Understanding the impact of contracted out services in change management

Defining contracted out services in the context of change management

What does it mean to contract out services during change?

In the context of change management, contracted out services refer to the practice where an organisation hires an external provider or third party to deliver specific services or functions. This can range from IT support, payroll working, managed service solutions, to fully contracted business processes. The provider will typically operate under a contract or statement of work, outlining the scope, rules, and expectations for the service fully delivered. Both public sector and private sector organisations use this approach to access specialised expertise, manage costs, or respond to evolving business needs.

Types of contracted services and their role in change

Contracted services can take various forms. Some involve the supply of workers for a set period, while others are about outsourcing entire functions to a service organisation. For example, a company might engage a contract service provider to handle payroll, ensuring compliance with employment status and working rules. In other cases, a managed service provider may oversee IT infrastructure, allowing the client to focus on core business activities. The reality is that contracting can be highly flexible, adapting to the unique requirements of each organisation and the specific change initiative.

Key elements of contracting in change management

• Service provider relationship: The client and provider must establish clear communication and shared objectives.
• Contract and statement of work: These documents define the responsibilities, deliverables, and working arrangements.
• Workers supplied: Contractors or workers may be integrated into existing teams or operate independently, depending on the contract.
• Compliance with working rules: Both parties must adhere to legal and regulatory requirements, especially regarding employment status and payroll working.

Understanding the structure and implications of contracted out services is essential for effective change management. It helps organisations anticipate challenges, such as integrating external workers or managing service provider expectations. For a deeper look at how risk-based internal audit supports effective change management when using contracted services, you can explore this resource on risk-based internal audit.

Why organizations turn to contracted out services during change

Drivers Behind Contracting Out Services During Change

When an organisation faces significant change, such as restructuring, digital transformation, or scaling operations, the decision to use contracted services is often strategic. Contracting with a service provider allows a company to access specialised skills and resources that may not exist internally. For example, a business might need IT experts for a new payroll system or a managed service to oversee a temporary project. This approach can be especially valuable in both the public sector and private sector, where the pace and complexity of change can outstrip internal capacity.

• Flexibility: Contracted services give organisations the ability to scale their workforce up or down quickly, without the long-term commitment of hiring permanent workers. This is particularly useful for projects with a clear end date or for meeting sudden spikes in demand.
• Expertise: Service providers often bring niche knowledge and experience, such as understanding payroll working rules, employment status regulations, or managing statement of work contracts. This expertise can help ensure compliance and reduce risk during transitions.
• Cost Management: Using a contract service can help control costs by converting fixed payroll expenses into variable costs. Companies can pay only for the services fully delivered, rather than maintaining a larger permanent staff.
• Focus on Core Business: By contracting out non-core functions, organisations can focus their internal resources on strategic priorities, leaving specialised providers to handle areas like IT, HR, or facilities management.

However, the reality of integrating contracted workers or a third party into existing teams is not without challenges. The employment status of workers supplied by a provider, the clarity of the contract, and the alignment of working rules all play a role in the success of the change initiative. For those seeking practical guidance on ensuring compliance during these transitions, our article on building an effective HR compliance checklist for successful change management provides actionable insights.

Ultimately, organisations turn to contracted services to gain agility, expertise, and cost efficiency. But to realise these benefits, careful planning and clear communication between the client and the provider service are essential. The next section will explore the integration challenges that can arise when bringing in external providers.

Challenges of integrating contracted out services into existing teams

Bridging Gaps Between Internal Teams and External Providers

When an organisation decides to bring in a contracted service provider, the integration process can be complex. The reality is that internal workers and external contractors often operate under different working rules, employment status, and expectations. This can create friction, especially if the service is fully managed by a third party or if the contract service involves workers supplied by an agency.

For example, in both the public sector and private sector, a company may contract out payroll working or IT support to a managed service provider. The client organisation must ensure that the contracted service aligns with its business goals and culture. However, differences in communication styles, reporting structures, and even the statement of work can lead to misunderstandings.

• Clarity of roles: Internal staff may feel uncertain about their responsibilities versus those of the contractors. This is especially true when service providers are brought in for specialised tasks.
• Trust and collaboration: Building trust between internal teams and external providers is essential. Without it, collaboration can suffer, impacting the overall success of the change initiative.
• Compliance and rules: Contracted services must adhere to the organisation's working rules and regulatory requirements. This is particularly important in sectors with strict compliance needs, such as healthcare or finance.

Another challenge is the perception of job security among internal workers. When a service is fully contracted out, employees may worry about their future roles or even their employment status. This can lead to resistance or disengagement, making it harder for the organisation to achieve its change objectives.

To address these challenges, organisations need clear communication, defined processes, and a shared understanding of goals. For more insights on how digital transformation is affecting service integration, especially in regulated industries, you can read about how digital transformation is reshaping the pharmaceutical industry.

Managing resistance to change when services are contracted out

Understanding Employee Concerns and Resistance

When a company brings in contracted services or a third party provider, it often triggers uncertainty among existing workers. Employees may worry about their employment status, changes to payroll working rules, or even the possibility of job loss. In both the public sector and private sector, these concerns can lead to resistance, especially if workers feel their roles are being replaced by contractors or a managed service.

