Outsourcing is an integral part of modern business and plays an essential role in gaining competitive advantage. It's also complex and difficult, with many organisations struggling to get it right.
Most organisations choose outsourcing as the most efficient way of transforming the delivery of key business processes, allowing them to concentrate on core business activities and become more agile in increasingly challenging markets. The myriad of expected benefits often paints an enticing picture that compels senior executives to endorse the associated business case.
However, realising the expected benefits can often be much more complex than anticipated. Unpredictable growth and change agendas, heightened competition, economic turmoil and a rapidly evolving market for technology and services all complicate the outsourcing landscape and make continued benefits realisation a real challenge.
Why then do many organisations persist with traditional, dated approaches to outsourcing procurement and management? Typically focused on the wrong things – superfluous technical details, compliant box ticking and confrontation, these approaches only exacerbate the challenges and create conflict from the outset.
Badly managed outsourcing is typified by both clients and service providers feeling trapped in dysfunctional, gloomy and lack lustre relationships that fail to deliver to either party's expectations. What begins as disappointment and disillusionment often gets worse - poor service, spiralling costs, heightened risk, embarrassing litigation, loss of shareholder value and damage to corporate and personal reputations are all too common.
Whilst the issues that result from badly managed outsourcing can often seem insurmountable, the root causes are often simple:
1. Failure to clarify vision, strategy and objectives
Organisations often fail to clearly define and communicate what they seek to achieve from outsourcing. RFP writing and documenting unnecessarily complex statements of work takes precedence over agreeing what success looks like and exploring the art of the possible. This lack of clarity leads to mismatched expectations and an unstable foundation that severely impacts the realisation of expected benefits, with both parties unclear about what they are trying to achieve.
2. Focusing on unnecessary detail rather than business outcomes
Clients and service providers rarely understand and define their shared business objectives yet rush to define a solution and negotiate a contract. Focus is all too often on documenting unnecessarily detailed requirements which result in solutions that fail to meet business user expectations and poorly structured contracts that are only used as a weapons in times of dispute.
3. Assuming benefits realisation is a passive activity
Even in the unlikely event of the vision and shared business objectives being clearly defined at the outset, there is rarely the necessary capability, tools and knowledge to manage the benefits realisation process. Monthly performance reviews, ineffectual 'boilerplate' governance and the veiled threat of punitive service credits are ineffective methods for ensuring benefits are fully realised.
Delivering savings by moving discrete functions to service providers who offer the 'same for less' by leveraging their global scale and capability is simply not enough. Modern businesses, as an absolute minimum, must efficiently deploy an optimal mix of internal and external skills to the best of their ability. In the broadest of terms, this means establishing strategic and mutually beneficial relationships with the right service providers. Getting the elementary steps right makes it possible for outsourcing to deliver its promise; enabling transformational business change and strategic business growth whilst delivering significant commercial benefits.
Forward thinking organisations differentiate themselves from the competition by adopting a modern and innovative approach to outsourcing. Whilst it is unrealistic to expect a short article such as this to provide all of the answers, there are some simple yet fundamental steps that organisations must take in order to derive maximum business value from outsourcing:
Test your vision by asking difficult questions
Ask yourself to what extent are the vision, strategy and objectives clear, unambiguous and integral to the business? How well established and understood are they? To what extent do they have clear, visible support? How well communicated are they to all key stakeholders?
Focus on business outcomes
Define and capture the business objectives thoroughly and ensure they are communicated clearly, concisely, early and often. Understand the opportunities, their feasibility and potential risks by encouraging timely, informed contributions from both service provider and legal communities. Incorporate the very best thinking from all parties.
Acknowledge that realising benefits requires effort
Be crystal clear about the vision, strategy and objectives and ensure the right skills, knowledge and experience are available and funded. Support the programme with a robust management and governance framework and clear, consistent measures that reflect business requirements. Assess performance in complex areas such as innovation and flexibility. Don't forget to regularly communicate successes (and failings) against the original goals.
To gain true competitive advantage, outsourcing cannot be viewed as separate from the business and simply a way to make marginal business improvements by offshoring low value-add tasks. Rather, it is an essential component of modern business that, when managed effectively, can create exceptional business value and provide numerous opportunities to propel organisations ahead of their competitors.
About the author:
Phil Bishop founding partner at This Partners a consultancy that specialises in sourcing advisory services.