot that can be outsourced," Bendixen says.
Finally, don't be blinded to strategic outsourcing possibilities by the spectre of losing your whole department. That's an extreme scenario that would put a company at serious liability risks. Even the advanced outsourcing setup of Sun Microsystems still calls for four staff people to handle legal and corporate issues.
To be sure, broad outsourcing isn't for every company (see sidebar, "Who's ripe for total outsourcing?"). Sun Microsystems happens to contract out its most hazardous computer assembly work like semiconductor fabrication and board manufacturing, so deciding to go outside for routine health and safety tasks was easier for Glenn Dirks than it might be for an EHS manager at a chemical processor.
But Dirks says, "I've seen people who drag their feet get an edict from management," describing peers who fell behind a corporate push to drive costs out of operations. In today's business environment, it might be wise to follow the motto of Dirks' boss, Sun CEO Scott McNealy: "Have lunch, or be lunch."
Strategic outsourcingThat was one motivator for 20 professionals who attended an eight-week EHS outsourcing course this winter at the University of California's Santa Cruz extension school. Many of the industrial hygiene and safety managers in the class faced corporate mandates to outsource, says instructor Ed Quevedo. Mandates, that is, of the sort Glenn Dirks faced: "Do your part to reduce overhead and make the company more profitable."
A law partner in the international EHS department at Shepard & Wise in Palo Alto, Calif., Quevedo tells his students to be strategic about outsourcing. Select and manage an outsource service that can bring quality to your organization, he says. "Choose people who can take a role in developing new programs, think independently, and respond to a dynamic regulatory environment."
Then, Quevedo says, highlight your own role. "Say, 'I'm managing these people and I add this extra layer of value'." Common sense dictates that the company can't do without you if you take a true leadership role in managing the service provider, he says.
- 22% - Expect an increase in safety and healthoutsourcing at their company over thenext 1-2 years.
- 27% - Level of safety and health outsourcinghas increased during the past 3 years
Glenn Dirks, whose background, incidentally, is in environmental management, not safety, is a good model. "I'm the conductor. I have a first chair violin and a first chair French horn, but I get them all working on the same score," he says of his internal and external staffs.
In fact, Sun employs a safety engineer under Dirks who manages the EORM contract as well as Sun's EHS service provider overseas. Another in-house person monitors legislation and develops policies like the supplier management program. A third, junior-level internal staffer collects and coordinates data and tracks Bay Area regs like employee trip reduction mandates. Overseeing them all, Dirks says his duty is to draft Sun's EHS vision and be the architect of the universal EHS program.
Clearly, there's a continuum of ways to use outsourcing (see "The Outsourcing Continuum"). But whether you're contracting for air sampling or considering a long-term role for consultants, here are some tips for making outsourcing work for you:
Tune in: Keep your finger on the pulse of your company to save being surprised by an order to outsource.
Glenn Dirks had it easy: Farming out work has always been part of the Sun culture. So when it came to streamlining his environmental health and safety staff, he didn't have to wonder what upper management would think. Instead, Dirks says, "We took the initiative rather than be told to do it." Ed Quevedo advises tuning into the executive wavelength. "Most safety and health managers don't know about the company's strategic plan," he says. "Find out about the next generation of products, strategic joint ventures, or new markets your company is moving into."
Then take a proactive approach, says Jan Thomas, president of Circle Safety Consulting in Gum Spring, Va. "Develop a plan, lay out all the categories that are safe to outsource, and be ready to speak about how outsourcing can work efficiently."
Delegate wisely: Knowing what and why to outsource is another important skill. Beware of making what Ed Quevedo calls "the migration mistake." He explains: "Don't just take your internal program and lift it to outsiders. The benefit of outsourcing is plugging in people to your own program." When you consider outsourcing, take a fresh look at your organization, Quevedo says. "Forget about what you'd rather not be doing, or haven't done effectively in the past. Avoid just passing off the things you aren't good at."
Views vary on what jobs can and can't be outsourced. Jon Parish, director of loss control for southeastern Virginia furniture maker Lane Co., wouldn't think of letting an outsider set up employee safety committees. "It needs to be done by someone who is part of the culture," Parish says.
Yet consultant Jan Thomas lists team-building and committees among items conducive to outsourcing. Other candidates: policies and procedures technical writing, employee communications like training and newsletters, workplace violence prevention, general education, and industrial hygiene monitoring.
THE DOWNSIDE OF GOING OUTSIDE
- 34% - Think outsourcing will have a negative effect oncorporate safety and health performance
- 44% - Agree that the outsourcing trend suggests thatprofessionals have failed to convince managementthat safety and health is integral to company success
- 49% - Say the quality of the safety and health consultingfield is deteriorating due to an influx of unqualifiedoperators
- 61% - Think companies that outsource safety and healthwork are more likely to focus on short-term problemsolving instead of a long-term strategic perspective
Legally, some responsibilities cannot be delegated, according to Quevedo. They include: signing hazardous waste manifests, filling out OSHA 200 logs, and accident investigations or response plan development.
