Outsourcing has a long history that can be traced back to the 1950s wherein new economic strategies led to the search for cost-effective solutions. In beginning, outsourcing to third parties was limited to non-core functions alone. Over time, it has now extended to highly secure outsourcing processes that can even handle the core requirements. According to Statista, “In 2019, the global outsourcing market amounted to 92.5 billion U.S. dollars.” This number continued to grow even during the pandemic.
From Improving the organization’s focus to reducing operational costs and more, outsourcing has a lot to offer. Making the best out of it however hinges not only in identifying a good outsourcing partner but also in augmenting outsourcing effectiveness by strategizing the approach. So, here are Five Key Drivers to Augment Outsourcing Effectiveness.
But before that here’s a scenario, the answers/solution to which lie in the 5 points listed below.
“Company A has contracted Company B for its data processing needs, however few key stakeholders in Company A are wary about Company B’s security readiness, and reason that the organization’s in-house resources are not being considered. This triggers an internal discussion, followed by the work being suspended midway. This in turn leads to decreased production and affects all the other processes too. So, what went wrong here? Or rather, which steps were overlooked while outsourcing?”
- Common Consensus
Outsourcing effectiveness depends not just on the company that has been chosen to do it, but on how well the initiative has been accepted by the organization that has to outsource. To get the best out of it, thought leaders and influencers must be on board with the idea of outsourcing. It is necessary that the leaders are on the same page. Improvement of the process would depend on how the management communicates with the outsourcing partners to exchange ideas and improve productivity. In the book Nine Keys to World-Class Business Process Outsourcing, Mary Lacity and Leslie Willcocks talk about a leadership pair (one from each organization), who work in collaboration to improve performance by reducing bottlenecks, and tackling any issue that obstructs work.So, before outsourcing ensure that there is a common consensus within the organization. This can not only help in augmenting outsourcing effectiveness, but also help in creating better strategies and processes. - Benefits over Cost Reduction
Yes, outsourcing is about cost effectiveness. This however should not be the focus. Outsourcing effectiveness depends on looking closely at how the resources can be leveraged to get the best results. The organization that is outsourcing and the organization to which process/service is being outsourced to, should ideally focus on which capability to build on to improve production or improve client satisfaction, and this subsequently translates to cost-reduction by itself. - Access In-house Capability
While looking for better solutions and services, organizations also tend to focus on technological upgrades. But before doing so, it is imperative to look at the technological and organizational readiness. Assessing the in-house capabilities which includes IT and resource readiness can help in improving the outsourcing strategy and give the service provider an insight into what value addition it can provide. - Do Your Research
Be it for a long-term or short-term requirement, comparing what different service providers have to offer is a must. Choose to outsource only after completely analyzing the internal costs and processes. While selecting the vendor, focus on the key strengths and expertise for narrowing down the list. Choose an accountable vendor capable of taking charge of the projects and requires minimal supervision. The process of selection may be time-consuming, but the results are often worth the wait. - Build a Partnership
Outsourcing is a strategic decision, and to get the best out of it both organizations should agree upon certain terms or at least align well with each other’s visions and values. While outsourcing is often done for specialized services and complementary services, certain processes and policies have to be adhered to maintain the industry standard. To augment outsourcing effectiveness, building a partnership is way more effective and long-term than merely establishing a customer-vendor relationship.
Considering the scenario stated in the beginning, paying attention to the five key drivers can help in avoiding divergences and getting the best results from outsourcing.
Growing technology, demand, lack of skilled employees and infrastructure often lead organizations towards outsourcing, a choice that is profitable in many ways. The move to cloud, increased availability of data, privacy and security concerns all require specific attention and so choosing a service provider with these specific capabilities makes it easier for the organization to focus on its primary goals.
According to a Clutch Report, “8 in 10 small businesses (80%) plan to outsource business functions in 2021. Small businesses plan to outsource in order to save time, grow their company, and work with experts across a range of business functions. Overall, outsourcing provides small businesses distinct benefits.” So, it’s no longer about why to outsource, but about how you outsource.
