The outsourcing industry has changed dramatically in the last three years, from a conventional to a business transformation approach.
Today`s enterprises have higher expectations of an outsource provider than just to reduce costs.
Dr Sandor Nagy, senior manager, Accenture Financial Services
The conventional approach`s objective was to hand off a support function to a specialist provider to cut costs and focus managers on core issues. The outsourcing provider would then run a support function and achieve cost savings of 20% to 50%. This would come in a package with access to best practices and achieve the same, consistent service level. Financial risk would be shared.
The collaborative approach entails an upgrade of non-core processes to cut expenses and provide flexibility to respond to changing business needs. In this case, the outsourcing provider would re-engineer and run non-core processes and typically achieve cost savings of 50%. Here, the access to competitive skills will be included and a higher, consistent service level will be achieved. The collaborative approach includes the sharing of operational risk.
The most far-reaching approach is called business transformation outsourcing (BTO). It aims at transforming the way a business works to achieve a rapid, sustainable improvement in enterprise performance. The outsourcing provider must closely collaborate with the enterprise to transform the business and also achieve, typically, 50% in cost savings. This approach comes with access to critical skills and involves the sharing of strategic risk.
When a client`s strategic agenda demands repositioning, diversification or growth, the outsourcing provider acts as a catalyst for building the business capabilities needed to attain client goals. Market leaders such as Sainsbury`s, the London Stock Exchange and Avaya have triggered their respective transformations with the help of BTO (see www.accenture.com for case studies).
Today`s enterprises have higher expectations of an outsource provider than just to reduce costs. These include the ability to manage the function as a business, flexibility for mergers and acquisitions and launching new businesses, delivering new revenue streams, establishing a better employment experience for back-office employees and enhanced morale, change to self-service and the resultant culture change.
[GRAPH]The highest growth potential is for BTO, which is currently in its embryonic state. The other outsourcing areas such as application service provision, business process outsourcing, application and IT outsourcing are further down on the maturity curve and demonstrate less growth potential.
Successful outsourcing deals of the future will be governed by mutually beneficial partnerships, where the outsourcing provider demonstrates commitment, listens and understands requirements and buyer values, demonstrates a proven track record and is willing to collaborate and take on part of the financial, operational, and also strategic risk.
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