Market vs. Current? Employee Value Goes Beyond Market Rates

I recently met with a firm that was about a year into a major outsourcing project. The firm’s point person let me know that, overall, things were going okay for the firm, but there were a few trouble areas. It turns out their implementation was extremely rough as the firm did not retain any in-house people when they outsourced the operation.

Why rough? Their consultant had informed them that all their current employees were above market rate and had advised to offer the current staff lower, but more competitive, rates for their positions.  It should come as no surprise that not a single employee accepted the competitive offers.  The outsourcing vendor had an entire new crew on opening day–and the firm suffered.

Transition is hard enough with current employees on board to lead and be the transmitters of institutional knowledge. Try to imagine a situation will all new staff, and the commentary about the ‘extremely rough’ transition are not surprising.

Who is to blame here? The consultant.  Here are at least two reasons:

1. The consultants’ advice only took the bottom line into account, not the short or long-term success of the outsourcing contract. Saving money is always important, but the value of the institutional knowledge and training of current employees must also be weighed.
2. The consultant overlooked structuring the request for proposal correctly to make sure the key employees’ salaries were covered.

This consultant was being paid based on a percentage of savings—and so is just one example of why the percentage of savings model doesn’t work in the clients’ favor when labor is involved. This situation ends up giving all consultants a black eye–and leaves the client to clean up the mess.