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A truly strategic approach to the use of outsourcing relative to corporate strategies is a choice of corporate lifestyle. Reaching far beyond the domain of individual organizations, the means through which the enterprise engages with external service providers for the provision of services offers key points of leverage and distinction in corporate growth strategies. Often reduced to administrative activities, the strategic outsourcing function is being redefined through empowerment related to cost reduction, avoidance of capital expenditure, service quality improvements, and flexibility to accommodate change as business needs evolve. outlines the critical success factors related to effective strategic outsourcing that supports corporate business objectives.

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  1. 1. OutsourcingWhat Should Be Your Strategy?Hans van Eck-CasteelsOn-Demand ChiefProcurement OfficerStrategic Rightsourcing, Outsourcing, Insourcingand Management Advice
  2. 2. Taking a Strategic Approach to outsourcing:A proposed Strategy?A Position Paper from Procurion.caExecutive SummaryA truly strategic approach to the use of outsourcing relative to corporatestrategies is a choice of corporate lifestyle. Reaching far beyond the domain ofindividual organizations, the means through which the enterprise engages withexternal service providers for the provision of services offers key points ofleverage and distinction in corporate growth strategies. Often reduced toadministrative activities, the strategic outsourcing function is being redefinedthrough empowerment related to cost reduction, avoidance of capital expenditure,service quality improvements, and flexibility to accommodate change as businessneeds evolve. outlines the critical success factors related toeffective strategic outsourcing that supports corporate business objectives.
  3. 3. IntroductionThe term “strategic” sounds much more progressive and future-oriented than itsanalog, “tactical.” Many of us, when forced to admit to resorting to “tacticalapproaches,” are acknowledging that we’re really not certain what our destinationtruly is, but we’re trying to demonstrate leadership through action rather thanmerely passing time to see what the future might bring.When it comes to corporate outsourcing — the art of leveraging the expertiseand efficiencies of a third party to deliver services to the enterprise, as opposedto building, maintaining, and operating the services organically – most don’t wantto admit that they don’t have a plan that aligns with corporate directions andoffers flexibility to the executive suite. Hence, the popular adoption of “strategicoutsourcing” to connote the existence of third-party vendor management orsimilar centralization of purchasing-related functions associated with contractedservices.Too often, it’s the “vendor management” activities that consume the cycles ofcorporate strategic outsourcing resources. Whether affiliated with the, the Chiefexecutive Office (CEO), Chief Information Officer (CIO), established as part of acorporate purchasing function, or even designated as the domain of a ChiefProcurement Officer (CPO), the functions performed tend to erode to the point ofadministration more than true stewardship of a corporate strategy.Following the age-old adage of aligning internal functions with broad corporatevisions, missions, and directions, the strategic outsourcing professionals willendeavor to catch a glimpse of the likely future state of their corporate enterprise.They will seek guidance from the C-suite, looking for macro-trends along thelines of corporate structural changes (perhaps through acquisitions ordivestitures), global expansion plans, product line or category modifications andemployee demographic considerations.
  4. 4. The Chief Financial Officer (CFO) will often lob a challenge towards the strategicoutsourcing team, looking for internal measures of efficiency compared withalternative service delivery models. The procurement infrastructure will desirerobustness in the supply chain and the executives focused on business risk willask for approaches to business continuity, contingency capabilities, and similarconsiderations.Oftentimes, it’s difficult for the strategic outsourcing organization to truly actstrategically. They adopt a reactive model to try to keep pace with the hot topic ofthe moment or ill-defined and shifting business imperatives, all the while hopingfor the opportunity to lay the foundation for a truly progressive approach to theuse of outsourcing for the achievement of the enterprise’s business offers compelling insight into these and other facts and realities ofthe outsourcing industry. Interestingly, fully 30 percent of’sengagements reach the conclusion that outsourcing is not the appropriateapproach for achievement of a client’s’ s services span the spectrum of the outsourcing lifecycle, from pre-transaction strategy development and business case assessment, to negotiatingand implementing a outsourcing transaction, to providing post-transactionoutsourcing management services that ensure that the value envisioned is thevalue derives no revenue from the representation of service providers.The firm is devoid of conflicts of interest and measures itself by the valuedelivered to its clients in the form of successful long-term outsourcingrelationships.This position paper, one in a series that addresses timely market topics,responds to some of the more common issues being addressed by globalorganizations that are endeavoring to develop a truly strategic outsourcing plan.Specifically, it speaks to the topics of developing an outsourcing strategy,weighing the merits of various operating models for the beneficial leverage of
  5. 5. industry service providers, and effectively governing a portfolio of sourcedrelationships. We do not advocate outsourcing, per se, in this paper. Rather, weacknowledge the reality of the need for a strategic approach to the science ofoutsourcing and present a framework for the establishment of a truly “strategic”utility to aid enterprises in achieving their desired ambitions.An Outsourcing Strategy — What Is It?Most major corporations define their strategic outsourcing functions, in large part,by measurements that are related to the organizational alignment of the function.Some separate the responsibilities around geographic axes, paying homage tothe autonomy of business units and/or the differentiating characteristics of certainmarkets. Others make a distinction between direct and indirect products andservices as the differentiator — emphasizing the variances associated with theprocurement and consumption models that occur between serving customersversus serving internal’s experience in assisting strategic outsourcing organizations toevaluate the relative merits of outsourcing relationships as a tool for theachievement of a outsourcing strategy has detected a common thread amongvarious corporations and industries on the topic of scope definition. In general,“Strategic Outsourcing” is being defined as the process of analysis of the internaland external environment via industry analysis, vendor analysis, business needassessment, competitive analysis, and supply/demand forecasting. There maybe subtle differences in this definition attributable to such differences as theorganizational alignment of the strategic outsourcing utility and the industry withinwhich the enterprise competes. Yet, the structure generally adopted for thefunction carry a distinctly “administrative” tone to them.
