Outsourcing Solutions
Outsourcing and Off-shoring have been around for some time, but the market place is changing. Latest trends indicate a reduction in the number and value of Outsourcing deals and a move towards more Off-shoring.
More contracts are being signed, but with a reduced total deal value. There is also an increase in the number of suppliers fighting for the lucrative deals. The market is also seeing a reduction in outsourcing of core IT, but this is being offset by an increase in the outsourcing of Business Processes.
The potential problems with outsourcing can be all too real and very public, as seen recently with British Airways and Gate Gourmet. This particular situation illustrates the complexity of these arrangements and must have caused many an organisation to challenge the risk and appropriateness of their own outsourcing deals.
Why are organisations doing it?
Outsourcing occurs when a company transfers some of its processes, operations and risk to another company. Off-shoring is the relocation of the processes and operation to another, typically cheaper location, whilst maintaining the capability in-house. It would, however, be a mistake to think that such moves are done solely to reduce costs. Each organisation’s reasons for their chosen sourcing model will vary and will depend upon their attitude to risk. Typical drivers include:
- Improving service quality
- Increasing productivity
- Providing the best value
- Introducing cost efficiencies
- Establishing a flexible cost base
- Improving agility, flexibility and scalability
- Improving resilience and service continuity
- Accessing other external capabilities
- Speeding up integration of new businesses
- Optimising operational risk
Business processes that are outsourced tend to be referred to as ‘non-core’ activities, but in many cases the business cannot distinguish between its core and non-core activities and there is the danger that some vital control is being passed to a third party. A process that may seem non-core may actually be vital to the operation of a core process.
An experience-based approach
A number of organisations have been through their first cycle of outsourcing and are now re-evaluating their decisions. Others are considering their options for the first time and are fortunate enough to be able to learn from the ones that have gone before.
Leadent’s approach is based on a combination of our core Business Transformation approach and learnings from the early adopters.
The following are critical to successful outsourcing or off-shoring:
- BPO must start with the CEO’s vision for the organisation. Understand your own organisation and what is important to it. Be sure what risks you want to take and plan for the unexpected (and undesirable). Work hard at senior stakeholder endorsement and sponsorship of the plans
- Be clear what you want from new sourcing arrangements before deciding which outsource provider to go with
- The justification must be robust. Constantly test your goals and plans to ensure the solution is fit for purpose as your business evolves over the life of the transition. Keep senior stakeholders engaged not just at the time of the deal, but also during the implementation stages through to fruition
- Don’t be over ambitious – you probably have limited resources and typically limited stakeholder involvement
- Benchmark to understand what level of performance you should expect from the deal
- Don’t just assume what your ‘core‘ processes are - how dependent are your real core processes on something that you initially think of as ‘non-core’? Decide when it is appropriate to keep something as a core part of the business and when it is appropriate to externalise such a responsibility
- Transform (sort out!) your business before putting it into the hands of others or relocating it to another country – but don’t go too far. You should never outsource your problems, but we would recommend hitting a pragmatic balance between the costs of fully re-engineering your processes first versus just handing it over to an outsourcer. Make necessary changes but recognise that there will be more change after the deal is done
- Have an end-to-end view of the process – with careful integration across organisational boundaries and alignment of performance measures and Service Level Agreements
- In the long term off-shoring and outsourcing have the potential to save costs, but there is no point in saving costs if quality deteriorates and your brand suffers
- Manage the transition effectively - it is major change for the people involved. There are many new interfaces to be managed and there will be organisational and national cultural differences to overcome. Ensure a robust focus on change management activities to achieve successful movement of people to new roles/new environments
- There is no escaping the fact that suppliers bid low in order to win the work, but expect to make their money after the transaction has been done. They know the costs of switching supplier are high for the customer – both in monetary terms and organisational ‘pain’. To be effective the relationship must be ‘win-win’ - agree what success will look like for both sides. Both sides need to understand the needs of the other and both should be incentivised to work successfully together
- The business environment is always changing and it is important that BPO agreements are flexible enough to maintain alignment with the evolving business environment
Today, value is the driving factor for BPO. Leadent’s core business is Business Transformation and we understand how to achieve real results and value from major change. If you would like to discuss how your organisation can prepare for outsourcing or off-shoring then please contact us on 08707 664 884 or at info@leadent.com.