Maximising value from outsourcing – key factors to enable success

Outsourcing is hardly a new idea, but the recent forced increase in remote working due to the coronavirus pandemic has proven once again that many of the activities that felt like they had to be done on site can be carried out remotely.

It’s bound to reopen the idea of whether there are further opportunities to realize cost savings through moving more work outside of the organization.

At Cross8 we’ve helped a wide number of companies to successfully outsource a range of functions including Finance, IT, Operational Processing and Change. We’ve also been a key part of insourcing capabilities when businesses realised they could unlock greater value by building a core competency internally.

So we’re well positioned to offer some thoughts on what you need to ensure outsourcing is successful.

As you return to the office and consider alternative ways to deliver, bear these things in mind:

   1. Never outsource a problem

It’s tempting to offload something that isn’t going well. I mean, what drew your attention to the function in the first place? But before you rush to this, pause and consider what you know about the function.

Of course, you want to outsource to someone who is better at whatever it is than you are. And you should put in place commercial arrangements that incentivize them to improve it and share the benefits with you. That’s fine. But you shouldn’t be outsourcing a problem area unless you know what the problem is and are open with the outsource provider about their plans to fix it.

If you do then the chances are high you’ll just be paying another organization to repeat your mistakes for you.

Make sure you understand the process first.

   2. Is this a key feature of your business?

This one should be obvious but don’t outsource anything that gives you a unique edge over your competitors.

Remember your competitors can outsource too, and if you outsource the thing that brought your customers to you instead of your competitors, then you just started a race to the bottom that you don’t want to win.

   3. Your controls should be not too tight, and not too loose

Unsuccessful outsourced arrangements tend to fall into one of two camps, either the company who outsourced the function lets go altogether and allows the outsource provider too much freedom; or else they micromanage the provider and don’t give them the ability to change anything.

Understanding the measures that are important to your business and ensuring you have early visibility of them is key here. There should be frequent, meaningful meetings at a variety of levels between the two companies. You want a good relationship between the people at the coalface, and for senior people in both organizations to have a channel of communication. If the only regular touchpoint between the two companies is a contract management meeting, you’re likely on a path to trouble.

   4. The lowest initial cost won’t always represent the whole life cost. 

It’s essential for a successful outsourcing that you look at the overall commercial position not simply the cost.

The cheapest bid is likely to have a more rigid cost base which means any changes you need in the future will come at a new cost, increasing your uncertainty and reducing the value you get from the arrangement.

When assessing bids look at the overall commercial proposition, not simply the lowest number, and set up your contractual arrangements from the beginning to provide flexibility and allow for innovation.

That way both companies will get the benefits of the relationship.

And above all…

   5. You still own the process

Your customers don’t care that you outsourced it. If you did it well then the difference between the stuff you do yourself and the functions you’ve outsourced should be invisible to them. That’s a sign of success. But it also means that you’re still on the hook for it being run effectively.

You don’t get to blame the outsource provider and wash your hands of it.

And if you’re in a regulated industry, then the same applies to your regulators. Whoever is carrying it out on your behalf, you will still be responsible for that process.

If you’ve put in place proper supplier management controls like we discussed above then this shouldn’t be a problem.

If you’d like to discuss your outsourcing needs and ensure it’s set up correctly from the start, then get in touch with us.