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Outsourcing has had somewhat of a bad press this year. Here Valerie Bonnin, Director at Incendium Consulting explains why she thinks it still works and how to avoid its pitfalls
The demise of big firms such as Carillion has left some major projects incomplete, others with a doubtful future and ongoing service delivery in disarray in places. This has brought outsourcing back into sharp focus – and not necessarily in the best way. Questions around certainty of delivery, value for money and the capabilities of suppliers are being raised both in the public and the private sector.
That doesn’t mean we should move away from outsourcing entirely, and in fact that would be a mistake. After all outsourcing is in theory an efficient way of getting the job done, while providing scale, flexibility and good market expertise. But anyone embarking on this exercise right now, especially within the public sector in the current environment, will need to tread even more carefully than usual. So, what is considered best practice in this area and what are the common pitfalls firms should avoid?
BEST PRACTICE
First things first, businesses need to agree what their requirements are from the start. Focussing on what they want specifically and establishing design principles before determining what the solution may look like will save both time and money.
Be very clear about the future of your in-house function, its scale and scope, as well as capabilities and the change journey you are willing to undertake. Getting the right balance here is half the battle towards a successful outsource.
Ensure your data – property, assets, financials, people and trends – are in good shape. This will help you run a smooth procurement process, remove some risk and ensure the supply chain resource and price sensibly. It will also instil confidence towards you in the market and ensure you attract a maximum number of bidders.
Once firms have defined their requirements, it’s time to engage with other corporates and the market to define what the right partnership may look like. Corporates can achieve this by using consultants to help facilitate discussions with peers as well as a wide range of suppliers in the market. At the end of the day though, what works for your peer may not work for you depending on your in-house model, design principles and future strategy, so the right partnership for you may be a hybrid of a number of models.
One key thing to remember is that an integrated supply chain does not necessarily mean one supplier. There are many ways to achieve integration, so consider all the outsourcing models, for instance you can provide the integration in-house through your CRE function, appoint a single supplier, appoint a supplier in a ‘pure integrator’ role (i.e. independent and no service delivery) to manage the day-to-day delivery of your supply chain or appoint one of your suppliers in a ‘T shape’ role, i.e. integrator with some service delivery.
If you require external support to run your procurement, then go for an advisor that is independent – not tied to a specific service provision model or supplier.
Finally, develop a commercial model – pricing mechanism, risk transfer, performance scheme, service levels, incentive scheme – that works for your business as well as the service provider (they too need to make a margin). This is key to the success of the future contract, regardless of the outsourcing option. It will also ensure you attract the right number of bidders’ attention as too harsh or loosely defined commercial terms often mean bidders simply do not bid.
COMMON PITFALLS TO AVOID
For a successful relationship with your outsourcing partner don’t expect them or their partners to not need any input from you or to operate exactly in the same way you did previously. Look for a partner that will complement, challenge and above all add quality. It’s also your responsibility to rein in more leftfield ideas – though original thinking often provides the best answers and you need to be ready to embrace different.
Don’t replicate the in-house team you had previously. If your new outsourcing model is different then your in-house team must adapt and also must go through a change journey for the contract to work.
A global/single supplier isn’t always the answer. True, large organisations do have a wide reach but is this your top priority? If you need an agile partner with specific service or local knowledge, look for a best in class or local partner instead and achieve integration in other ways.
Make sure you do not abdicate ownership of data and make sure that regardless of where the technology platform sits, you have real time access to data and that it transfers back to you on contract expiry.
Never see your current outsourcing arrangement as a ‘forever’ set up. Outsourcing works best to scale up quickly or address a particular challenge or project. When that objective has been achieved, go back to the beginning and review and think about what you need next.
So, having explored both the benefits and pitfalls to avoid, my message is – do not give up on outsourcing just yet. Spend adequate time defining your requirements and what your design principles are, then look at outsourcing options and what the market can provide. Above all, ensure your in-house team is fit for purpose and ready to work in partnership with your new supply chain once appointed.
