This week sees the launch of the long awaited Op2i report into the outsourcing industry. Op2i, a Business Improvement Firm Specialising in Outsourcing, has looked into a perceived shift from outsourcing 1.0 towards outsourcing 2.0. That despite the economic downturn, outsourcers are still looking to climb the value chain and end users still want this.
The first good news for vendors is that interest in outsouring appears to have risen, with 51 percent of report respondents seeing increased interest in the discipline. This finding mirrors a recent report from EquaTerra finding that nine percent planned to instigate new outsourcing deals this year.
But what of outsourcing 2.0? The report describes the concept as “moving from a pure transactional, tactical approach to a more strategic partnership approach”. This sounds expensive and a difficult sell in times of financial hardship. One would expect a jump in outsourcing interest to be driven by simple cost necessities rather than strategic needs at a time like this.
Richard Nicholas of Browne Jacobson LLP, a law firm to the outsourcing industry, disagrees, “We have seen considerable demand for "added value" services. A good example would be call centres that do more than process information but which build up a rapport and can cross sell services better than an in house function.”
The report mirrors this view with 41 percent saying outsourcing ‘positively helps in terms of productivity and efficiency’. When asked about the impact outsourcing has on the economy an astounding 83 percent also thought that outsourcing ‘helps the domestic economy compete with the emerging countries’ and ‘gives access to new skills and labour’ - a ringing endorsement indeed.
So the view of outsourcing as a value-adding device is clearly increasing. However, accounts of companies actually outsourcing more extensive functions and higher value processes was not highly prevalent.
“Marketing, media management, IT security and virtual PA functions are the least likely activities to be outsourced – all representing critical organisational knowledge, or brand identity activities, which are typically central core competencies of an organisation,” the report said.
So what is behind outsourcers seeking to climb the value chain and is it in end user’s interests to relinquish so much control to an outsourced provider? Howard Sarna, CEO of Oceans Connect, an outsourcing provider, sees the possibility for creating relationships that both drive down costs whilst adding value at the same time.
“We initially engaged with a retail client [of ours] in a traditional 1.0 relationship with basic call-handling. Over the last couple of years, we've been able to expand the relationship through re-engineering processes with Six Sigma experts to proactively identify and up-selling opportunities. The expanded relationship also allowed us to introduce email back-office with increasing automation for the client.”
The opportunities for creating these kinds of relationships are clearly increasing. And as outsourcers become more finely attuned to their individual disciplines, end users could be set to benefit. However, Mr Nicolas sounds a word of caution,
“I have acted for clients who have, despite being outsourced providers, become indispensable to the customer because they know much more about the customer's needs than the customer. Whilst of great benefit to the provider I'm not convinced that this is the healthiest position for the customer, since they no longer have a view of their overall needs.”
Indeed, the question of how far a company should go down the outsourcing 2.0 route is a valid one. The potential for losing core competencies and IP is great whilst the transfer process could also become difficult as a vendor becomes more valuable. This is obviously a good thing for the vendor but leaves questions open for the end user as to the direction they want to take their business.
“The tender, transition and exit process is a painful one for all concerned. By adopting a more co-operative approach the provider has a better chance of being retained longer,” commented Mr Nicholas.
In the wake of the report the onus is clearly on the end user to weigh up the benefits and risks involved with making outsourced vendors more integral parts of the business. The decision on whether to do so rests on which side tips the balance.
sourcingfocus.com readers can access the full report by visiting oP2i’s website and requesting a copy: Outsourcing Survey Report 2008