A Popular Lever, Often Rushed
In recent years outsourcing has become more and more popular amongst large corporations and it is becoming increasingly clear that there is one approach that works and another that does not.
Companies that want to pursue outsourcing are typically faced with three pressures.
- First of all, senior executives want it to happen as quickly as possible once the principle decision of doing it has been made.
- Secondly, many companies lack the transparency on which assets, e.g., processes, IT systems and resources, will actually be outsourced and what the performance is today.
- Thirdly, they are approached by vendors who provide them with top-down commercial offers, for instance “we can take out 30% of the cost base of any non-outsourced situation”.
As a result, companies risk not capturing the value from outsourcing because they rush into externalising an unknown area - a black box - of their business to a service provider based on commercial “gut feel”.
More Value by Opening the "Black Box" First
To successfully capture the value from outsourcing companies should:
- Spend the necessary time and effort on creating a fact base for what they intend to outsource
- Get a clear view on the value creation levers, e.g., exploit factor cost, economies of scale that exist
- Engage in factual discussion with external providers about how to best make it happen
About the authors: This article was written by a team of consultants from Oleto Associates, a strategy consulting firm based in Denmark. For more information please visit www.oleto.com.
November 2011