Understanding the outsourcing jigsaw puzzle

Outsourcing and BPO

by Gary Flood| 23 February 2011

The outsourcing market is growing. However, warns Gary Flood, before potential customers go down this route they should be aware the process requires much more than simply setting up a monthly payment system to your new partner

Despite outsourcers bandying about marketing terms such as 'innovation,' 'flexibility' and 'relationship', the main reason a CIO will reach for the phone and call in a third party IT resource manager is, and always will be, because they can't see any way to make ends meet otherwise.

Too cynical? Then why else is the Government, in its determination to curb national expenditure, seemingly increasingly prepared to outsource the likes of UK citizen health and taxation details to strangers? Simple: it's cheaper.

At the start of the year the head of an NHS-supplier body claimed that such a move could save at least a billion pounds a year in the health service alone.

And in January, UK analyst house Ovum confidently predicted that in response to the tough November Comprehensive Spending Review, Government agencies will be more willing to consider consumption-based and shared delivery models over the next 12 months: "The door to BPO, shared services and on-demand access will be far more open than ever before, creating an opportunity to be open, creative and innovative."

Innovation
In the commercial sector meanwhile, according to a study by Nasscom-Evaluserve, the voice of the steadily growing Indian outsourcing contingent, European companies saved $25 to $30bn by outsourcing IT in 2010. With the challenging economic climate forcing businesses to reduce overheads and speed up productivity with minimal costs, that trend looks sure to continue.

Which brings us back to innovation, the key word for outsourcers as we enter the next decade, it seems. You can't talk to an outsourcer or even their customers without the word, or some variation of it, being deployed at some point.

Take, for example, this comment from the vice president of Global Client Services at Unilever, which last year outsourced global desktop support to Unisys "because of the company's proven service delivery capabilities and innovative roadmap". He added that he and his firm particularly liked the vendor's "vision for leveraging innovative, cost-effective IT management practices".

IBM, meanwhile, has an executive styled 'chief innovation officer' in its Strategic Outsourcing business for the UK and Ireland.
But to many observers, such as lawyer David Skinner, a partner in Morrison and Foerster's Technology Transformation and Outsourcing Group, IBM's approach isn't necessarily innovative. "The outsourcing conversation does often sound like a stuck record," he tells CBR, with the same problems coming up endlessly, for all the attempts by suppliers to claim that time has moved on.

"What we see over and over again with clients is a variation of 'boy meets girl'," he says. "Boy meets girl, they fall in love, then they drift apart as it turns out that neither is quite what the other wanted after all. The process starts again and they either end up alone again or finally find the right partner."

There are also facets of today's outsourcing market that a time traveller from its 1970s inception might find unbelievable. From all sides, we hear, almost as often as we get told how innovative it all now is, that if it screws up, it's almost always the customer's fault, not the supplier's. Or rather, if a customer wants a rewarding relationship, it's up to them to truly engage with the situation more so than their new 'partner'.

"Beware of any outsourcer who says they've got it covered and you can go take a nap," laughs Holly Ripley Boyd, president of global R&D service Ness.

"There are some things that really have changed in outsourcing and one of them is that companies know they need to have a high touch-point, real relationships between them and their suppliers," says Alex Cruz Farmer, MD and joint owner of networking outsourcers NetSumo. "They know this is no longer a matter of handing problems over to someone else and saying 'you sort this out,' or brushing it under the carpet."

Devil in the details
Kit Burden, partner, head of technology, sourcing and Commercial Group at legal firm DLA Piper, says that "done well, an outsourcing engagement can help an organisation achieve significant savings and improvements in the manner in which the business operates. Done badly, it can result in abrasive relationships, which are a drag on executive time and attention and can even have a negative impact on the way in which the core business operates. At the end of the day, the focus of both parties should be upon creating a contract that actually works in practice rather than just on paper, and which incentivises the right kind of relationship based behaviour."

"This won't work without two-way communication and the realisation it's a two-way commitment," adds Craig Wilson, MD of Ciklum, which specialises in near-shore (Eastern Europe in this case) IT service provision. "The aim has to be less about the outsourcers' people sitting on the bench waiting to be engaged and more about them and you creating joint teams to tackle the problems you've both identified."

"Maximising value in outsourcing deals is an ongoing process not a one-off procurement exercise," believes Andy Gallagher, a consultant at Serco Consulting (part of the outsourcing giant Serco). "Too few companies that outsource invest enough in governance of that and the tools, processes, skills and people that form part of it."

Getting hands dirty
Skinner of Morrison and Foerster says that the way out of the 'boy-meets-girl only to be disappointed and break up' cycle lies in better decision-making and goal-setting at the outset of the outsourcing process.

"If both sides were clearer and more rational, possibly like in dating, better outcomes would come sooner," he argues. "So I'd like to see users, especially business owners, getting their hands on and getting them 'dirty' a lot earlier. To avoid disasters, I'd like to see much greater recognition of what's being bought, what the tradeoffs are for both parties and so on. It's the confusion and mixed messages coming out of the customer, perhaps from different parts of the business, that cause so much confusion, I think."

Did he say disasters? Unfortunately, outsourcing does seem to be a less than scientific way of conducting business.

To name but a few recent examples: the now sharply curtailed National Programme for IT; the mid-decade £500m write-off of Accenture's attempt to build Sainsbury's a new logistics system; and the rancorous ending of Cable & Wireless' deal with Big Blue, where the customer decided it had been overcharged - the dispute went all the way to the High Court before being resolved.

Hence the sober realisation - by both buyers and sellers, it seems - that outsourcing at times is a complex process that can be derailed, and should be a partnership that from the outset has to be greater than the sum of all the words on the initial agreement, SLAs notwithstanding.

"A good contract will not save a project if the relationship is bad," cautions Burden of DLA Piper. "But parties who have a good relationship can find a way to make things work, no matter what the outsourcing agreement may say."

Complement, not replace
Outsourcing, then, is in part about how much outsourcers want to serve your needs and adapt to your requirements. For example, Mark Bretton, vice-president and head of BPO UK & Europe for Tata Consulting Services, claims: "We can offer extensive transformational activity, delivered with excellence, and deep technical skills, by people who truly understand your business".

However, what most now accept is that they, in fact, can't do any of that without your help. If that sounds defeatist then you may be working with a mindset that is out of date and not in tune with the latest 'rightsourcing' (using the best allocation of resources - internal and/or external - for a given project) or 'x-sourcing' (the support of the business and its CIO to make the cost cutting work, by helping the outsourcer do their job effectively) fashions.

Yes, the aim of letting you 'stick to your knitting' is still there: "It's still about defining what you want to be good at as a business, focusing on that and handing the non-core stuff to someone who will be better at it than you," says Dan Smith, managed services director of Retail Assist, which specialises in outsourcing and consultancy for the retail sector. "As a CIO, you just aren't going to have all the technology answers in-house anymore."

However, to truly empower your company to do that, you need to have a commitment to working with your outsourcer, not just processing their invoices. "The outsourcer is there to complement the existing team, not replace it," concludes NetSumo's Cruz Farmer.

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