Business Essentials: They've blazed a trail in burning to CD, but is outsourcing too hot to handle?

Meet the "stockless retailer" that's never out of stock. SoftWide is the first-ever chain of stores in the UK to license and manufacture a full software product, within minutes, to the same quality as the normal distributed version. Instead of just turning up to buy a ready-made package, customers can choose from a catalogue of some 2,000 titles, either in-store or online, and the product will then be licensed through a remote control centre and pressed on to a disc.

Under this system, the shops should never suffer from having either too much stock or too little, and shoppers should be satisfied. If they're planning a trip to Egypt, say, they can rest assured they will find software that informs them about the country's culture, history and tourist destinations.

Less original than the concept, though, is SoftWide's business dilemma. In a climate where outsourcing is becoming more and more common, the operation wonders if it should follow the trend. "We have five stores around London and we aim to launch more next year, eventually developing a chain across the UK and then abroad," says chief executive Daniel Doll-Steinberg. "We want to know if we should build up our existing store-support team or if we should outsource this function."

"First-line engineering" - which forms the nuts and bolts of everyday store support - is the main area under consideration. "That's when someone from one of our stores has an engineering problem that can be fixed relatively easily over the phone or with a site visit. These engineers would also cover installations. If we are launching, say, one or two stores a month, they would do the groundwork for getting set up," explains Mr Doll-Steinberg.

This would leave second-line engineering, where the problem is more serious, to staff members. "If a system fails completely, there is a need for more experienced people and we would always have these in-house."

The advantage of avoiding outsourcing and concentrating instead on the in-house engineering team is that they can be trained up to the required level, ensuring a decent service. "Having our own team also makes us a bigger workforce, which inevitably leads to a more exciting working environment."

The chief downside is cost. "In the long term, outsourcing is cheaper. It's also significant that we have peaks and troughs in our requirement for engineers - a problem which outsourcing could manage.

"For example, we need a high level of support during November and December, particularly the latter month, which accounts for 25 per cent of sales. At the moment, that's a time when our store-support team is really stretched. There are also quiet and busy times when it comes to opening stores, with October to February being particularly quiet."

Further pushing Mr Doll-Steinberg towards outsourcing is the risk of a high turnover among engineering staff. "People in our organisation want to prove themselves, so after doing support for a few years, they often want to do something different and they move on."

If Softwide does opt to outsource, Mr Doll-Steinberg wants to know if he should do so with a national organisation or with firms local to each store.

www.softwide.com

WHAT THE EXPERTS SAY

Martyn Hart, chairman, the National Outsourcing Association

"Mr Doll-Steinberg should strongly consider outsourcing first-line support with a national company. That's not just because of the cost advantages, but because an outsourcer can provide cover wherever the outlets are, support peaks and troughs, and offer staff the career development prospects that the firm can't.

"An additional benefit is that SoftWide can plug into the outsourcer's expertise straight away, guaranteeing experienced staff and a much cheaper option than developing its own workforce.

"The success of the deal will be in the service level agreements (SLAs) negotiated, but since development and manufacturing of the SoftWide system have mainly been outsourced to specialist firms, the company should be able to handle this.

"SoftWide should also select an outsourcing provider with care. Many have sector-specific expertise, so to opt for a partner with retail experience would be valuable. They will be aware of the technical challenges that are peculiar to the retail market.

"If this first level works well, then Mr Doll-Steinberg might consider including second-level cover as well."

Tom Newton, business director, Capgemini (consultants)

"In any outsourcing arrangement, it is critical to understand the business drivers and how outsourcing can be used to allow for future developments.

"These days, the benefits case is rarely purely cost based. For SoftWide, outsourcing could enable the pursuit of aggressive growth aspirations by providing a flexible resource pool delivering against agreed service levels.

"As outsourcing service providers already have a call centre infrastructure in place, the costs associated with support for store expansion would be lower.

"Looking at like-for-like service, SoftWide would be able to maintain or improve on its existing first-line engineering support at reduced cost through outsourcing. Additionally, it could build commercial flexibility into the contract around call volumes.

"As SoftWide's business needs change, its outsourcing supplier should have the capability to adapt the scope of the original outsourcing contract. Changes downstream could include second-line support or the outsourcing of other non-core functions, such as IT or business process outsourcing."

David Coats, associate director, policy, The Work Foundation (research and management consultants)

"This decision should be driven by quality as well as cost. SoftWide must be confident that outsourcing first-line engineering will deliver the same or a higher standard of service.

"Equally, it needs to be certain that relationships between the outsourced engineers and the in-house ones will work well. While it may be cheaper, apparently, to outsource to several providers, this could increase transaction costs and mean that the quality of service is variable.

"It is better for SoftWide to sign a contract with one company and develop an effective partnership with that organisation. In the short term this approach may be more expensive, but in the long run it will deliver better value for money.

"SoftWide also needs to take account of its obligations to those staff affected by the outsourcing. The company must bear in mind that the Transfer of Undertakings Regulations [EU rules safeguarding the rights of workers] might apply and its first-line engineers would have their employment transferred to the contractor."