An increasing number of companies are relying on external providers. Efficiency is the key driver of this development. Experts agree that outsourcing will take off in a big way in the years to come, although some have a number of reservations about this development.
Keep in-house or outsource? That is the question for today's HR executives. A growing number of companies are refocusing on their core activities, a strategic exercise that began some time ago. An economy on the mend and the shortage on the job market, however, are accelerating this trend. Ester Van Eupen, Senior Manager with Accenture Strategy – Talent and Organization:
"It used to be a case of hiring external staff for transactional or operational activities; take for example call centres. Today, outsourcing is much more a means of increasing an organisation's flexibility. Companies are adding a flexible "shell" of external staff to their fixed core of internal employees. This shell consists of external staff with specific skills or knowledge. Often these are highly skilled professionals who are a very scarce commodity on the job market. The main advantage is that the company no longer has to go through expensive and time-consuming recruitment procedures. Not only does it save time and money, it also means having to invest less in training: you simply pick the skills from the market."
Breaking with convention
Automation, digitisation and robotisation. According to Jan Laurijssen, HR consultant with SD Worx, these are the three most important tasks outsourced to external providers:
"It concerns specialised jobs for which the organisation has no internal expertise. Everyone talks about outsourcing, but in practice both employers and employees tend to be much more conservative. Companies hire when expertise is in short supply and fire when there is a surplus. In turn, employees tend to hold onto their jobs. In any event, the job market will force us to make choices."
Colleague Sven De Kremer, Managing Consultant, predicts that some companies will shed their workforce layers until they are left with hubs:
"I have spoken with managers who say their fixed workforce will be reduced by half over the next decade or so. To be clear, this does not mean they will not grow. In fact, their total workforce will likely be bigger than it is now. Some companies no longer consider themselves as lifelong employers. They will become hubs where people perform a job temporarily, then leave again."
Outsourcing may be the new buzz word, but specialists also have some reservations about this development. Koen Dewettinck, HR professor at Vlerick Business School, is one of them:
"More and more companies are concentrating on their corporate culture. In other words, the vision and values the organisation wants to communicate and which are reflected in its corporate processes and policies. Corporate culture is a cohesive force; people identify with it and rally around a common purpose. At least, this is true for internal employees.
But what about external staff? They don't identify that strongly with the collective vision. As a company you have to strike a balance between the individual and the collective, and this is no easy task. Organisations could do much more to define and enhance their corporate culture. They claim to be different, but in essence they are doing exactly the same as everyone else. It's about clearly stating what your vision and mission are. My advice is to overcome the idea that you need to do your best for everyone – that is simply impossible."
Flexible working – how to make it work: easier said than done
Although teleworking has become commonplace in many companies, it is not always received positively. A rigid, hierarchical attitude is often to blame. It is therefore not surprising that newer and more flexible ways of working, like co-sourcing, are met with great resistance, despite the many benefits.
Bon a savoir
In many companies, teleworking has not got off to a good start. Jan Laurijssen of SD Worx says the reason is straightforward: employers have to learn to let go.
"With teleworking, your employees are partly in charge of the process. Not all companies are ready for this. The problem is that companies introduce teleworking for the wrong reason. They move to a smaller office with flexible workspaces, simply to save costs. Employees have the option to work from home and that, basically, is the end of the story."
Kristien Van den Bon, Business Development Manager for the Government at SD Worx, believes working from home must be actively endorsed at the executive level:
"Executive managers must take the initiative, otherwise it remains largely a theoretical exercise. The FPS Social Security organisation was a pioneer in teleworking. At the time, manager Frank Van Massenhove put a lot of effort into getting this off the ground. This type of project can only succeed if it is headed by a charismatic leader who personifies the change and takes responsibility for the process. Cost-cutting alone is not sufficient as a prerequisite for change; you have to believe in it. Without top-down support, teleworking is doomed to fail.
Incidentally, the "New World of Work" involves much more than teleworking. It is also about flexibility in terms of working hours and place of work, whether that is at home, at a satellite branch or elsewhere. Virtual teams, organising work in autonomous teams, target management, etc. are also aspects of this new way of working. These all have a positive effect on employee engagement – not insignificant when you consider we will all have to work for longer."
False sense of control
Many employers are hesitant about introducing teleworking for fear of losing control. Jan Laurijssen dispenses with that assumption:
"Let's be honest: you are giving up a false sense of control. Take for example a conventional office with employees working at their computers. Bosses see that their employees are working, or at least they think they are. How do you know those people are really being productive? In fact, it's been shown that teleworkers respond very quickly to e-mails from line management. They are keen to prove they are hard at work. Consequently, people work more efficiently at home than at work. The boss thinks he's no longer in control, but rest assured: people are quite capable of self-management."
