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THE HOYOS FILE: LIME unveils road map to outsourcing

THE HOYOS FILE: LIME unveils road map to outsourcing

By Pat Hoyos | Fri, January 18, 2013 - 12:00 AM

Since I never went to business school, I had to go online to find out what “managed services” means. It means outsourcing. It means that instead of having your own monthly-paid employees, you contract out the work to people who are not, or are no longer, directly employed by you. It happens a lot, and is nothing new.

I remember many years ago interviewing an entrepreneur who had built up a warehouse-type furniture store in Denver through the use of late night TV ads, in which he appeared with tigers.

His name is Jake Jabs, and back when I interviewed him in 1984 he was just building his American Furniture Warehouse.

I think at that time he still had just one store, but today he has a dozen and his “empire” has gross revenues of well over US$300 million a year, all earned in the state of Colorado.

Jake Jabs never used the terms “managed services” or “outsourcing” when he spoke with me, although he had a college degree and remains one of the brightest people I have ever met.

He told me simply that he had sold the company’s delivery fleet of trucks to its drivers, setting them up as independent contractors. The result was that they had more pride in their work, the trucks were maintained better, and several former employees had new business enterprises of their own.

I must confess that, when I was at the Advocate a few years later, this story inspired me to do the same with our delivery fleet. The results were the same.

By the time you read this in the BARBADOS BUSINESS AUTHORITY, we will all know what I didn’t at the time of writing: whether this little island of ours, under so much financial pressure from seemingly every quarter, will have undergone a nationwide strike on top of it all.

The reason? The effort by Cable & Wireless, trading as LIME, to do a similar thing with their retail outlets.

Over the past week this fairly routine matter jumped out of the negotiating room and onto the streets, hitting the headlines and causing more jitters to an already worried public about the country’s economic stability.

In this particular case, it seems, if LIME’s published timeline in the SUNDAY SUN of January 6, is to be accepted (and I see no reason for it not to be), the Barbados Workers’ Union (BWU) had essentially agreed to the deal, but wanted a better separation package for each of the affected 97 employees.

LIME’s synopsis also suggested that while it was aware of the BWU's effort to get a better payout, the company felt its offer was within the collective agreement it had with the union and would therefore be its final position. That was on December 20.

However, LIME said that “unusually high absences” over the final two days of the year had “severely compromised” its ability to serve its customers, and it had to move forward.

It therefore went ahead and severed the employees under its own proposed settlement formula, leading to a short-term inability to provide the full retail service to the public.

Now, I have to say, whether public opinion eventually judges it to be right or wrong, this was a bold move. I believe company executives are employed to take their businesses forward.

So, of course, all the emotion and drama we have come to expect from threatened industrial action began to take centre stage. But why would LIME want to put its retail stores on a managed services basis? What are the benefits?

“Under a managed services model (outsourcing), the provider is committed to delivering an ‘outcome’ at a ‘defined’ price,” according to a paper put out in 2010 by the CGI Group Inc., an IT and business process service provider itself (not our local insurance company).

“The managed service model drives a measure of value based on planning, as the organisation must define the requirement on a service and performance criteria basis.”

Under this form of outsourcing, pricing is “tied to service levels and volumes where appropriate,” notes the paper, and “the provider assumes all of the risk of meeting the service commitment” at a fixed cost, and is therefore “highly incentivised to establish productivity measures” needed to achieve the goals to which it has committed itself.

Now, you would expect a company which provides such services to say this is the best way forward, but there is no doubt that whether you contract with a large outsourcing firm to handle your customer service needs all the way from India, or you outsource your retail shops to small entrepreneurs in your own market, the goal is the same: to stabilize the cost of an activity which is not your core business, but which you need in order to advance your core business.

This becomes more of a front-burner issue the more competition develops in a market, and LIME is clearly looking to keep at the sharp end in a business which is becoming more price-sensitive and margin-thin than what they have been accustomed to in the good old days, when it was the sole telecom here, mainly selling POTS (plain old telephone service), had a monopoly on selling all of the equipment you would need to make a phone call, and enjoyed fixed, artificially high, overseas calling rates.

Selling mobile phones, putting in SIM cards, covering them in plastic or leather cases, and then linking them to some form of telecom contract, is now a business more similar to the emerging Apple-like stores we see appearing on our retail landscape.

The core business of LIME is selling you contracts – to make calls, go online, watch TV and movies – for broadband services.

With the arrival of Karib Kable and the purchase of TeleBarbados by Flow, along with the ongoing intense competition from Digicel, and not to forget MCTV and DirecTV in the TV and movie-watching side of the business, LIME has its work cut out for it, especially as the Caribbean has historically been one of its most profitable areas of revenue growth.

That’s why, in my view, no matter how easy or hard this goes, LIME has laid out the roadmap, and there will be many more similar outsourcing arrangements to come, both in and out of the telecoms sector.

• Pat Hoyos is a long-standing journalist and publisher of the Broad Street Journal.

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