  6. 6. The principle functions found in most strategic outsourcing organizations relate tothe following: Customer Needs Assessment Spend Analysis Strategy Development Supplier Selection Contract Management Supplier Management Information Management Strategy Measurement & Renewal Asset ManagementHowever, these functions simply don’t convey the level of importance and far-reaching impact a well-designed outsourcing strategy can yield for an enterprise.They also don’t communicate the benefits such an emphasis can deliver in thenear- and longer-term. With the pressures to reduce capital expenditures,achieve greater transparency and variability in general and administrative (G&A)costs, and streamline the enterprise for increasingly global competition, it hasnever been more important than now to have an empowered and progressiveleadership team owning the portfolio of outsourcing initiatives and ensuring thatthose initiatives are aligned with the corporate ambitions.Some enterprises are renewing the significance of their strategic outsourcingteams. They are empowering the strategic outsourcing organization to considerall alternatives for the effective engagement of third-party service providers inliterally all corners of the enterprise. With the lessons learned from havingadministered relatively “low-risk” functions such as facilities and real estate,payroll processing, and the like, senior executives are challenging the
  7. 7. outsourcing strategy to address the full spectrum of business functions ascandidates for outsourcing, including transactions related to human resources(HR) services, finance and accounting operations, customer relationshipmanagement utilities and even purchasing functions.To deliver on these challenges, outsourcing executives are leveraging theexperience of the past 15 years related to the outsourcing of informationtechnology (IT) services. With a model proven to be effective for the evaluation,negotiation, implementation and management of outsourced technology services,to include the strategy development aspect of those outsourcing initiatives, thestrategic outsourcing function is renewed with expectations of cost savings,service quality improvements, and greater variability to allow for changes in thebusiness posture, and avoidance of capital expenditures.The range of alternatives available to CIO’s and functional executives is broad. Itincludes, among others Insourcing Contracting in Contracting out Outsourcing Alliances Partnerships Equity VenturesThe questions before corporate outsourcing executives are not about whether tosource, or even how to administer sourced services. Instead, the questions relateto how to most effectively source, the appropriate definition of scope foroutsourcing initiatives, global versus regional consistency, and assuredachievement of the promised results of sourced relationships, among others. Thecall for a strategic perspective has never been stronger.
