By Dr Roger Newman, head of UK manufacturing and digital convergence relationship management at Mahindra Satyam

Many companies have outsourced and off shored their IT service requirements and from all the research I have read, most of them are successful. More importantly people are becoming more successful over time as they learn lessons, either from their own experiences or through industry best practice. As companies become more mature at handling outsource suppliers the suppliers have had to respond and deliver ever increasing benefits; one of the positive effects of a very competitive market.

Having successfully outsourced IT Services, companies are now turning their attention to other Back Office processes. Many processes in functions like HR and Finance cannot be considered ‘core’ or strategic enough to justify keeping them in-house. At Mahindra Satyam we are finding that customers are turning to us for a wide range of non-core back office services such as; Line balancing of assembly lines, development of art work for packaging, claims processing and so on. As with IT services the benefits of outsourcing this kind of work are considerable and include;

a) Cost reduction

b) Improved quality & standardisation

c) Continuous improvement & innovation

d) Freeing up management time.

The disciplines required to outsource Back Office processes are similar to those required for outsourcing IT services. Of course the vendor landscape is different and the internal stakeholders may be different but the best practices are the same.

Although the Back Office processes may not be core or strategic they are still vital to the well being of the company and their effective execution underpin the company’s reputation and productivity. If they are not executed effectively everybody in the organisation gets to know about it very quickly. These processes directly affect the customer, the staff and the management stakeholders. Your CFO may welcome the cost reductions that outsourcing will bring but if in outsourcing his function, there is any degradation of service you may have to start looking for another job.

In summary back office processes can be successfully outsourced, the benefits are strong but we must learn from industry best practice and not get lured into thinking that this is anymore straightforward or easy that outsourcing IT services. As we move into 2010 I am sure that we will see a strengthening of the trend to outsource ‘the whole stack’ of a Back Office process.

For example a company may ask a vendor to manage the IT Infrastructure, the IT applications and actually process the business process transactions e.g. a firm may monitor the hardware that the Oracle Financials application runs on, it will maintain the application and have staff entering the invoices into the system. This gives the outsourcer the opportunity to look at the complete picture and offer deeper benefits. Often this is governed by a contract that is based on outcome pricing e.g. a price per invoice processed. This does not mean that companies have to sacrifice the benefits of multi sourcing (see my views on the key to a successful multisourcing strategy at http://www.sourcingfocus.com/index.php/site/featureitem/1984). This is a trend towards deeper, vertical outsourcing e.g. everything in a particular process rather than outsourcing all processes to one supplier.