Chocolate and meat
Is co-sourcing the next big thing in HR? It could well be, even though it is a big leap and people have major concerns. In essence, co-sourcing is relatively simple: two or more companies form a pool of shared employees they can exchange. In Brussels, for example, a chocolate maker and a meat-processing company recently joined forces. The two companies had different seasonal peaks. To avoid having to recruit and dismiss employees, they created a joint organisation. The shared employees were on the payroll of these employers' organisation and alternated between making chocolates and meat products.
According to Jan Laurijssen, co-sourcing is also suitable for knowledge jobs:
"It seems perfectly feasible for different SME's to share the same financial professional – why not? Many small companies cannot afford to hire a high-profile expert, but together they can. Incidentally, it doesn't always have to be about cost efficiency. Co-sourcing is also a means to keep employees in employment for longer. Older employees can start to feel burnt out at the end of their career. It is not always a good idea to want to retain them. You could arrange for them to work in a non-profit organisation on a part-time basis, at your cost. This is not as disadvantageous as it sounds. It can give your employees a new sense of enthusiasm."
End of fast-lane career path?
Kristien Van Den Bon expects co-sourcing to gain in importance:
"This is just the beginning. Take it from me: the more publicity these initiatives receive in the media, the more employees will demand them. Organisations will be forced to do something about this. The great thing about co-sourcing is that it's not an earning model like outplacement or secondment. Employees switch jobs so that they can develop and get a second wind. It's an opportunity. Co-sourcing allows us to end the fast-lane career path of working harder and harder."
Title Block Good To Know
How to retain employees in the new economy?
Increasingly, employers are having to learn how to take the individual wishes of their eclectic workforce into account. This requires customisation. But how easy is it to manage this flexibility in practice?
Time for a remarkable statistic. The average Belgian worker only changes employer three times in their career. This means Belgians have one of the lowest employment mobility rates in Europe. In fact, 30% of Belgians over the age of fifty have never changed jobs. If you think young workers are more mobile, you will be surprised. Research conducted by VUB sociologist Mark Elchardus has shown that young employees are not the job hoppers people often consider them to be. Young people are happy to work for the same company for ten or twenty years. However, they must be given incentives, much more so than the baby boomers. No simple matter…
A competitive salary and attractive employee benefits are no longer sufficient, says Ester Van Eupen of Accenture:
"Companies must have a good image, state-of-the-art technology and interesting career paths to offer their employees. It's all about culture, opportunities, work-life balance, an attractive physical work environment and belonging. These perks strongly influence productivity and staff retention."
According to her, young people want first and foremost to be challenged:
"Simply carrying out a job is not enough for them. Young people seek meaning and personal development. Companies must therefore profile themselves as an attractive employer that can respond flexibly to its employee's needs. This is the only way to retain employees, because the widely held belief that young people do not commit long-term, is simply incorrect."
The call for a highly individual approach did not appear out of the blue. When seeking a job, young people behave like consumers. This is not surprising, as today's customers have become used to customisation. Every product or service can be customised, and this tendency can also be seen in the workplace. Male or female, young or old, Belgian or non-Belgian – different employees have different concerns, cultural standards and core values. Customisation is increasingly becoming the norm.
Employers must therefore provide variation, for instance by making internal mobility easier. Leen van Damme, remuneration expert at SD Worx, believes this makes sense.
"People don't always want or have to climb up the corporate ladder. First and foremost, they are interested in developing a broad range of skills. Good internal mobility is always a win-win situation. Employees are given the opportunity to grow and change. Employers also benefit from this, because your employees stay motivated and are more versatile."
One size does not fit all
Whether your work is interesting and varied or not – at some point it is about the money. Leen Van Damme is in favour of flexible remuneration, an issue many companies are struggling with:
"In most sectors salary scales are still all about age and seniority. Each employee in the same category is entitled to the same benefits. But today, "one size fits all" no longer cuts it. People want individual choices, and flexible remuneration gives employees this option. Compare it with a store where employees can shop around. Employees are allocated a budget for fringe benefits. They can use this for extra leave days, for example, or more cash, a smaller company car and a bicycle, or a larger car, etc. They may choose once a year, and employers can modify the fringe benefits they offer."
