Outsourcing: Learning from the masters

Posted on April 18, 2005 
Filed Under Julian, The Edge

By Lim Beng Choon

Owning and managing teams in the English Premier League can be likened to running a high-performance business.

A few decades ago, managers would scour the land for homegrown talent, groom and bring them into the first team. Today, managers buy the talent globally, inject them to transform the team, and expect players to perform at their highest level in every game.

As in football, businesses these days are in a highly competitive environment. They require management and team players that are focused, have multifarious skills, demand the best from each other, and have a world view of their industry.

A key imperative to stay in the game of global business today is that of outsourcing.  Many first-time outsourcers, however, adopt the shallow view that outsourcing is all about cutting costs and relegate it merely for low value external services.

In reality, outsourcing has taken on a larger role in ensuring any company’s long-term survival. Increasingly, companies across the world are outsourcing more critical functions such as information technology, corporate learning and even customer relationship management (CRM).

Experienced outsourcers know that outsourcing, when implemented with best practices in place, can provide significant value to their bottom-line.

For first-timers, however, the tough questions need to be asked. Here’s a snapshot of those we have encountered:

How does a company answer all these questions and get the most from an outsourcing arrangement without going through a painful process of trial and error?

One good way is to borrow best practices from the masters. The most experienced outsourcers have already refined techniques for high-performance outsourcing that “newbies” can learn from.

In a survey conducted by the  Economist Intelligence Unit,  the views of 565 executives working in companies around the world in the automotive, transportation and travel services, retail, consumer goods and services, industrial equipment, and health and life sciences industries, were collated and analysed.

Five “best practices” emerged from these veteran outsourcers:

1. Focus on outcomes, not just service
While savings are a significant driver of outsourcing, experienced outsourcers use broad-based business outcomes as a performance measure (see Chart 1)

Take CRM. Many companies want good customer intelligence and are reluctant to give up customer-facing activities, painful as it may be. Today’s technology allows an organisation to outsource and gain better information and insights without having to directly manage the area themselves.

In the case of learning, BP’s eLearning efforts saw substantial benefits in the form of reduced cost of training delivery and productivity gains. More importantly, the use of eLearning as a delivery channel reduced the time to competence of employees in critical business initiatives by 30 to 50 percent.

2. Ensure provider is experienced and versatile
Look for an outsourcing provider that has a track record for delivering results and can bring a wide set of capabilities and strengths from varied industries to the table.

3. Measure performance as you go
Performances and relationships matter. Give as much attention to performance measurement and the quality of your relationship with your provider as you did when the contract was signed. Use active governance and periodic review sessions to manage the relationship for maximum performance.

4. Set targets and only pay on delivery
Outsourcing can sometimes start with a bang and quickly fade out with a whimper. Contracts may need to be renegotiated as unexpected changes can happen. Use risk/reward provisions as incentives for the outsourcing provider to deliver on time, all the time.

5. Assign dedicated staff to project
Sometimes, after the contract is signed, companies make the mistake of putting inexperienced managers in charge of the roll out. Longtime outsourcers always ensure that the outsourcing arrangement is overseen by a talented executive who can make quick adjustments when required.

Getting started
For many companies, already decided on outsourcing, the most challenging questions at first are the most basic ones: Where do we begin? Does a company start with its accounting function, training programs, human resources, or the call centers in its customer relationship management area?

Participants in our executive forums favoured starting with generic, transaction-based and commodity-like business processes such as finance and accounting and information technology, which offer quick wins and attractive returns on relatively low levels of risk.

One of the first salient finding from the survey was obvious. The longer a company engages in outsourcing, the better it becomes at it. That stands to reason.

The second finding, however, was more surprising: The rewards from outsourcing are not front-loaded in “Year One” cost savings - only to decline over time. Instead, experienced outsourcers were unanimous that their companies performed better, with continuous savings over the long term. (see Chart 2)

As one experienced outsourcer at a global consumer goods manufacturer expressed it, “When I tell my superiors that our benchmarks showed that we are in the top 20 percent in our industry, they just tell me, ‘Good job, now take your benchmarks and go back to your desk and do better next year.’”

Inevitably, companies are driven to look beyond cost toward deeper process improvements and business transformation.

In returning to our football analogy, we see that the top teams in the league outperform their rivals every year, not just this season.

That measure of success suggests that consistency arises from persistence and dedication to the craft. Being on top and staying on top of the game can only guarantee the highest performers, just as the best outsourcers, win silverware year after year.

Lim Beng Choon is the country managing director of Accenture Malaysia.

(Editorial services by Trinetizen Media for Accenture)

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