Outsourcing: there’s nothing to fear

Outsourcing: there's nothing to fear

Insider Business Club: does outsourcing destroy jobs, is it really cheaper and can it provide a quality service? These are among the challenging questions being asked of outsourcers – and recent talk of bringing work back in-house has only added to the confusion. Martin Cook of Capgemini attempts to answer some of these questions, while Martyn Hart of the National Outsourcing Association warns users to avoid being ‘blind sided’ by the desire to cut costs


While the business world appears to be rife with talk of a reverse in the
outsourcing trend, one of the industry’s most senior figures insists that there
is no greater risk from having services offshored or outsourced, than having
down the corridor.

Martin Cook, the outsourcing global sales officer at Capgemini, told the
Insider Business Club, that having key services offsite should not be considered
a handicap.
‘There is no greater risk from delivering most services from a distance than
there is having the person next door to you. However, having said that, the
underlying point is a very valid one.

‘I would put it in a slightly different way. It is less a risk of delivery
because as long as you get the right partner and put in the right control
mechanism and get the right people, there should be no particular reason for a
greater risk than if you were to have it in-house,’ he said.

Cook was willing, however, to admit that outsourcing deals do fail on
occasion. But he offered reassurance that the quality of service was central to
any outsourced service.

He said outsourcers succeed or fail on their ability to deliver quality. ‘If
we didn’t have ways of guaranteeing quality, if we didn’t apply the latest
standards, the latest thinking, the latest processes and if we didn’t have
robust ways of promoting high quality individuals…then we wouldn’t survive

Cutting remains one of the major reasons for outsourcing services, but
Insider Business Club members revealed their scepticism over the savings that
can be made. In a poll 48% said that were not convinced that outsourcing would
save money.

The results conflict with Capgemini’s own polling on cost cutting, but Cook
remarked: ‘A healthy degree of scepticism convinces me that it is a perfectly
good thing for a CFO to want.’

Cook estimates that at least 50% of the time, cost is the ‘predominant’
driver for outsourcing deals. But he suggested that might change because
outsourcing could help add value too. ‘If you deliberately seek an IT partner
whose job is to improve your ability to do things such as take products to
market, cut production time, cut the supply chain down, get greater efficiency…
then there is a direct impact on competitive advantage,’ he said.

‘Increasingly you can almost see this as a generational thing, you may start
off with cost reduction, but having got that and the basic operations under
control, you may well be thinking, how can we turn this to add value,’ he added.

National Outsourcing Association

In the past, outsourcing has been lauded as the solution to all business
ills. But at the National Outsourcing Association, we are the first to admit
that it is by no means a panacea for every business problem.

Even though there are many benefits to outsourcing, it can be fraught with
problems, particularly if organisations fail to adhere to best practices.
Companies are advised to approach outsourcing realistically and keep their eyes
open for any potential pitfalls that could arise and lead to the detriment of
the project.

Over ambitious targets as well as insufficient research and planning make it
likely that companies will fall short of target deadlines or go way over budget.
This will have a negative impact for the end user organisation and the supplier,
as suppliers are often penalised financially or by reputation for late delivery.

Thorough research and needs analyses should be conducted to maximise success
and ensure projects come in to budget and on time.

Too many companies become blind sided by potential cost savings and fail to
pay due attention to other areas of outsourcing. As a result, many other issues
are not taken into account, such as quality of service or business continuity or
staff relationships. If organisations are too side tracked by cost savings, it
is likely to compromise the success of the outsourcing programme.

Services and objectives must be sufficiently clear and detailed to make the
providers’ obligations clear. The contract must be structured around the
resources and requirements of the user. If the contract falls short, it could
lead to costly disputes later on. Existing contracts with third party suppliers
must be dealt with if they are to be transferred or made available to the
provider – they must be reviewed for restrictions on transfer and appropriate
consents obtained, or the deal could be blocked. Issues like this have to be
addressed very early on in negotiations.

From SLAs and KPIs to benchmarks and regular performance assessment, it is
imperative that the process is regularly reviewed to judge progress. It must
also be assessed against the original, inhouse process, in order to assess how
the process has developed and if there have been improvements consistent with
the investment in the outsourcing project. But it is important for end users to
bear in mind that they shouldn’t be trying to nail suppliers to the wall with
unrealistic SLAs. Over promising and sky high expectations can be a recipe for
disaster. It is important that objectives are agreed on both sides before
embarking on the project.

Martyn Hart is chairman of the National Outsourcing Association

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