1. OUTSOURCING for you? can it work
Can you really gain the benefits?
Outsourcing can reap great benefits, allowing organisations to focus on strategic priorities, support growth and improve margin, performance and customer satisfaction. However, it is also a strategic undertaking fraught with risk.
3 WAYS TO ASSESS WHETHER OUTSOURCING CAN DELIVER BENEFIT FOR YOUR BUSINESS
Which parts of our business are at the right scale and outsource ready? So you select those with the greatest benefit and most likely to succeed
What do we have the capability and capacity to deliver? So you pick those you have the leadership, transformational management and operational management capability to transform successfully.
What are our core strategic competencies? So you understand what might be strategically appropriate to outsource
Be clear on your core strategic competencies
Outsourcing allows owners, managers and employees to focus on activities that are core to their business, driving customer value and competitive advantage. A strategic review of your organisational expertise and the value that expertise delivers to your business allows you to identify both the candidate areas for outsourcing and the outcome you should be looking for from the outsource.
HOW TO DECIDE WHAT YOU SHOULD OUTSOURCE
Outsource with care (core to your business) Outsource with care (core to your business)
Core competency retain and invest Core competency retain and invest
Outsource only if financial benefits can be delivered Outsource only if financial benefits can be deliv red
Primary outsourcing candidate Primary outsourcing candidate
Your Expertise Your Expertise
Naturally, back office and support functions have been a primary target for outsourcing, as outsourcers have developed the capability to deliver high service at lower cost than many organisations can achieve. Also, with the proliferation of online channels and “service me now” customers, contact. Other elements of the core value chain are also prime candidates where an outsourcer can provide scale across many businesses, especially of a niche aspect of the value chain – e.g. Goods Not For Resale – are beginning to emerge. more organisations are outsourcing front office transactional customer
At the heart of any decision making should be your ability to deliver benefits from the outsource. Usually, organisations outsource because it provides improved opportunities for GROWTH , INCREASED EFFICIENCY AND EFFECTIVENESS and an IMPROVED cost base. However there can also be other reasons more specific to an organisation’s circumstances: 1. Free-up capital for investment 2. Rapid quality improvement and knowledge acquisition 3. Improve customer satisfaction and accountability 4. Rapid, platform-based growth
In our experience, we find there is a strong precedent for outsourcing many portions of any business.
Are you ready to outsource? You must be realistic about the state of the business and scale of benefit available from outsourcing.
The simplicity of handing off a portion of your business for someone else to run at a competitive cost base and increased service levels is appealing. It is tempting, under pressure to improve business performance, to try to make an under performing business function someone else’s problem - outsource a “mess”, hoping that someone else can fix it, or outsource under the seduction from a supplier that “everyone else is doing it, so should you”. In reality, delivering an outsourcing programme is
lengthy, time consuming and risky. You need to be certain that the scale of likely benefit is worth the time, effort and risk you will take. The most effective transformational outsourcing partnerships often cover multiple functions/service lines where the management overhead (for both client and outsourcer) is leveraged effectively. Any outsourcing relationship requires investment in management and oversight on both client and outsourcer sides.
There can be other factors you need to take into account relating to your organisation’s values and ethos. You may wish to keep employment local (or at least onshore) and so are prepared to trade lowest cost outsourcing for other considerations, these may reduce the potential benefit available and rule out outsourcing for some areas of the business.
Is there sufficient scale in the operation and sufficient likely cost saving (accounting for transformation costs and risk) to make a compelling business case?
Do you understand the operational KPIs and SLAs? Is TCO (Total Cost of Ownership) understood against the market to scale potential benefits? Are operational volumes and variability understood?
Scale and Benefit
Is the business operation sufficiently well contained that clear processes, hand-offs and KPIs, SLA’s can be defined to form an outsourcing contract?
Performance Parameters Understood
Is the operation already effective? Outsourcing a business with significant issues, where the real cost base and performance parameters are unclear is usually ineffective.
Opportunities for growth, increased efficiency and effectiveness and an improved cost base
Do you understand the nature of the transformation required and your capacity and capability to deliver it? where are you now?
Organisations that are mature with respect to outsourcing will have learned what is needed and what the risks are. They will have also built capability within their organisation. For organisations relatively new to outsourcing, there will be the need to:
• Build understanding of benefits and risks of outsourcing • Acquire the capability that can:
drive the process to select the right candidates run the transformational outsource programmes successfully
and then deliver the operational benefits.
An outsourcing transformation programme will often last 12 - 18 months from initial assessment through to transition and 36 months and beyond to see real business benefits.
MOST ORGANISATIONS WILL FACE:
An assessment and decision making phase
A major procurement
Significant transition activity
Transformation and business change within the organisation to build the capability to manage an outsourced operation
Transformation and business change to deliver the long-term benefits.
Typical process of outsourcing
First Acquire Capability to Outsource
Assess & Select
For all of the potential outsourcing candidates, you should undertake high level planning to look at the likely capacity required to deliver the outsource and the skills needed – which may not exist in-house.
Having the capability and capacity within the organisation to run the outsourcing programmes is essential to avoid some of the pitfalls that can occur through badly implemented outsource arrangements.
We have seen clients experience:
• Loss of strategic alignment • Extended time to benefit • Decreased brand loyalty • Poor quality control
You will have a realistic view of the likely transformation you can achieve through outsourcing, once you have assessed:
1. 2. 3.
Your strategic drivers for outsourcing
The scale and state of your strategic candidates, and
Your capacity and capability to deliver a transformational outsourcing programmes
ORGANISATIONS WHICH HAVE SUCCESSFULLY OUTSOURCED MANY ACTIVITIES ACROSS THEIR BUSINESS
All elements of Finance Service operation - including customer contact
Significant elements of customer contact operations
Customer Facing: Marketing; Sales; Customer Relationship Management
Around 25% of customer contact operations
Vertually all front and back office operations
Core value chain
Support Functions Administration; HR; Finance; IT; Facitilities; Sourcing; Procurement
All elements of customer contact for non-store sales (somefront office elements offshored to India and South Africa) operation quadruples in size at Christmas.
All elements of customer contact for web sales, including complaints
Co-ordination of field staff
All membership service operations
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