In the first of a three part series, Tim Palmer, the Lead in HR Transformation at PA Consulting Group, shows how with financial pressures leading organisations to ever more carefully evaluate the type of business they are undertaking, the current global economy presents the chance for sourcing techniques to prove their worth.

Dynamic businesses require dynamic sourcing solutions

A key requirement of an effective sourcing model is flexibility, and service providers need to be able to modify their delivery and cost structures to the shifting business mixes of their clients.

The problem is that commonly used sourcing methods can drive flexibility out of an arrangement before it has even begun. Procurements that pitch several service providers against one another can result in the elimination of any innovation or flexibility in the providers’ solutions, in order to lower their prices as much as possible. ‘Apples-to-apples’ comparisons between bids are best used only as a starting point from which to explore further innovative offerings, rather than as the basis for making the final decision on which service provider or deal structure to use.

For existing outsourcing contracts or shared service arrangements, flexibility is unlikely to have been built in as a primary objective. This makes responding to business mix changes a painful exercise. If agreements were struck with the help of a sourcing adviser or experienced external counsel, there should be some levers to help. However, if the changes required are significant, these levers are unlikely to give you as much control as required.

Time to ask: ‘What do we really want?’

Where a new shared service centre or outsourcing contract is being contemplated, it is worth spending time to work out the overall intent. Drawing up a long list of requirements is relatively easy, but weighting their relative importance is less so. Typically, as organisations go through the sourcing process, fundamental compromises need to be made.

For example, it is common for potential sourcing customers to have a shopping list of things that they are looking for:

• A transformed operating model

• 20 per cent savings

• Flexibility – ability to scale costs up and down in line with business demand

• Global consistency and standardisation

• Improved service delivery

• New systems

• More accurate data

• Improved controls.

It is possible to achieve these things through effective shared services and outsourcing, but rarely all of them together. Two questions should come forward as customers find themselves having to prioritise. What is the overriding intent for the sourcing project? And what compromises are steps too far?

This blog is an extract from PA Consulting Group’s book, ‘Surviving and thriving in the economic crisis: The sourcing opportunity’, and is available free of charge. To request a copy of the book, please visit http://www.paconsulting.com/sourcingopportunity