Flexible remuneration offers many advantages. It increases staff satisfaction and retention. Employees considering moving to another company always compare the pros and cons. They will think carefully before giving up the perks of their job. Offering them something they won't find elsewhere increases their loyalty. Koen Dewettinck of Vlerick Business School warns about the potential pitfalls:
"Companies must be able to keep the administration processes manageable. I don't think it's advisable to give people too many choices, as this makes them indecisive. Develop a few prefab packages from which people can choose. Remember that becoming more flexible requires more work, and that HR departments are increasingly expected to be more efficient."
HR trends for the 21st century
You don't need us to tell you that the HR landscape is undergoing major changes. But how do you get the most out of all the new ideas and innovations in HR? What threats should you watch out for? Four experts share their predictions.
Isabel De Clercq, trend catcher at Kluwer Opleidingen
Encourage knowledge sharing
"Companies should encourage their employees to share their knowledge. Thanks to social technology, there is a wealth of knowledge available online: presentations, blogs, whitepapers, social media posts, etc.
According to the McKinsey research agency, companies that encourage their employees to use social technology see productivity gains of up to 25%. But this does require them to leave behind the traditional culture of control and hierarchy. They must also acknowledge that those mechanisms are no longer an adequate model for responding rapidly to the fast-changing environment we work in today.
Herein lies an important role for HR, for it is they that can help organisations make that cultural shift. Knowledge sharing will only work in an open culture based on trust. To coach employees and allow them to develop new digital skills, it is important that management and HR take the necessary steps to raise awareness, to offer training courses and to lead by example."
Ester Van Eupen, Accenture
Experiment with new ways of working like crowdsourcing and copro-working
"Today's companies have to innovate. Inflexible working methods and practices are out of the question. Copro-working involves people working together in a physical space on improving existing processes or testing new initiatives. This allows companies to collaborate with start-ups, for example. The advantage is that, as a large organisation, you have access to innovation. This new way of working is particularly useful for companies that are familiar with a project-based approach.
It is also useful if you have clear structures and job descriptions. Another potential solution is Crowdsourcing, where different employees work together on a project. The idea is that you can give shape to ideas more quickly, across all departments in the organisation."
Sven De Cremer, Managing Consultant at SD Worx
Create self-directed teams
"People like to organise their own work. We see that managers like to keep a tight grip on the reins and determine the schedules themselves. However, the more you control people, the less inclined they are to seek solutions themselves. People are perfectly capable of pulling their own weight in the workplace. By creating self-directed teams you can make people responsible for their own work.
Volvo was the first company to introduce this concept. The car manufacturer's assembly line workers were allowed to organise their own work. Before, an engineer used to do this for them. The results were astounding – people organised their work according to their talents. This boosted their motivation and increased efficiency: the number of sick days went down dramatically.
Can this be done in every sector? Why not? We have software that allows people to enter their preferred tasks and number of hours. Obviously a few things will still have to be modified and coordinated afterwards. After all, self-directed teams require a certain level of maturity. It requires a certain type of cooperation and communication between people. Once they have mastered this, however, you often see quality improving in leaps and bounds."
Koen Dewettinck, HR professor at Vlerick Business School
Look out for review sites
"In his book Reinventing Organizations, Frederic Laloux asserts that companies are forever shrinking. Consequently, managers have more time to redefine the organisation. This can be done relatively easily through a system of internal crowdsourcing.
In practice, this means creating workgroups and getting everyone on board. Whether it concerns a new HR system or marketing, everyone has a valuable contribution to make. The strength lies in the synergy between the different areas of expertise. Something altogether different are the review sites popping up everywhere.
A good example is Glassdoor, a site where employees and former employees can share their work experiences. They give these companies a rating, a bit like the sites on which you can rate hotels. Companies are well advised to look out for this phenomenon. It is something you have no control over."
Factoring: A success story
Factoring is on the rise: last year this market reached a total turnover of 61.2 billion euros, resulting in an impressive growth of as much as 10.5%. BNP Paribas Fortis' market share rose slightly from 38.4% to 38.6%.
Ignace De Keyser, Sales & Marketing Director at BNP Paribas Fortis Factor, explains the increasing success of factoring.
How is the Belgian factoring market developing? Do you see any marked trends?
‘The growth figures speak for themselves: factoring is clearly becoming more important. Factoring used to be more of a support mechanism, but today it is a mainstream solution easily competing with banking solutions. This obviously has to do with the liquidity crisis and the successive measures.