Be Selective: When Glenn Dirks shopped for an outside resource he put applicants to the test. To get at a vendor's expertise as well as their culture, he recommends careful screening and checking references to find out: ·
- Are they very proactive, progressive, assertive? ·
- Do they understand what total outsourcing means? ·
- When they bid a job, do they account in their price for the fact that a long-term contract reduces their overhead costs? ·
- What sort of skills, leadership, or creativity did they bring to their clients in past contracts? ·
- What kind of quality program do they have? ·
- How do they manage their employees' career development? ·
- How do they assess client needs? ·
- How do they communicate? ·
- What are the qualifications of the individuals they use? ·
- How well do they match your culture? ·
- How do they assess their own performance? Sun scores EORM on quality, technology, delivery, management support and price.
Half the respondents to ISHN's outsourcing survey say they think the quality of the safety and health consulting field is deteriorating due to an influx of unqualified vendors. Consultants aren't surprised.
Krisann Wampler, industrial hygienist and program manager at Heritage Environmental Consulting in Indiana warns against price shopping: "We may bid out a job at $80 an hour while a competitor bids at $50, but they'll put an uncertified person on the job," she says. Competing for a confined space job recently, Wampler discovered her competitor planned to hire local university students to perform the assessments.
Manage the Process: The EHS manager overseeing an outsourcing contract needs to know how to get quality work out of a consultant. It means being a supervisor, a partner, and a negotiator.
As the EHS vendor administrator, you need to know whether you're buying the right level of services, says Bendixen, to prevent shallowness as well as overkill -consultants doing and charging you for more than you need. You also need to see that the outsource provider is truly contributing something you weren't getting from an in-house staff, bringing in new ideas and making things better, she says.
Plus, it's your job to help the consultant become part of the team. At Sun, EORM consultants have their own workstations and attend staff meetings. Dirks gave them sweatshirts adorned with Sun and EORM's logos. He's on the phone with them daily, and sees them several times a week.
Quevedo adds: "Provide the same company training to every member of the team. Put them through the same evaluation process as your staff, make them report to the in-company manager rather than to the service's project manager. Give them office space and badges to wear. Treat them every way you can as if they are employees."
Sidebar: Outsmarting outsourcingThe odor of outsourcing was in the air at the Amoco Oil Refinery in Whiting, Ind., four years ago when the facility's medical staff decided to beat management to the punch, says former Senior Occupational Health Nurse, Christine Kalina, MS, RN. With a study that showed the cost-benefit of keeping an in-house medical department, Kalina and then Medical Director James Fitko, MD, MPH, not only saved their own jobs, but also possibly averted a $300,000 loss for their employer.
"Even though it was a while ago, we were already hearing talk about outsourcing," says Fitko. "We thought it would be wise to see where we stood and find out whether management could benefit [from outsourcing the medical department]."
In 1992, some smaller Amoco facilities around the country already used outside medical providers. But in Whiting, an in-house department served refinery employees as well as workers from nearby Amoco lubricants and chemical plants, pipeline operations and a marine unit.
To find out which was the cheaper method, Kalina and Fitko spent two months, unbeknownst to upper management, working after hours and between patient visits comparing costs. Having access to corporate-wide medical cost records, and a computerized database of in-house medical activity simplified their task: First, they added up salaries, benefits, supplies and other costs of running their own medical department. Then they examined itemized invoices from outside providers and conducted a phone survey of local occupational health clinics to calculate mean charges for individual worker health care procedures.
The Journal of Occupational Medicine published the doctor and nurse's findings in 1994. Maintaining in-house medical services costs Amoco 42 percent less than outsourcing: The in-house department's operating expenses were $428,916 in 1991. To outsource the same would have cost over $700,000.
In the end: Talk of outsourcing the Whiting Refinery medical department quieted, Chris Kalina was promoted to run Amoco Corp.'s managed care program in Chicago, and Dr. Fitko moved up to regional medical director for Amoco in Houston.
Sidebar: Who's ripe for total outsourcingEven a consultant will tell you, total EHS outsourcing isn't for everybody. Glenn Fishler, vice president of San Jose, Calif., consulting firm Environmental and Occupational Risk Management, Inc., advises against outsourcing for some companies. He screens potential clients as intensely as they screen him. According to Fishler, only certain companies make good candidates for total EHS outsourcing. Others he avoids.
Here's what he looks for in a client: ·
- Large companies with similar multiple operations. Economies of scale make these firms excellent outsourcing candidates, Fishler says. "A consultant should be able to create a nice infrastructure and a basic training program for those people." ·
- A company with a strong internal EHS outsourcing management function. Consultants need someone inside‹an internal champion‹to help them overcome all the cultural barriers. The ability of the internal program manager can make or break the client/consultant relationship. ·
- A company that understands what outsourcing can do for it. "I don't want to go into an environment where expectations are unrealistic, like I'm going to cut their costs by 50 percent the first year," says Fishler.
Here's what he avoids: ·
- Chemical process intensive companies. Higher risk and a larger learning curve make completely outsourcing the environmental health and safety functions of a process-intensive industry counterproductive, Fishler says: "You don't just let go a bunch of process knowledgeable people. You'd be losing a tremendous amount of knowledge and human resource-technology investment." Of course, chemical companies can and do contract out individual program parts. ·
- Government contractors. Depending on the agency, government contracts can make bad candidates for total outsourcing, according to Fishler. Inflexible contract terms and restrictions may not make it worthwhile to outsource a government project. Plus, budget crises make government a risky client.