  8. 8. Why Is It So Difficult To Develop and Live?Taking a “strategic view” sounds easy. Reduced to simple form, it says, “Designan approach to achieve the destination we envision for the future.” Yet theeconomic and political uncertainty in the world and in many corporations hasnever been greater. How is a strategic outsourcing team to balance the near-term imperatives with the ambition of building a sustainable model for the future?While this paper focuses on the provision of technology and business processservices, sources of expertise exists to address matters related to manufacturing,distribution, and supply chain efficiency. Approaches used should gauge thedegree of effectiveness, in terms of cost, quality, variability, and risk, amongother factors and should be tuned to provide a professional judgment regardingwhether and how outsourcing might benefit the enterprise. An analysis shouldaddress the delineation of scope — whether to bundle multiple businessfunctions into a single outsourcing initiative, or to apply “point solutions” toaddress risks and opportunities.A well-constructed outsourcing strategy ought to answer three fundamentalquestions for the enterprise, all relative to the corporation’s ambition: Where are we? How effective and efficient are our current capabilities? Where could we be? What are the marginal opportunities? How can we get there? What is the roadmap that will allow us to move forward?Like many things in business, ambition is a moving target. Developing and livinga strategic outsourcing strategy is made complex by changes in executiveleadership, market pressures, shareholder expectations for near-term results,
  9. 9. and the like. Yet there are certain actions available to the enterprise to install anempowered leadership to develop and own the strategies related to theappropriate application of outsourcing towards the firm’s business strategies.How Our Clients Install Leadership inStrategic OutsourcingLeadership begins with empowerment. In the recent past, the CIO was generallyempowered to define the “business of technology” as a means to showing directrelevance between technology services and the business units served. ManyCIO’s endeavored to operate their organizations as business units, with definedservices offered at defined prices. The discipline associated with deliveringtechnology in a manner that appeared to be a commercial offering is generallycited as a marked improvement over predecessor models.But even in technology services, whether those services are delivered in wholeor in part through outsourcing relationships, the need exists for continuallyrefreshed outsourcing strategies. Once an outsourcing transaction has occurred,whether for a narrow scope of services or even a globally-relevant relationship,the work of outsourcing strategy is far from complete.In other functional areas of the enterprise, notably the G&A functions that arenow being weighed for possible outsourcing, the ability to achieve the samedegree of service provisioning is also being sought. But, internal ownership of theinitiative is often ambiguous, the degree of process integration that exists today
  10. 10. may confuse the delineation of scope, and the service providers that exist in themarketplace may be hard to gauge.Market experience reveals several key steps necessary to achieve trueleadership in developing a strategic approach to outsourcing.1. Link the corporate needs with outsourcing alternatives — complete athorough business needs assessments and spend analysis to providealternatives in the areas of market intervention, technical intervention, coststructure, supplier relationships, internal process intervention andtechnology-enhancement initiatives.2. Develop short-term, mid-term and long-term outsourcing strategies —develop and syndicate a statement of the strategy that includes each ofthe criteria, and the rationale for each element. The strategy documentincludes statement of strategy, desired results, tactical choices andrationale, exit strategies, appropriate internal approval commitmentsrequired and strength, weakness opportunity, threat (SWOT) analysiscomponents.3. Obtain internal alignment on strategy - after documenting the strategy withrationale and supporting data, review the strategy for alignment with theinternal decision makers in the C-suite and business units.4. Establish savings targets – as outsourcing strategies always entail thereduction of costs, use the strategy document to define the potentialsavings targets based on the strategic intervention choices defined in thestrategy.5. Develop Outsourcing Plan - use the strategy document and the savingstargets to develop a detailed tactical plan that defines how each statedcorporate need will be sourced, by whom, when and with what level ofrequired support.
  11. 11. 6. Leverage market expertise to validate the merits of the strategy with focuson such consideration as the viability of the service provider marketplace,global resource considerations and impact of industry trends.Applying a consistent process for outsourcing strategy development acrossmultiple corporate business functions, whether or not already sourced in whole orin part, will install a discipline for decision making, risk assessment, andopportunity evaluation that ensures alignment with business imperatives. Thesesteps will also help to guide any eventual outsourcing transactions with respect tokey business terms that should apply to the establishment of servicesagreements, such as those related to exclusivity, termination rights, inter-processaccountabilities, and other aspects contributing to a portfolio approach.Finally, the benefits of such an approach will accrue to the outsourcingmanagement function that is ultimately accountable for monitoring andadministering outsourcing relationships. The achievement of the valuepropositions associated with an outsourcing relationship is only made possible ifthere is a clear articulation of the strategy for the relationship in the first place.
  12. 12. ConclusionsA truly strategic perspective on the topic of outsourcing is more important tocorporate enterprises today than ever before. Too often the role of strategicoutsourcing organizations is reduced to administrative tasks. Outsourcing isnever a foregone conclusion, merely one alternative in the arsenal of theoutsourcing executive.By leveraging defined corporate needs and objectives, a framework forassessing the effectives of the current state of service delivery is outlined. Inaddition, developing a baseline characterization, augmented by market expertisethat delivers professional judgment regarding what alternatives are possible, iscritical to the process. Finally, a lifecycle representation allows the strategicoutsourcing team to direct initiatives in a consistent and manageable manner.Strategic outsourcing is a lifestyle. It is not a project, in the sense of being a one-time or periodic initiative. It’s all about aligning corporate objectives, strategicdirections, and above all, the ability to effectively team and communicate withyour outsourcing services provider.Outsourcing, done right, works.For further information, please contact Hans van Eck-Casteels - +1-416-931-5241 or