Factoring is not entirely comparable with a banking solution, of course. Factoring offers companies more than just flexible financing. The factoring range also includes credit management and hedging, although these services have receded into the background somewhat in recent years. Factoring owes much of its popularity to the financing aspect.
The lingering economic uncertainty, the search for new markets and the realisation that 'too big to fail' is really an illusion are forcing companies to protect their low margins. More and more entrepreneurs are adding this element to their factoring solution.
Credit management outsourcing is also on the rise again. Many larger companies had already professionalised this area, but are now outsourcing all non-core business as much as they can.
BNP Paribas Fortis Factor has always held this service close to its heart. Our customers can therefore rely on a specialised team that guarantees continuous follow-up both here and abroad.’
What are the reasons for this change of attitude?
‘There are two main reasons for it. First and foremost, our services and operating methods have changed radically in the last few years. That is largely due to the development of new communication technology. Some years ago, all communication was still by mail or fax, bills had to be processed and entered in the system manually, and reporting was also done manually. In brief, it was a time-consuming process with more potential for mistakes.
Nowadays the vast majority of our customers transfer all their data electronically, directly from their accounting program. As a result, the entire process – from the customer drawing up bills to receipt of the funds – takes two days at most, depending on the quality of the file sent to us. And there is much less risk of mistakes. Thanks to these innovations, factoring is now much quicker and more straightforward than before, which has also meant a reduction in the cost for our customers.
Secondly, there has been a major change in the target group and the use of factoring. In the past, banks suggested factoring to customers that had become too risky to finance using conventional loans. In other words, it was a last-ditch form of short-term funding that provided the bank with much greater protection in the event of the customer going bankrupt. Consequently, some companies were more or less forced to use factoring and were not overly pleased with it. Add to that the administrative switch and it's easy to see why factoring got a bad reputation. The most oft quoted argument against factoring was fear of what customers would think.
The turnaround came some years ago with the introduction of the new Basel II standards, whereby banks were required to maintain a capital buffer to cover their risky activities. The buffer for factoring was significantly lower than for conventional loans, making factoring a more attractive option for banks. As a result, they started to offer factoring to customers with a good credit rating, who in turn began to see its potential.
On the back of these two changes, an increasing number of companies are using factoring to boost their working capital, and for a longer period. Twenty years ago a customer would be with us for an average of two to three years, but that has since doubled.’
Will Basel III intensify this trend?
‘There can be no two ways about it. Basel III has made banks subject to even stricter capital requirements, which can only make factoring a more attractive option. What is more, the new standards focus much more on liquidity. In this connection, the operational relationship between the bank and the customer plays an important role: if a company entrusts its cash flows to a bank, it can regard the risk of loss of liquidity as low and maintain a lower liquidity buffer. In this respect, too, factoring hits the mark.’
So what makes factoring such an attractive option for companies?
‘A financially sound company can benefit by outsourcing the administration of its accounts receivable to us. While we monitor the receivables, the customer can focus entirely on business. And in the vast majority of cases, we are able to collect amounts due 25% more quickly than the customer. Thanks to our experience – we know all of the most commonly used excuses – and reputation, we can encourage debtors to honour their payment terms. After all, no-one wants a financial partner to think that they are an unreliable payer.
More importantly still, factoring is a more flexible form of funding than conventional bank loans. That is because funding develops in line with turnover: if turnover increases, the company issues more invoices, and funding rises too. Factoring is therefore a very attractive option for developing companies.
The "off-balance-sheet" aspect of factoring is another deciding factor. This not only improves the company’s balance ratios, but also has a positive impact on the cost and availability of the company's other credit facilities.’
Is this typically a product used to cope with a crisis?
‘No, definitely not. Factoring is especially popular when economic conditions are volatile, which means periods of crisis and of growth. In such circumstances, it is essential for companies to be able to convert their receivables to cash quickly. This is less important when the economy is stable or less volatile.
That is why the factoring market expanded so considerably in 2009-10, when the financial and economic crisis was at its worst. Because debtors were taking longer to pay, many companies had to contend with cash-flow problems. Quicker collection of bills can go a long way towards reducing that pressure. That is particularly so if you combine quicker collection with a package that includes cover against the non-payment risk and debtor default.
However, factoring is also an attractive option when the economy is improving. If companies receive more orders and turnover increases, there can be cash-flow problems because their working capital need is higher. So factoring is a highly flexible means of funding the working capital requirement based on increasing receivables.
It is not therefore a product just for times of crisis; it can be beneficial for any company. And the best way to prove the effect of factoring is simply to try it out.’