Outsourcing can do more than cut costs

Business transformation outsourcing is the latest concept touted by a variety of service providers for the past year and has...

Business transformation outsourcing is the latest concept touted by a variety of service providers for the past year and has gained the reputation as an innovative way of thinking about how to take advantage of outsource providers.

Businesses can get more out of outsourcing than basic, operational cost savings, according to service providers and financial management advisors at the OutsourceWorld show in New York, which was part of TECHXNY.

Corporate executives were encouraged to consider outsourcers as strategic partners when tackling, for example, business process redesign projects.   

"Outsourcing provides many values beyond cost savings," said  Frank Koelsch, president and chief executive officer of advisory services company Everest Group Canada.

Everest analyses outsourcing activities according to a three-part model. Basic outsourcing services can curb direct costs, Koelsch said. At the second stage, outsourcing helps lower "indirect" costs and achieve efficiencies in areas related to, for example, business processes such as call centre management.

At the highest level, outsourcers can enable companies to achieve strategic goals and transform the way they do business.

Though the number one reason why most businesses turn to outsourcers is to save money, outsourcing projects can help companies speed up efforts to do business in new ways, he said.

For example, a company that does not have the expertise or capital to ramp up e-commerce activities quickly may take advantage of an outsourcing company that can use its own economies of scale to offer cost-efficient web services. In this case, Koelsch said, the costs of doing business in a new way are lowered, while long-term strategic goals, such as using the internet to expand sales, are met.

The concept of business transformation outsourcing was given a big vote of confidence by IBM, the largest services company in the world which, for the past 12 months, has had a Global Business Transformation Outsourcing group.

"Cutting costs is a given but it's not good enough," said Katherine Heggman, general manager of the group.

The IBM group aims to help companies understand how they stack up against competitorsby determining how efficiently a company is doing business relative to industry norms. Then, according to Heggman, IBM can help a company put in place business procedures to help a company catch up to, or stay ahead of, its rivals.

"The model... and criteria vary from industry to industry, but we offer service level agreements that help companies achieve 20% to 40% cost savings" while revamping business processes, she said.  These service-level agreements offer customers guaranteed cost targets.

While short- and medium-term cost savings are important, Heggman stressed, her remarks reflected other speakers at the show, who urged companies to think strategically, keeping in mind long-term goals, when they consider outsourcing. IBM, for example, looks to sign business transformation deals for eight or 10-year terms, she said.

Marc Ferranti writes for IDG News Service

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