In the last decade alone, outsourcing has fundamentally changed from a pure client and supplier relationship, to a much deeper partnership. While the quantitative aspects of finding and selecting an outsourcing partner are still important, there is a much deeper relationship to be developed if businesses are to benefit from all that outsourcing has to offer.
According to Nasscom-Evaluserve, European companies saved $25 to $30 billion by outsourcing IT last year, with a lot of business driven by the challenging economic climate, which forced businesses to reduce overheads and speed up productivity with minimal costs.
There is an element of dependency when it comes to outsourcing, even if it's from a top-down perspective. It is one thing for a company to get services provided from a lower-cost geography, but it’s another thing to realise that the ability to execute its own internal strategy is highly dependent on the outsourcer. This is largely because the business has to rely, not just on their supplier's technical ability to do basic delivery, but also on their ability to adapt strategically and to move with their clients. It is this flexibility that defines the move from a contract to a partnership.
As a true partnership, a whole new world of possibilities opens up when is comes to being flexible, open and transparent within the relationship. A fundamental part of forming such a close alliance is trust. Strictly defined contracts can only go a part of the way to ensuring that things run smoothly.
That's not to say that contracts and rigorous criteria should be thrown out the window, these are still vitally important for underpinning the foundation of the relationship. However, the legal aspects should be guided by the managers rather than the lawyers - who are often trying to mitigate the risk and not necessarily trying to create operational success.
A certain level of flexibility can be pre-negotiated, particularly when renewing a contract with an existing, trusted partner – but a lot of it is simply based on responding to changes in the business, the industry and the economy. This has been particularly apparent during the global economic recession, when many businesses were unexpectedly forced to make tough decisions.
The most innovative outsourcing suppliers are those that can create contracts that are as much about changing the agreements as about the services that are started with. There are very few companies that can predict the next five years, and contracts need to be defined accordingly. Both sides need to think about how their partners would respond, how they would respond, and how the framework would respond to changes in technology, economy and strategy. Vitally, this has to be done before the changes start happening as it's very difficult to build a relationship in the midst of a crisis.
Offshore service providers are often criticised as not being innovative, but those that are willing to invest in this much deeper relationship with their clients can take the discussion beyond just cost and on to value. Implementing an ‘Employees First and Customers Second’ management philosophy can enable companies to bolster year-on-year revenue growth by empowering employees and increasing satisfaction in the workplace by up to 70 per cent.
As a case in point, in December 2006, life and pensions company, Skandia UK decided to outsource application optimisation, including development, maintenance and support (across all platforms) and remote infrastructure management. In 2009, Skandia began the transition to an online business model. This was originally scheduled to span a two-year period, but working hand-in-hand with a reliable partner, the project was completed in six months.
However, Skandia's new business model also necessitated a reinvention of the original outsourcing contract. With the creation of a joint 'crossover' plan Skandia could mobilise new skills and rebalance capacity across the business. Part of this involved creating a new Infrastructure Projects Organisation that adopted an outcomes-based pricing model that neither party had used before. Integrating the outsourcing company into the inherent risk and reward of Skandia's own business further strengthened the relationship to meet restructuring goals. Creativity and shared risk are part of the journey, and it is innovations like these that truly differentiate today's outsourcing companies.
In this post-recession world, organisations will be dealing with different strategies than they had before the financial crisis. As macroeconomic conditions change, the ability of companies to think and act strategically with their partners will be a key factor in whether businesses succeed or fail in the delivery of these new strategies.