Outsourcing has been integral to the global economy for decades, across many sectors, and continues to be prevalent today.
However, in recent years, there has been a shift towards bringing services that were previously outsourced to suppliers back into the parent firm with the aim of providing enhanced levels of customer service.
When done well, outsourcing presents a realistic option for companies wishing to increase their capacity to achieve strategic goals, regardless of their size. There are, however, a number of misconceptions when it comes to outsourcing arrangements, with some feeling that outsourcing a business function means a loss of control, or failure to gain a clear view of performance and risk.
Here, we look at some of these concerns in more detail.
"Cost is the most important factor"
One of the most common myths about outsourcing is that cost is the only driver for firms to explore when outsourcing elements of their business. Whilst cost will always be a major consideration as part of any decision to outsource, businesses should also ensure their procurement process takes into consideration value in other forms. Some key considerations include:
- Customer experience and outcomes – this should be front of mind when thinking about outsourcing, especially in regulated markets. Choosing a partner based solely on cost can prove to be counter-productive, as inflexibility of service can harm relationships with customers and negate the benefits that outsourcing is designed to achieve.
- Value – this can be brought to an outsourcing partnership through the sharing of industry best practice and regulatory and market insights, as well as selecting an outsourcer with the right specialism. Understanding the nuances of the sector; its rules and regulations, the expectations of its consumers and the way processes and policies must be executed are all vital elements which provide significant value. This can be invaluable to the day-to-day running of the wider firm, outside of the outsourcing arrangement.
- Characteristics which complement the partnership such as flexibility, supportive change control and strong working relationships should be valued, as these are likely to pay dividends in the longer term. Choosing a communicative and flexible partner in this area will ensure your service is able to move with the industry, for example; the changing priorities of customers, regulation and legislation and the business’s strategy.
- Reputable outsourcing partners should seek to address the challenges the business is facing and provide support by freeing up valuable time to concentrate on other aspects of the business, such as other cost saving or growth initiatives.
Given the different ways value can manifest itself within an outsourcing arrangement, businesses should take a holistic view of the benefits individual outsourcing firms can deliver. They of course must ensure that the price quoted covers all of the specified requirements. Firms should, as far as they are able, make a ‘like-for-like’ comparison when reviewing tender submissions.
"Outsourcing a part of my business means I lose control"
A common misconception is that outsourcing leads to a loss of control within a firm. This is especially relevant in regulated markets, where a firm can outsource a process, but is still ultimately responsible for the compliance of the function and the outcomes of customers. Where structured correctly, outsourcing can in fact provide enhanced levels of oversight and support whilst allowing you to retain control of aspects you desire.
Through pragmatic and open discussions, it is possible to alleviate any concerns relating to the governance and controls around of the outsourced work:
- There should be a strong emphasis on robust due diligence to ensure you are entering negotiations with an outsourcing partner who has both the proven credentials which can be evidenced and don’t be afraid of asking for a reference to support this as this will be the foundation of any future relationship you hold
- A robust governance framework will complement your desired levels of control and oversight, enabling you to keep close to how your supplier is performing and whilst highlighting areas which need particular attention
- From the outset, define what you consider a ‘successful’ operation to be and advise prospective suppliers upfront. With an upfront understanding of what your key KPIs and SLAs are, you will be presented with a more credible proposal which is better aligned to your business requirements
- As with any operation, things can go wrong regardless of the control mechanisms put in place. To mitigate against this (and provide all parties with a common goal), contractual service credits should be agreed in conjunction with the right for the parent firm to ‘step in’ or conduct ‘enhanced monitoring’ should pre-agreed service levels not be achieved over a period of time
The above factors should work in harmony to provide a strong level of control. Ultimately, prior to finalising any agreements, the parent firm should be confident that its chosen partner will act as an extension of the existing business, providing the desired level of involvement and control.
"Only large companies undertake outsourcing"
Small to medium sized firms may feel that in order to outsource, they must engage a large, multi-national organisation. This is not necessarily the case, and significant value can be derived through partnering with a smaller, more niche outsourcing provider, for example; a deeper understanding of the area of industry, or the flexibility to fully bespoke the approach to the parent firm’s needs.
Negative connotations around outsourcing are currently playing out in the media due to high-profile outsourcing challenges. The economies of scale that outsourcing providers seek in their own business models must not impinge on their ability to service the needs of clients. To help mitigate against this scenario, the use of a more niche provider can offer a more personal, tailored service without these perceived drawbacks.
Taking a holistic view
There are many factors which need to be considered when outsourcing an area of your business to ensure that you select the most suitable partner for your needs.
Whilst we have explored some of the most common misconceptions around outsourcing, the overriding consideration should be whether your firm believes it can achieve a healthy working relationship with a firm that supports both its goals and values. Firms considering the above factors are able to make a more holistic decision to this end, with a clearer view of the advantages to be gained from working with a prospective partner.