Globalizing the business is the key to outsourcing today

May 18, 2009
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As we discussed last week, it’s clear that many companies will continue to move into outsourced business environments, despite the recession and political pressures to keep work onshore. While some firms find it hard to make radical decisions in a downturn, others are clearly seeing how critical it is to operate as a global business. If there’s one thing this recession taught us, it’s how integrated global economies and markets are today, how businesses need to adapt to move in and out of diverse regional markets, and how they must make rapid decisions to invest or divest global service / product lines in order to prosper. 

Outsourcing doesn’t provide all the immediate answers, but it does help create the vehicle for clients to become more nimble and capable at a global level. The following data from our new survey reveals some key indicators that help us unravel how outsourcing adoption will take shape over the next couple of years, as business adapt to this new market environment:

Outsourcing-drivers

Reducing operating costs: obviously, this is the overriding factor when companies outsource. And while there’s a clear land-grab on for new client contracts by service provider

As we discussed last week, it’s clear that many companies will continue to move into outsourced business environments, despite the recession and political pressures to keep work onshore. While some firms find it hard to make radical decisions in a downturn, others are clearly seeing how critical it is to operate as a global business. If there’s one thing this recession taught us, it’s how integrated global economies and markets are today, how businesses need to adapt to move in and out of diverse regional markets, and how they must make rapid decisions to invest or divest global service / product lines in order to prosper. 

Outsourcing doesn’t provide all the immediate answers, but it does help create the vehicle for clients to become more nimble and capable at a global level. The following data from our new survey reveals some key indicators that help us unravel how outsourcing adoption will take shape over the next couple of years, as business adapt to this new market environment:

Outsourcing-drivers

Reducing operating costs: obviously, this is the overriding factor when companies outsource. And while there’s a clear land-grab on for new client contracts by service providers, they all offer varying degrees of cost-savings these days. Most smart businesses are evaluating service partners based on what they bring to the table beyond mere cost savings. Once they are evaluating a short-list of 3 or 4 partners, 5% price differentials are unlikely to swing the balance. Hence, the real differentiators move to other core factors, namely business transformation acumen, and finding the right global partner to help establish more effective global business operations.

More effective global operations: using outsourcing to globalize business operations more effectively is becoming much more widely discussed during outsourcing evaluations today. Moving onto a global HR platform, whereby companies have a much better handle on their global employee-base, or having a much more integrated global cash-flow cycle, or leveraging customer service support in foreign markets, are all examples of how outsourcing services can add global value to businesses today. Service partners that can demonstrate they are first-class global operators themselves are in a great position to find clients eager to benefit from their global delivery resources and experiences. At the same time, clients need to fully evaluate their overall global business goals and test their potential service partners to determine whether there is a good cultural fit and overall understanding of their business. 

Transforming processes: The “T” word has been banded around lightly in recent years, but getting one’s base process in order is vital when outsourcing successfully. We’ve seen far too many “lift and shift” outsourcing engagements whereby clients transferred their existing back office to a service provider, and all the things that were being done badly were (and still are) magnified several times over in an outsourced model. Many firms have used the recession as an opportunity to focus much harder internally on eliminate wastage and streamlining poor process flows, which has effectively put them in a much healthier position to move into outsourcing environments that can be underpinned by robust ERP and standardized processes. Other firms have not been so diligent, and are looking for providers to take on their back-office baggage and grant them cost-savings.  In these situations, the onus on the service provider to help its client refine their processes is very strong. If the service provider fails to help drive the transformation in tandem with the client’s governance leadership, the engagement is unlikely to reap many rewards for either party.

All-in-all, businesses are clearly thinking about driving out as much cost as they can, but the onus is moving towards real business transformation as a follow-on objective. There are a host of service providers out there which can deliver a quick cost-saving scenario, but only a small handful which can truly go beyond that to deliver ongoing quality and cost-optimization.

You comments are – as always – more than welcome.  We will be drawing on more findings from our new survey over the following days.