Despite a widespread desire to shift the outsourcing agenda away
from cost reduction and towards enabling enterprise agility, the
immaturity of both outsourcing customers and suppliers is acting as
a barrier to change.
This was one of the key findings of a panel of experts at the
National Outsourcing Association’s conference in London on Friday
19 November in a discussion entitled “What are the Prospects for
Outsourcing?”
David Lacey, director of information security at the Royal Mail,
explains that, although many organisations consider it increasingly
important for their outsourcing arrangements to be flexible enough
to keep up with organisational change, the problem is that both
they and their suppliers still look at things in terms of
functional silos, whether that be IT, human resources (HR) or
finance.
“Outsourcing contracts comprise a set of silos, but the question
is how to get synergy between them, how to get common services,
applications and infrastructure and how to do that across functions
such as HR etc. We and the suppliers don’t know how to do it
because of a lack of maturity,” Lacey says.
John Wilmott, managing director of business process outsourcing
(BPO) consultancy firm, Nelson Hall, agrees, but indicates that
most providers are not able to supply a full range of BPO services
across different silos let alone offer cross-functional services
that include an IT element.
For instance, says Wilmott, while it may currently be possible
to outsource the entire IT function, if desired, the same is not
true of areas such as human resources (HR), which comprises as many
as “30 processes with diverse characteristics”.
“No one can look after them all yet because the HR market in
itself isn’t mature at the full service level. You can see platform
synergies and that things are shared in some areas, but most
vendors aren’t mature enough to do everything,” Wilmott says.
The same applies for those customers wanting to undertake
outsourcing at the global rather than the local level. Rob de
Ridder, head of global operations for cash and payments at ABN Amro
bank, explains: “There are only a few services that you can
outsource globally such as IT, but others are very local. We’re
constantly reviewing our outsourcing model to see where we’re good
and where there are opportunities, but sometimes we just can’t find
the people.”
The situation, de Ridder adds, is a very mixed one across
diverse territories, however, and even though there are pockets of
expertise, things are very different in different countries.
As for offshore outsourcing, de Ridder says that, while there is
a wealth of suppliers in the IT space that are keen to move into
BPO service provision, the same cannot be said the other way
around.
However, he does not believe that “we’ve seen the end of
offshore outsourcing yet” and expects providers here to move into
“more knowledge-intensive” and less utility-oriented areas over
time.
Although Wilmott indicates that more than 70% of all offshore
BPO contracts currently deal with inbound invoices and data entry,
he too believes that the undertaking of higher value tasks such as
knowledge management, for instance, is likely to move abroad as
providers start going after markets that are currently controlled
by more traditional onshore players.
Lacey, meanwhile, says: “I see no problem with offshore
companies developing proactive skills and going higher up the value
chain. They’ll tend to the higher end, whether it’s IT or BPO, and
the only barrier will be the imagination of the provider.”
This means, in his opinion, that “the future is in countries
such as China and India”, particularly because outsourcing has not
unfolded in the West in the way that he formerly anticipated.
“I was optimistic several years ago that outsourcing was the way
forward for things like security, identity management and the like,
but it’s not happened as no one, neither customers or suppliers,
are mature enough. In fact, we’ve only just scratched the surface,”
Lacey says.
But to make the offshore model work when tackling higher value
tasks, Wilmott believes that players will need to set up more
onshore operations, whether this involves establishing an
organisation of their own or working in conjunction with other
onshore players, in order to liaise with customers more
effectively.
At the customer end, however, Lacey feels that it is crucial to
maintain “visibility into what’s happening because for issues such
as Sarbannes-Oxley, you have to take responsibility for risks.”
This means that constructive relationship management is essential
as is feeling able to trust your supplier.
“Trust has to be acquired and you don’t get it overnight. You
start suspicious and everything is written down, but the more you
get to know each other, the better you all respond,” he says.
De Ridder agrees, but points out that “if either side is overly
commercial, you’re in trouble”. This means that if customers walk
in and demand a 40% price cut as their opening gambit in initial
negotiations, suppliers will eventually take their best people off
the job when a more lucrative contract comes in, which can lead to
lack of continuity and bickering.
“There’s no such thing as outsourcing without a cost element,
but it’s a temporary advantage for a certain period before the cost
advantage goes away. This means that there has to be a focus on
quality process improvement. You simply have to work together to
get through any difficulties, but if you hide from them, you’re in
trouble,” he says.
As to whether recent moves by organisations such as Sainsbury’s
to insource its IT operations constitutes a trend for the future,
however, Lacey is ambivalent. “It works both ways and contracts
move back and forth. Some people like the Royal Bank of Scotland
can make things work in-house, but we were successful in
outsourcing and downsizing at the same time. Both approaches can
work if they’re managed properly,” he says.
But there is a definite need for innovation to start making
itself felt in the outsourcing world if enterprises are to achieve
the organisational agility that they require, he believes.
“We need smart ideas longer term from all outsourcing providers
and we’ll listen if they’re compelling, but that’s as likely to
come from the Far East as it is from the UK or US,” Lacey
concludes.