OPEX Top 10 Transformational BS (Bogus Statements): Outsourcing
In the lead up to the 4th annual OPEX and Business Transformation Europe summit, the official event blog will become home to some of the industry's most informed and influential voices. In this blog post, Anthony Shingleton, VP Business Development EMEA at Simpler Consulting (an IBM company) explores one of the many OPEX 'urban legends': the myth of outsourcing as the 'silver bullet' for success.
Over the past 15 years there have been some interesting changes in the timeline of outsourcing:
- Early adopters basically saw the opportunity but had the task of building a new industry in the countries they chose to outsource. In those days it was basically a “lift & shift” approach, i.e. just do the same thing with a lower cost base with no process improvement.
- Main adopters saw the cost advantage that early adopters experienced so followed on in a similar manner. However, over time, the local resource base grew and as the number of companies coming across increased so did the wages. At this point, some companies tried to streamline their processes before outsourcing but the biggest streamlining was driven by the now industry-named Business Process Outsourcing (BPO) companies (Providers) to get more consistency and lower operating costs for themselves: Afterall their costs were also rising because of rising wage costs.
- Today the situation is a bit more complex: many BPO providers are not making good profits, some contracts are loss making and many of the existing and new companies that are outsourcing are still reluctant to really standardize their processes prior to doing so. Wage costs continue to rise and the drive to automate outsourcing centres is fought against by country governments who see outsourcing as a way to take people out of poverty and help drive local consumption and the internal market economy.
That being said, should you outsource or not? Here are a couple of aspects to consider:
- If you are only looking at costs then probably so. Just remember that to get the best efficiency it is best to simplify prior to outsourcing. Expecting BPO providers to do so as part of their contract has shown to be very unsuccessful for a variety of reasons.
- If you are looking for a better customer journey experience then it depends: If you are willing to simplify, automate and augment then you might find that it is best to do so locally. For the small penalty (if any) in costs you will probably get a better service for your clients. If you can find a BPO provider willing to work with you then make sure the work is done upfront of a new contract or pay for it to happen so that you can be involved.
What if you have already outsourced? You have 2 options:
- Design what the process should look like when you bring it back in-house, set it up and cease the outsourcing contract.
- Work with your existing or future BPO provider to ensure you finally simplify, automate and augment your processes so that you have outsourced the least wasteful way of running your processes.
It is not uncommon for BPO providers to take an outsourcing contract at a loss with the intention of making it a profit by year 2,3 or 4, but what about your clients in the meantime?
So back to the Good, the Bad and the Ugly:
- If done properly outsourcing can be the least wasteful way to provide an excellent service to your customers, building the reputation of your company and attracting new customers (by customer I mean both paying customers or employees).
- Outsourcing combined with Robotic Process Automation and Augmentation might help to eliminate or minimise current problems with outsourcing as has been provided until now.
- Outsourcing can become a step towards a transformation rather than the end journey. The big question is whether BPO providers will be willing to play.
- Where is the evidence that outsourcing provides faster response times?
- Look at how many new competitors outsourcing has created. Like every company looking to get out of low margin work, local BPO providers are now competing for other products and services. Was it all worth it if you look at the big picture?
- Whatever is done in terms of communications and justifications, outsourcing is seen as a way to cut local jobs. Unless something “good” is offered in exchange outsourcing will have a negative impact on company morale.
- Quality control: BPO contracts come with service level agreements (SLAs) of 90-95%+ target levels but what if your clients are always the same ones in the 5%-10% acceptable failure limit?
- Many of the “performance” metrics used by BPO providers and companies using them are activity-based and often bottom line focussed. All too often, outsourcing has a negative impact on customer centricity targets, assuming they existed in the first place.
- Rather than help a company transform, outsourcing can often prevent change from happening as you have created a new obstacle to it, i.e. the contract with the BPO provider and yourself.
In conclusion (and unsurprisingly) what we have seen is that outsourcing is not turned a silver bullet and the answer to all problems. There has been some overselling and under-delivering, but no more than any other business improvement tactic. Outsourcing still has a bright future but it is time to move to the next level; transformation is about people, process, technology and culture.
If you’d like to know more about how we help organisations make outsourcing a success, then why not have a chat with us at OPEX & Business Transformation later this year.
In our next contribution, we will look at “transformation programs and PMO-lead transformations”, exploring some of the reasons why many of them underdeliver, even worse, fail. Thank you for reading and feel free to provide feedback via email or LinkedIn.