What are the benefits and challenges of outsourcing business operations?
The term “outsourcing” has flexible meanings. For some organizations, outsourcing means moving support activities off-site (to somewhere else in the U.S. or in the world). For other companies, it means “insourcing” and hiring a firm to perform very specific tasks within a company’s own environment. Benefits to these approaches could include lowering costs and increasing efficiencies, but a frequent challenge is maintaining the desired value and sustainable goal achievement. Alternatively, some organizations are now moving towards the concept of “managed services,” which often provides a broader scope of services, capabilities, accountability and results directly in the client’s environment. “Managed services” will intelligently integrate into your organization and provide the expertise and tools to manage a portion of your business better than you could yourself. “Outsourcing”, on the other hand is a tactical approach to handle a specific function, (e.g. payroll, accounting, inventory management, shipping/receiving).
What type of services are the best candidates to be outsourced? Why?
Broadly, any activities that aren’t part of your core business can make sense to outsource. Having an expert manage your non-core activities lets you focus on what’s most important … YOUR business. Once you’ve identified the true non-core activities, you can break them down further to critical versus non-critical business functions.
What trends are you seeing in the outsourcing industry?
Real estate is more valuable than ever, and with open floor plans now commonplace, we see organizations wanting to take a “minimalist” approach to their operations. However, doing more with less doesn’t have to be a painful experience. With less space comes more resource sharing, including hoteling areas or completely unassigned open work stations. The right managed services partner should help reduce costs and increase value, while maintaining employee productivity and achieving your organizational goals.
Another one of the biggest trends in this space is “instant information.” Utilizing monitoring technology and the cloud to manage various outsourced services is now part of a complete program. Instant information via dashboards, for example, is critical for a successful outsourcing program. However, information overload is common, so your vendor should also offer a strong account team that provides you with actionable reporting by analyzing the data, drawing conclusions and making recommendations.
Recently, there has been a renewed focus on security within the outsourcing space. Large organizations have found that security was a compelling driver to move towards managed print services. Organizations must secure all sensitive information and implement devices and systems within their environment to ensure compliance with applicable regulations and guidelines. This desire for more secure solutions has focused the industry on output management software, which allows an organization to tightly control who prints what and where.
Lastly, companies are looking to do business with vendors who align with their corporate and social responsibility goals, while providing the best products and services at an economical price. More and more organizations are integrating suppliers, goods and services into their supply chain, which reduces their environmental impact.
What are the critical details for successful outsourcing?
The most successful outsourcing projects begin with executive endorsement, a strong client “champion” guiding the project and clear business goals. If this is the first time you’re considering an outside vendor, your legal and HR groups should be consulted in the planning.
A detailed project charter, along with regular vendor/client communication and clear accountability creates the “playbook” for an effective and efficient implementation. Foundational considerations include:
- Senior leadership alignment around the “Case for Change” (including the vision of success and desired future state)
- Clear objectives and criteria for evaluation
- Specific scope of work (identifying items both in AND out of scope)
- Detailed project plan and change roadmap
- Clear roles and responsibilities as well as escalation process
Additionally, organizations and prospective vendors should discuss risk management. What are the business issues that keep you up at night? What type of service levels are required and what will happen if they’re not achieved? It’s important to choose a vendor that has the experience and background to help you identify and manage these strategic focus areas.
Outsourcing can create security issues regarding sensitive business data and confidential information. How should an outsourcing firm and its clients work through these issues?
It seems like not a day passes without some major organization experiencing data security breaches. Collaborating with a vendor that has an impeccable track record in this arena is a must. Make sure you understand the security guidelines and processes already in place. Are they successful? Are they effective? If there are regulatory requirements, will that vendor be able to comply? Your research will most likely surface critical opportunities for continuous improvement, and your vendor must be willing and able to partner with you and to secure your information and protect your organization.
Additionally, understand your vendor’s hiring practices. What flexibility do you have as a client for making changes? How does the vendor continue to develop their employees? How are HR issues handled for their employees? Just like your own hires, you want to hire a firm that has a proven record of accomplishment, certified processes on employee vetting and excellent training programs on the handling of data, confidentiality and following chains of custody.
How can digital technology and specialized expertise provide efficient business functions for clients of outsourcing firms?
Living in the age of nearly “instant-everything,” employees need information and services faster than ever. In many cases, information is needed proactively so a problem can be completely avoided before it’s allowed to occur. With so many technology choices, how do you know what’s right, what’s relevant and what might be obsolete by next week? There are three critical components to every successful outsourced or managed engagement. First, you need an intelligent design to the overall project that starts with the discovery of data needs as well as business processes and key stakeholders impacted. Second, what’s the CORRECT technology needed for the solution? We frequently see clients who’ve made major investments in technology, only to use a small percentage of its value or else realize they bought the wrong solution to begin with. Third, the human element. What is the staffing component needed to either outsource, insource, or manage the services needed? Are they fully trained? Are they engaged in the success of your organization? Are they a good fit for your culture?
So, we have a great design, technology and people. All set, right? Wrong. We’ve all heard of projects that “looked good on paper,” but didn’t realize the promised return on investment. Myriad studies have shown that over 80 percent of change initiatives fail to achieve and sustain the promised future state. To make a program accepted and functional within the organization, a strong change management approach is required. Clear and meaningful communications that inspire your colleagues to help make this program a success should be customized and delivered before, during and after implementation. Work with vendors that can demonstrate measurable and ongoing impact in prior engagements.
Whether you call it outsourcing, insourcing, or managed services, the advantages are clear. When design, technology and people work in harmony and are properly balanced and supported by an effective and integrated change management approach, you will have a program that transforms your business and delivers results.
Dave Cavanaugh is Director of Strategy with the Enterprise Managed Services Division of Canon Solutions America. Dave’s group specializes in Fortune 500 companies, enterprise clients, and complex markets, all with national and global reach. His experience and account interaction has helped clients improve their processes and employee satisfaction, all while reducing costs by millions of dollars.