There are so many models of sourcing - from business
process outsourcing to offshore; application service providers to
supply chain management - that many decision-makers are unsure of
the best way to move forward.
It may be easier to hand the whole thing over to one trusted
firm, but it may be more effective to mix providers to achieve
best-in-class processing. Either way, business decision-makers need
to understand what they are getting into as they push processes,
products and functions into multi-sourced structures.
That means aligning with providers that understand both the nuts
and bolts of sourcing and the businesses they serve.
Businesses adopting smart sourcing no longer see this as just a
cost-saving project. They seek business efficiency. That means
adopting sourcing strategies that deliver growth without increased
investment. It means moving services offshore to release funds for
investment onshore. It means shifting structures so that
front-office services are delivered at the highest levels of
effectiveness, and back-office processing at the lowest costs for
efficiency.
Transforming business
But you cannot afford to deliver either ineffective back-office
processing or inefficient front-office service. The two have to be
both effective and integrated.
So businesses worldwide are looking to rationalise through
business transformation sourcing (BTS). BTS moves us on from the
business process outsourcing model - which covered everything from
third-party administration to offshore call centres - into
integrated and rationalised vertical market-focused sourcing
structures and strategies.
As a hypothetical example of a BTS approach, let us take a
fictional retail bank. It had originally taken the approach of
"glass house" datacentre outsourcing in the early 1990s. It then
extended outsourcing capabilities to cash transportation and other
services during the mid-1990s.
Later in the decade it began trialling systems maintenance
support in Mumbai, and soon shifted development, maintenance and
call-centre operations to India. Seeking further cost efficiencies,
it moved into a cheque-processing joint venture in 2002 which was
its first experience of business process outsourcing.
Now it has shifted the closed book of life business to a joint
venture firm, as well as its mortgage and loans processing.
The trouble is that all of this was performed piecemeal over 15
years. There was a rationale, but it was based on cost savings and
efficiency. Now it realises that the mish-mash of sourcing
providers is hampering growth.
Market expertise
That is why the focus of sourcing today is moving to BTS. The
process encourages businesses to both rationalise the number of
sourcing providers they deal with, and to seek suppliers that
provide global coverage with vertical market expertise - after all,
there is no way you can transform a business if you do not have
business understanding.
Successful sourcing providers will be those with a global
footprint and vertical market structures. They will continue to
outperform the markets through significant growth. For example,
Tower Group expects European banks to invest more than $55bn
(£31.5bn) in outsourcing by 2007, at a compound annual growth rate
(CAGR) of 9.1%, compared to 4.7% for general IT spend.
The critical point is that most of that sourcing budget is
allocated to general outsourcing relationships, with only 30%
dedicated to industry specialists.
By the end of the decade, Europe's financial markets will narrow
down their global sourcing partners to three or four leaders, and
will spend over 70% of their budget on industry specialist BTS.
Vertical market BTS is set to increase by 46% CAGR by the end of
the decade.
So if you want to be a successful sourcing provider, learn the
business of your target markets and create in-depth end-to-end
process sourcing structures. If you want to be successful as a
sourcing buyer, identify who can provide end-to-end process
management in a flexible delivery structure with global
coverage.
The marriage of provider and buyer will become seamlessly
integrated, so the message is make sure your marriage is one you
can live with for the long term, not just a one-night stand.
Chris Skinner is an associate director of financial services
research firm Tower Group and chief executive of Balatro