{"id":1501,"date":"2011-05-29T22:18:00","date_gmt":"2011-05-29T22:18:00","guid":{"rendered":"http:\/\/localhost\/projects\/horsesforsources\/the-undisputed-facts-part1_052911\/"},"modified":"2011-05-29T22:18:00","modified_gmt":"2011-05-29T22:18:00","slug":"the-undisputed-facts-part1_052911","status":"publish","type":"post","link":"https:\/\/www.horsesforsources.com\/the-undisputed-facts-part1_052911\/","title":{"rendered":"The undisputed facts about outsourcing, Part 1: Buyers are saving money, but aren’t seeing a whole lot more"},"content":{"rendered":"

We would like to thank personally\u00a0all 1,335 of you who took the time to compete our State of Outsourcing 2011<\/em> study we’re conducting with the London School of Economics Outsourcing Unit. \u00a0This is the largest ever study that’s looked at outsourcing, which included all industry stakeholders (buyers – both business ops and IT practitioners, service providers and advisors). \u00a0A special shout also goes out to our partner, the Sourcing Interests Group, for inviting their members to participate, in addition to our 53,000 loyal readers.<\/p>\n

We’ve been sifting through the findings these past few days, and let’s start here:<\/p>\n

Engagements struggle to deliver business value beyond<\/em> cost reduction<\/span><\/span><\/p>\n

Whatever the motives buyers have when they outsource, the first critical metric they must reach is to save the money they were promised at the onset of the engagement. \u00a0And we have spectacularly good news for the entire outsourcing industry – the cost savings targets are being met – and being met well, with over 95% of current buyers viewing the engagements as effective for reducing their operating costs. \u00a0And half of them are really pleased with their cost-reduction progress, the other half seeing progress as “somewhat effective”. \u00a0However, that’s pretty much where the good news tapers off, as the rest of the results are pretty modest…<\/p>\n

\"\"<\/p>\n

After cost-reduction, how is outsourcing faring?<\/span><\/span><\/p>\n

Business Process improvements.<\/strong> Barely one-in-five buyers feel they are experiencing significant\u00a0improvements\u00a0from accessing new expertise and transforming processes with their current outsourcing initiatives. \u00a0Half of them do see some effectiveness gains, while more than a quarter are seeing no effectiveness gains at all with their business processes. Considering many of these processes were likely non-core\/non-strategic to begin with, which is why they outsourced them in the first place, it’s unlikely buyers are clamoring for process improvement in the initial phases, instead waiting patiently for their providers to serve up experts, process maps and best practice examples to harmonize processes. \u00a0As many buyers quickly discover, if process improvement is not in the contract, it will unlikely materialize without additional investment.<\/p>\n

HfS believes those providers looking to develop real utility<\/em> across their clients, proactively\u00a0need to encourage them to adopt common best-practice process workflows. \u00a0This means they need the\u00a0availability\u00a0of process consultants to drive<\/em> the agenda with their clients. \u00a0And these consultants should largely be based onshore (spending time onsite) to work with the retained team. \u00a0This should be a major differentiator between providers – those that can quickly help clients to evaluate improvements, versus those who simply want to shift as much of the work offshore as quickly as possible and keep margins to a maximum.<\/p>\n

Introducing new technology. <\/strong>This is an area where buyers should be experiencing far more effectiveness than they currently are, with 56% only seeing modest progress and 31% none whatsoever. \u00a0Too many engagements are still largely centered on shifts in labor-based services, as opposed to any genuine technology transformation. \u00a0It’s hard to gain improvements in processes beyond a certain point if they are not IT-enabled, and clearly most outsourcing clients still run the same processes off the same technology platforms that they were using pre-outsourcing. \u00a0Like above, clients quickly discover if it’s not in the contract, they needed to budget for it – whether it’s the latest SAP upgrade, or implementation of a new expense management tool. \u00a0If providers want to build true utility, they not only need their clients to have similar processes, but the more they can be enabled on the same technology, the more replicable and scalable their services will become. \u00a0And if these technology platforms can be delivered in the Cloud (even for components of functions), the easier they are to provision for clients.<\/p>\n

