September 01, 2007
Once pursued mainly to reduce costs, outsourcing is becoming a path to differentiation and value creation.
With the Internet allowing work to be done from anywhere, companies are taking advantage of price differentials, regional centres of excellence and multisite backup operations as they never have before. These developments have helped accelerate the interest in outsourcing in recent years.
Canadian companies, among others, are reaping the benefits. Collaborative outsourcing--a more sophisticated type of deal than the traditional service-focused infrastructural project--is emerging as a next step, as objectives other than cost reduction become increasingly important.
There are four broad shifts happening: (a) organizations are looking for outsourcing to provide additional capacity and skills; (b) organizations are looking for outsourcing to provide additional value (for example, handing off the business can help to reassure companies that they are compliant with regulatory standards; and divesting non-core tasks such as payroll enables a company to concentrate on growing the business through sales, while developing a longer-term vision for growth); (c) organizations are beginning to recognize the importance of partnership, rather than solely technical competencies; and (d) organizations are beginning to manage the outcourcing process as a large-scale transformation initiative that goes directly to the heart of the business, rather than as a tactical service contract with limited risks and benefits.
There are various requirements for a successful and effective outsourcing relationship. A state-of-the-art infrastructure, 24/7 operation, subject matter expertise, electronic delivery and knowledge-based management all drive efficiency into the relationship. But with providers and customers negotiating contracts that are sensitive to their business, advisers also need to be involved at every stage of the process.
The continuity of the deal team after signing is also important, says Daniel Logan. The team negotiating an outsourcing deal will be immersed in that task for some months. “We’ve seen scenarios where that deal team then goes away during the transition, and a set of new people come in who weren’t part of the process. The objectives and benefits that had been secured by the original deal team are often forgotten or unwound by the new team. The continued involvement of the champions of the deal can be critical to success.”