Literature on the evolution of outsourcing has suggested that the nature of the relationship between the service receiver and the service provider has changed from being relatively independent to become increasingly interdependent. The concept of partnership has replaced the prevalent concept of buyers and vendors.
Consequently, the focus has shifted from competition (win-lose strategy) to cooperation (win-win strategy).
Cost has always been and will continue to be a key factor for embarking on an outsourcing journey. Every time an organisation outsources successfully it lowers its costs, improves its balance sheet, reduces its business risks, and expands its capabilities. But, if outsourcing is to continue to grow over the next ten years the way it has over the past ten years, organisations need to produce better results with greater regularity and at lower costs. Doing this will take a collaborative effort across the global community of outsourcing professionals – customers, providers, and advisors alike.
Companies are revisiting their modus operandi (operational model) and evaluating business operations to look at ways to restructure and make business units more efficient. Outsourcing should be considered as one alternative which, if implemented effectively, will play a key role in helping businesses attain higher cost efficiencies.
There is growing pressure on companies to trim costs and reduce budget allocations for the year. Budgetary cuts directly impact discretionary spending which can be enforced without significantly affecting day to day operations. On the other hand, non-discretionary spending, which is also coming under the knife, may lead to outsourcing as a very viable option, as these involve significant changes to how work or a particular process is done.
Assessing and mitigating risk is key in any successful outsourcing relationship – both from the customer and provider perspectives. Being aware of the potential risks involved and having an ability to monitor, evaluate and manage these risks are critical. Naturally this means also having the formal metrics or processes for doing so.
Creating transparency in the relationship is important, and gaining a mutual understanding of how a reward system actually drives behaviours on both sides of the arrangement – and how the organisations operate elsewhere – is valuable information.
When the two parties enter into an outsourcing deal, they make several assumptions, including a fixed scope and duration for the engagement, expectations about costs and profits, and a desire to sell more services based on providing an excellent basic service. However, when the sales team leaves, the on-going operations team from the service provider comes into play. Here, it is critical to establish long-term relationships and to set up systems that will enable collaborative working in order to develop the relationship. Understanding the commercial drivers that motivate both parties is important in order to create a win-win relationship.