HfS believes providers need to aggressively introduce new platforms to their outsourcing clients, and drive the IT-enablement of their business processes. \u00a0Those providers which can acquire or develop unique technology IP to support their outsourcing clients are at a clear advantage. \u00a0If clients are using highly customized IT platforms, for example in the capital markets industry, providers need to have the consultative skills to IT-enable the outsourced business processes effectively.<\/p>\n

Innovation. <\/strong>As we\u00a0discussed\u00a0last year (read post here<\/a>), at least 50% of clients take innovation very seriously when they outsource. \u00a0And where they may be struggling to achieve innovation with their outsourcing engagement today, they at least see the potentia<\/em>l to achieve it in the future. Innovation is a progressive goal, once clients have got their processes operational and are in a position to explore new and creative ways to improve growth or productivity. \u00a0Providers need to work with their clients to develop an innovation agenda as they operationalize their outsourcing model, and their clients need to be encouraged to plan and budget for an innovation strategy from the onset of their engagement. \u00a0Turning around to the board after two\/three years to request budget for “innovation” is going to be a lot harder than if it was embedded into the initial agreement with some contractual provisions to cater for future innovation needs. \u00a0Once the ink on the outsourcing contract has started to dry, corporate leadership has likely already turned attention to other priorities.<\/p>\n

HfS believes innovation needs to be addressed front-and-center – right from the onset of an outsourcing initiative, and not as an afterthought. \u00a0It’s like changing the wheels of a care while your driving – the world isn’t going to stop suddenly\u00a0to allow for an innovation plan to be developed. \u00a0It needs to be in the works constantly as the engagement matures.<\/p>\n

The bottom-line<\/span><\/span><\/p>\n

HfS views this data as an important success factor for the outsourcing industry. \u00a0The initial goal of outsourcing – to drive out cost – has succeeded, and succeeded with flying colors. \u00a0However, the findings also point out that the sequential business needs that need to be addressed are falling short. \u00a0Our concern at HfS is that costs are like hedgerows \u00a0– once trimmed they always grow back. \u00a0Providers cannot afford their clients to struggle. \u00a0After their transition to a working operational outsourcing model, corporate leadership isn’t going to keep reminding their shareholders about “that stellar 30% we took off the bottom-line three years ago”. \u00a0They are going to be looking for their next <\/em>improvement metric. \u00a0And the only way to achieve that, is to constantly look at harmonizing process and enabling it with better technology. \u00a0Outsourcing should provide an opportunity for buyers to take advantage of the talent acumen and IP their provider can deliver. \u00a0If buyers really do care about continuous\u00a0improvement, then they will seek out a services partner which can prove, through multiple client experiences, that they have the discipline, culture and motivation to work with them over the long-haul.<\/p>\n

Related Reading:<\/em><\/p>\n

HfS BPO Innovation Study posts (June, 2010)<\/a><\/p>\n

HfS 2010 “State of the Industry” posts (January, 2010)<\/a><\/p>\n

Busting the innovation myth (March, 2010)<\/a><\/p>\n

Why innovation in global business operations is critical for survival (March, 2010)<\/a><\/p>\n

Where have all the consultants gone? (April, 2011)<\/a><\/p>\n

\n

Eradicating the Innovation Dearth in Business Process\u00a0Outsourcing: Practical Advice on how to Achieve it (March, 2010)<\/a><\/p>\n

\n

HfS Report: Desperately Seeking Innovation in Business Process Outsourcing: Enterprises Speak Out (July, 2010)<\/a><\/p>\n

\n

Eradicating the Innovation Dearth in Business Process\u00a0Outsourcing: Practical Advice on how to Achieve it (March, 2010)<\/a><\/p>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

We would like to thank personally\u00a0all 1,335 of you who took the time to compete our State of Outsourcing 2011…<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[48,51,81,91,832,842],"tags":[303],"organization":[],"ppma_author":[19],"class_list":["post-1501","post","type-post","status-publish","format-standard","hentry","category-business-process-outsourcing-bpo","category-cloud-computing","category-it-outsourcing-it-services","category-saas","category-sourcing-best-practises","category-state-of-outsourcing-2011-study","tag-enterprise-irregulars"],"yoast_head":"\nThe undisputed facts about outsourcing, Part 1: Buyers are saving money, but aren't seeing a whole lot more - Horses for Sources | No Boundaries<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link 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