Common Sources of Resistance

• Job Security: Workers supplied by a contracted service may be seen as a threat to permanent staff, raising fears about layoffs or changes in contract terms.
• Changes in Work Processes: The introduction of a service provider can alter established workflows, requiring employees to adapt to new rules or systems.
• Loss of Control: Teams may feel they have less influence over how work is done when a service organisation or provider service takes over certain functions.
• Unclear Communication: If the organisation does not clearly explain the reasons for contracting or the reality of the new working arrangements, misunderstandings and rumors can spread.

Addressing Resistance Effectively

To manage resistance, organisations need to be proactive and transparent. Here are some practical approaches:

• Clear Communication: Explain why the business is contracting out services and how it will impact current workers. Outline the statement of work and clarify the role of the service provider.
• Involve Employees: Engage staff in discussions about the transition. This helps them feel valued and reduces anxiety about the contract service arrangement.
• Clarify Employment Status: Make sure everyone understands whether they are fully contracted, on payroll, or part of a managed service. This is especially important in sectors where employment status affects benefits and job security.
• Provide Support: Offer training or resources to help employees adapt to new working rules or systems introduced by the provider.

Examples from Practice

For example, in a service fully managed by an external provider, the client company should ensure that both internal teams and contractors are aware of their responsibilities. This helps prevent confusion and builds trust between the organisation and the contracted workers. In the private sector, companies often use a contract service to handle payroll or IT support, but success depends on how well the transition is managed and how the workers supplied by the provider are integrated.

Key strategies for successful collaboration with external providers

Building Productive Relationships with External Providers

When organisations engage contracted services, the relationship between the client and the provider is crucial for success. A clear understanding of the contract, service expectations, and working rules helps both sides align their efforts. For example, in the public sector, managed service agreements often specify how workers supplied by a third party should integrate with the existing team, ensuring compliance with employment status regulations and payroll working requirements.

• Define roles and responsibilities: Both the client and the service provider should agree on a statement of work that outlines deliverables, timelines, and performance metrics. This clarity helps avoid confusion and sets the foundation for accountability.
• Establish communication channels: Regular meetings and transparent updates foster trust and allow for quick resolution of issues. Whether the service is fully contracted or a hybrid model, open dialogue ensures everyone is working towards the same business goals.
• Respect organisational culture: Contracted workers may bring different approaches, especially if they come from a private sector background. Encouraging mutual respect and understanding of the company’s values helps bridge gaps and supports smoother integration.
• Monitor compliance and working rules: Both the client and the provider must adhere to legal and regulatory requirements, such as payroll working rules and employment status checks. This is especially important in sectors where the reality of contracting can impact tax and legal obligations.
• Encourage feedback and adaptability: Service providers and organisations should regularly review the effectiveness of their collaboration. Adjustments to the contract or working arrangements may be needed as the business evolves or as new challenges arise.

Fostering a Collaborative Environment

A successful partnership with a contracted service provider relies on more than just a well-written contract. It requires ongoing effort to build trust and encourage collaboration. For instance, when a company brings in a third party for a specific project, integrating their workers into the existing team can be challenging. Providing clear onboarding, sharing relevant business information, and involving them in team discussions can help make the service fully effective. In both the public and private sector, the provider will often have their own processes and standards. Aligning these with the client’s expectations ensures the contracted service delivers value. Ultimately, the goal is to create a seamless experience where all workers, whether employed directly or through a contract service, contribute to the organisation’s change objectives.

Measuring the impact of contracted out services on change outcomes

Evaluating the Real Effects of Contracted Services

Measuring the impact of contracted out services in change management is not just about tracking costs or timelines. It’s about understanding how these services influence the overall business outcomes, team dynamics, and the ability of the organisation to adapt to change. Both public sector and private sector organisations need to assess if the service provider delivers value beyond the contract statement of work.

Key Metrics to Track

• Service delivery quality: Is the contracted service meeting the agreed standards? Regular feedback from the client and internal teams helps gauge this.
• Integration with existing teams: Are the workers supplied by the provider working well with in-house staff? Look for collaboration and communication effectiveness.
• Cost efficiency: Has the fully contracted service resulted in savings or just shifted costs? Compare payroll working and administrative expenses before and after contracting.
• Compliance with working rules: Especially in the public sector, check if the provider service follows employment status regulations and managed service requirements.
• Change adoption rates: Are employees and contractors adapting to new processes? Resistance or confusion may signal issues with how the contract service was introduced.

Methods for Assessment

Organisations often use a mix of quantitative and qualitative approaches. For example, surveys can capture staff perceptions of the contracted service, while performance dashboards track KPIs like project milestones, error rates, or customer satisfaction. In some cases, a third party may audit the service fully to provide an unbiased view of the provider’s impact.

Challenges in Attribution

It’s important to recognize the reality that results may not be solely due to the contracted provider. Other factors, such as changes in business strategy or shifts in the market, can influence outcomes. Clear documentation of the contract, including the statement of work and expectations for the service organisation, helps clarify what the provider will be held accountable for.

Continuous Improvement

Finally, measuring impact is not a one-time event. Organisations should regularly review how contracted services are performing and adjust the contract or working arrangements as needed. This approach ensures that the business continues to benefit from the partnership, and that both the client and the service provider remain aligned on goals and working rules.