Managing expectations

Today's highly competitive world business environment is forcing management to aggressively pursue ways to achieve efficiencies, improve customer service and save money.

In the search for new ways to streamline company operations, the concept of outsourcing "non-core" business processes and activities is a tempting new way to improve operations and costs, with the understanding that businesses should be focusing on managing and controlling those key "core" business processes and activities that their organisations are best at doing.

Unfortunately, says Herbert Wentzel, Divisional Director, EOH Consulting, too many organisations still believe the key driver for outsourcing is cost-savings. “Often this is not the case as their current cost is not related to any form of SLA,” he says. “Cost benefit is no longer the most important reason for companies to outsource. Efficiency is the key driver, followed by quality and availability of manpower.”

Being a strategic decision with long-term impact, the success of outsourcing depends both on the service provider and the outsourcer's commitment. When cost saving remains the primary driver for outsourcing, this often results in raising unrealistic expectations with reference to continual cost savings. “Owing to this myopic view, enterprises fail to consider other benefits such as process efficiency, improved focus on core business areas, better ability to plan, higher levels of operational reliability, and more rapid implementation of new strategies and initiatives,” says Wentzel.

“A broader and long-term approach is essential to set pragmatic goals, spread over time for evaluating the success of a relationship. Some of the other benefits enterprises should seek from outsourcing engagements include access to flexible, scalable and easy to maintain systems - leeway to focus on core strategic functions, access to high calibre labour and, most importantly, risk mitigation. When enterprises broaden their vision and visualise outsourcing as a strategic function, they will be able to adopt a more balanced approach as opposed to viewing it as a pure cost reduction mechanism.”

However, outsourcing is not a simple decision. Several obstacles are still holding companies back, and many companies make mistakes in their outsourcing drives. “If the organisation doesn't know what it wants out of the contract, it will have difficulty measuring whether it is successful. The expectations should be clear from the start,” Wentzel says. “Without a baseline, it is impossible to measure whether the outsourcing provider has delivered on its promise. In addition, many organisations believe that once they have outsourced a process, they can just forget about it. In fact, it is essential to have a formal process for monitoring and managing the outsourcing contract.”

Companies should therefore clearly identify their selection criteria and weigh them up according to the importance of each factor. “The question of ROI in outsourcing remains elusive, but businesses can focus on measuring three key groups of metrics: cost, service levels and customer service,” Wentzel adds. “For all three groups of metrics, it is critical to establish a baseline before outsourcing and to set expectations properly.”