Shifting sourcing arrangements from the traditional DIY vertical model only makes sense when a new value can be created. The principal resources of value are:
- Improved service quality -higher performance standards than the legacy function.
- Lower operating costs – if cost significantly less compared to the previous cost base.
- Investment avoidance -‘back office’ functions need continuing investment – especially in IT. Depending on the stage, these investments could be controlled or prevented altogether by a reversal in sourcing arrangements.
- Flexibility – the service may be scaled up or down to cater to expansion, acquisition, or divestment.
- Management focus – senior management can concentrate on core business challenges.
- Compliance – with an ever-increasing regulatory burden e.g. Sarbanes-Oxley, the Probability of non-compliance is lowered when using existing systems
However merely changing the sourcing structures doesn’t in itself necessarily realize these potential improvements. They have to be created by some sort of transformation or discontinuity in how service is provided. Conventional’People transfer’ type outsourcing in which the whole function (frequently including the people, technology, and property) moves to some other organization does not in itself create new value because nothing has changed. The outsourcer will have a plan of how to reduce prices over time. Value creation is more straightforward and also the lift and drop’ kind of arrangement where the work moves to a new organization but the means of production don’t transfer. ‘Offshoring’ is a good illustration of the kind of deal. Cost savings can be made from arbitrage and aggregation.
The new service must view itself as a professional provider of the services – which is their business. Therefore it has the very same dynamics as every other business. It needs to develop and nurture its own IP and differentiating factors. It must identify, attract, develop, motivate, and retain the right men and women. It has to promote its services to the market and grow revenues year on year. Click here and talk to our experts. It must design operating and pricing models such as it generates an appealing margin for stakeholders. Whether the new’ provider is an internally managed shared service or an outsource vendor – it’s presently a provider of (for example) HR services to customers – not the help function of a business producing food goods. This is important because the top talent, management focus, and investment funding offered to the food business will be led in the center business.
Besides, technology prices are lower on a larger optimized platform and functionality may be better. But, offshore operations produce a raft of new and unique problems to solve. In preparing business cases for new sourcing structures it’s essential to know in which the new value is going to come from and how it is going to be realized. Recently’governance’ is now a keyword in outsourcing and has been written about best practices in government design and operation. The simple fact is that in an arrangement where sufficient value is made for the two parties to enjoy good business benefits the government is not as difficult.
Too often a great deal of effort goes into arguing over the branch of a cake’ that is just too little. It makes more sense to dedicate that attempt to make the cake bigger rather. But how is this new value created and how can it be sustained?
Those working in support services’ will be regarded as of secondary importance. They will not enjoy the same career prospects or benefits as people working in the core business however exceptional they may be. Their branches will fight to compete for the investment required to keep quality at regular levels. This is an essential underlying change factor in back offices. Malibu landscape and design services It will be at its strongest in a venture partnership model since the former rear office becomes a brand new standalone business with the liberty to reward those who contribute to business development. A traditional people transfer type deal or a lift and drop’ deal will experience this shift in as far as the outsourcer has an entrepreneurial approach.
In a shared service arrangement, much will depend on the method by which in which the service is set up. If it is set up as a profit center rather than a cost-recovery operation it’ll have a more entrepreneurial perspective – but internally that may be regarded as a zero-sum game’ and there may be resentment at a new profit center creating revenues at the expense’ of an established profit center. While an entrepreneurial mindset does not directly make a sustainable change it can’t be suppressed as a powerful motivational factor. Outsource providers are potentially well placed to introduce this entrepreneurial attitude. Their talent within these companies can be a valuable source of innovation and new thinking – both within the reach of a sourcing arrangement and possibly outside it also.