Outsourcing Playbook

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This Roundtable Luncheon, moderated by G100 president Daniel Casse, opened with remarks from Dave Niles and John Rodgers (President and Managing Director of SSA & Company, respectively) and went on to feature robust discussion among participants who know from professional experience how complex and far-reaching outsourcing has become. We hope you will find this summary of their comments useful.

A Common Theme

Outsourcing should not be only a source of cost savings, but a source of value as well. This theme was consistently touched upon by our luncheon participants. Though business process outsourcing finds its origins as a cost-saving initiative, the experiences of many leading companies show that outsourcing can be a significant resource for added value.

This new approach to outsourcing is both more productive and more strategic. It is creating much richer, integrated relationships with outsourcing partners, and as a result, an increasing number of American companies are considering the process in a new light. Each topic of discussion below, therefore, touches on different challenges and approaches to achieving value through outsourcing.

Managing Vendor Talent

How does a company manage sourced talent? There’s no one answer issue; and most involve tradeoffs.

  • Quality is critical: There is a clear need to drive quality and consistency of output from a sourced entity. Doing so, however, requires active vendor management to ensure best practices and a suitable incentive structure to drive motivation.
  • Sourced relationships should free resources, not strain them: Simultaneously, it is important that the sourced entity remains just that – sourced and distinct. Determining how much time and energy to devote to ensuring talent is managed and motivated in a vendor represents one of the key challenges posed to an executive overseeing an outsourcing.

Participants spoke of several methods by which they sought to drive quality. Ensuring there is opportunity for advancement and progressive skill development within the vendor is one; branding the vendor as part of the parent company and fostering a sense of integration and belonging – despite the third party relationship – is another. Driving cultural buy-in is paramount.

Defining Your Sourced Network

Closely related to the issue of talent management is defining your outsourcing network – both in terms of its structure and how that business relationship is managed.

  • Making relationships count: At one point, one attendee’s corporation had 49 distinct sourced relationships and faced substantial management challenges, given the volume. The company found greater success in reducing its vendor relationships to seven and focusing on more robustly managed relationships with that group.
  • Managing relationships constructively: Another participant articulated the importance of managing a sourced relationship in a constructive capacity, rather than in a “command and control” style. Including vendors in company townhall meetings is one path towards constructive relationship building.

The critical truth behind this topic of discussion is that third party vendors are no longer subordinates defined by a service level agreement – indeed, as the quality and scale of sourcing companies has grown in recent years, so too has the character of relations between vendors and vendees. It is vital that companies consider the changing nature of vendor relations as they seek to manage their outsourcing relationships and initiatives..

Choosing Which Functions to Source

A key challenge in any outsourcing initiative is identifying which business functions to transfer to a third-party and when to do it. One participant aptly outlined the landscape of this issue with the following questions:

  • How do you determine which groups should be sourced?
  • When is a group ready to be outsourced?
  • What are the challenges and resistances to the sourcing, internally and externally?

In past years, the typical rubric for outsourcing fell along back, front and middle office distinctions. Profit- and loss-generating positions were sacred, while some middle- and most back-office functions represented the typical candidates for sourcing. But in recent years, as the capabilities of third-party vendors have grown and professional functions have evolved, so too has the scope of functions that may be sourced. As one attendee noted, 30% of their off-shored work is now knowledge-intensive.

Many participants described their outsourcing process as haphazard and undefined. However, one participant spoke of a dedicated team, referred to internally as “hunters,” whose sole job it is to identify functions that are candidate for sourcing. The crux of this discussion, therefore, is the need for codification and strategy in the outsourcing process, especially since outsourcing is a process that is often resisted by internal group leaders and employees alike, despite its potential benefits.

Geopolitics: Opportunity, Not Just Risk

The group touched on the importance of understanding regional context in a business process outsourcing from both risk and opportunity perspectives.

  • Geography is destiny: Understanding the regional context and culture of a vendor is one of the most critical factors in an outsourcing. Working constructively with the tenets and practices of a given community should therefore be an overarching operational and strategic goal of any outsourcing initiative.
  • Weighing options: Not all outsourcing vendors and regions are created equal. A prospective outsourcer should consider with great care the advantages of each potential vendor choice, not only in terms of cost but organizational fit as well.
  • Language matters: Building language competency in the parent-company so as to communicate more directly and efficiently with a foreign sourcing vendor is critical.

One participant discussed the challenges of imposing American-style management culture – which values stability and predictability – on a culture defined by volatility and uncertainty. This participant’s company found greater success when it became more cognizant of the complex relationship between its vendor’s regional context and management style.

Another luncheon participant discussed the value of assessing vendor region selection from the standpoint of competency, and more importantly, fit. Being a European company with a substantial German-speaking employee base, this company found great success in outsourcing to western Poland, where the culture was familiar, management practices were transferable and linguistic relations more easily facilitated. Indeed, as the price of outsourcing in traditional locations like India increases, firms must look to new markets to find a balance of cost-effectiveness and impact.

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