Outsourcing – Follow Facts Not Feelings

Avoid outsourcing part of your business as a black box and get brighter results

In recent years outsourcing have become more and more popular amongst large corporations and it is becoming increasing 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 fast as possible once the principle decision of doing it has been taken. Secondly, many companies lack the transparency on which assets, e.g., processes, IT systems and resources, will actually be outsourced and how the performance is to today. Thirdly, they are approached by vendors who provide them with top-down commercial offers, like “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 by rushing into externalizing an unknown area - a black box - of their business to an service provider based on commercial “gut feel”. To successfully capture the value from outsourcing companies should spend the necessary time and effort on creating a fact base on what they intend to outsource, get a clear view on the value creation levers, e.g., exploit factor cost, economies of scale, that exist and then 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