Why outsource to big companies?
I've been thinking about it a lot lately, since I've been reading about outsourcing O2 to Capita and some other outsourcing companies to big companies.
I am not sure I really understand the decision-making process here …
Suppose you choose an outside partner and you have 2 choices. A large multinational outsourcer with a few hundred thousand people, or an SME with a few thousand people.
Suppose the price and the capacity are about the same – who do you assign the contract to? From my experience, companies tend to choose the largest company. But is this the best decision?
It seems to me that if you are a large multinational corporation that spends more than 5 billion pounds a year, how much will you worry about a unique outsourcing contract of value? £ 10 million? This represents about 0.2% of your turnover.
If they provide a terrible service, will that cripple the big outsourcer? Or will they just notice? (Clearly, many failures add up to a big problem, but my question here is what does one failure mean for a large company?)
On the other hand, a small subcontractor who earns over 20 million pounds a year is likely to be more concerned about your business. Much more. Your contract is worth half of their annual business figure. They will bleed for you. Failure to provide you with excellent service could easily destroy them.
Less bureaucracy. Faster to react. Faster to change.
I understand when it comes to choosing a supplier who provides a physical product. They could have a manufacturing advantage or a purchasing power that comes from the pure scale.
But a service provider …?
A large subcontractor will have about the same costs as a small subcontractor – which is primarily a salary.
Why is it better to choose service providers? Am I missing something?