Management Tips

Outsourcing, more than a simple option

Outsourcing

Outsourcing is the process of contracting a third party to develop a task or a job. This strategy has grown up in the last years, specially in the Tech Industry, by small, medium and large companies.

The kind of tasks that business can subcontract are those that don’t deliver value to customers and are not into their core business.

When business outsource activities, they can reach some benefits. The following are some examples:

  • Focusing on Core Business.
  • Cost savings and restructuring, decreasing the operating leverage.
  • Working with a new service level agreement, in order to improve quality.
  • Access to best practices, talent and knowledge.
  • Better management capacity and less risks assumed because some of them are borne by suppliers.
  • Better scalability to respond to market fluctuations.

But also business can find some disadvantages too when outsourcing activities:

  • Knowledge outsourced: Banks sometimes don’t learn the technology on the lowest level, what leaves the real understanding of what is actually done under the hood.
  • Support level: When design, development and implementation stages are finished, you have to assume maintenance.
  • Extra organization effort: registering projects, tasks, managing formal communications, preparing and signing agreements and checking specifications.
  • Costs: Subcontracting can be cheaper, but it can be more expensive too.
  • Lack of control and influence: The level of control and ability to influence work of an internal team is higher than when external companies do something for you. It’s not easy to control subcontractors as you wished.

Is outsourcing a fashion or it will be with us for a long time?

Due to the benefits that outsourcing gives business that choose this strategy, and considering the actual situation of crisis, it’s easy to think that outsource activities are not a fashion. Outsource Magazine asked the top leaders in tech areas about the future of outsourcing strategies, publishing the results in this article (recommended lecture).

The words of this 43 prominent figures in Tech Industry are very interesting and we can highlight some of them:

  • Stan Lepeak (Director, Global Research, Management Consulting at KPMG) More of the same: economics and debt continue to drag on the market. Buyers continue to build out and tweak global business services capabilities with an emphasis on more shared services, especially nearshore, and more investment into emerging markets (China, Brazil, India), following the growth path of their own revenue models, though (relative) slowdown in those markets will contribute to sluggish market growth.
  • Peter Smith (Owner, Procurement Excellence) My two topics of greatest personal interest are procurement outsourcing and the UK public sector. I predict good news and bad news. Procurement outsourcing I think will see increased activity, but it won’t be the “big bang”, “ship everything offshore” model. Rather, it will be senior procurement and finance people looking to get third-party support for critical elements of their procurement activity. That might be on a category-by-category basis, or support in areas such as supplier information management or similar.
  • Mike Nefkens (Senior Vice President & General Manager EMEA, HP Enterprise Services) In the coming year, I think we will witness a fundamental sea-change in the way IT services are outsourced. Cloud has come along and given IT departments the ability to procure flexible services which they can dial up and dial down to meet demand. I believe that IT outsourcing will evolve to meet this emphasis on flexibility. Indeed, over the last 12 months we have already started to see a move away from the vast, all-encompassing IT outsourcing deals and towards more bespoke contracts delivering a hybrid model, in which organisations can cherry-pick the services they outsource.
  • John Lutz (General Manager Global Process Services, IBM) The search for “non-core” business processes misses the mark. If it relates to the success of your company – and everything your company does contributes to its success – then it matters. The question really ought to be: does it make sense for my company to perform certain processes, or would we be better served entrusting them to an expert whose sole business it is to perform and continuously optimise those processes?

Link | The power of Positive Reinforcement in business
Image | Martin Cathrae