The best performing shared services operations go beyond cost efficiency and service effectiveness and focus on delivery value to the business. As part of their brand and value proposition to their internal customers, these shared services operations make “customer engagement” a critical component of their shared services strategy and delivery model.
Five simple yet informative reasons why customer engagement is so important:
Clarity on what work is truly valuable and important to the customer
Mutual understanding of the customer’s needs for service and information
Creation of a culture where the customer feels “ownership” of services being delivered
Incorporation of the customer’s perspective and experience in service improvement
Prioritization of workload through demand management
Sourcing can drive tremendous value for an organization but unfortunately far too often, sourcing strategies built with the wrong approach do not create value and often destroy it, leading to years of recovery.
Here are five straightforward yet common mistakes in outsourcing that destroy value:
Not having a clear service strategy aligned to business outcomes
Failure to engage in sufficient upfront planning and analysis resulting in a sourcing strategy that does not align to overall business strategy and complement the business its serving
Too narrow of focus on cost reduction and short-term results vs. tangible opportunities to drive growth, innovation and operational effectiveness which can be achieved through the right outsourcing arrangement
Deficient workload and transaction tracking resulting in inaccurate data in an outsourcing RFP, and simply a bad deal for both the client and service provider
Underestimating the management effort and attention required to successfully develop and manage an outsourcing relationship to ensure it delivers on the intended business case
Many organizations have turned to outsourcing to help with cost reduction, and to improve operating efficiency. Historically, we thought of two types of outsourcing – IT Outsourcing (generally referred to as ITO) and Business Process Outsourcing (generally referred to as BPO). For some organizations, ITO and BPO are treated as separate initiatives, with separate business owners. But a new generation of outsourcing, fueled by experience, technology trends, and economic factors is causing a convergence of ITO and BPO. The lines between process and technology have blurred. The silver lining is that this can be good news to the CFO, and business executives.
Pioneers in leveraging the convergence of ITO and BPO outsourced IT and one or more business processes at the same time, frequently to the same provider. Examples include outsourcing the company’s ERP, finance applications and finance & accounting processes to one provider. They quickly realized that the contract structures could be identical, the value of outsourcing both the IT and the process at once brought them benefits faster, the structure was less expensive to operate (i.e., one governance organization, one contract manager, and one bill) and there was typically only one provider to deal with if there were issues (i.e., less finger pointing). The primary challenge was that IT, Finance, Procurement, HR, and other business organizations had to agree to one provider, one contract structure, and one governance organization.
If leveraged correctly, ITO/BPO convergence can result in lower cost and better control—two priorities on the CFO’s agenda. Lower cost is obtained through both simplification and standardization of outsourcing deal structures and ongoing outsourcing provider management. For example, standardization of outsourcing agreements reduces the cost of negotiating the contract and allows companies to leverage their experience in contract structuring across multiple agreements. Essentially, we’re seeing that the more comfortable and experienced an organization gets with outsourcing, the easier it is to go through the process of outsourcing other areas of IT or business process. Cost reduction also results from the convergence of ITO and BPO deals in the management of the agreement. Fewer employees are required to manage multiple agreements due to their common structure, and better still, these fewer employees can conduct a more consistent analysis of agreements costs, service levels, provider performance, and value to the organization.
Three VALUES You should Require from Your Outsourcing Consultant to Create VALUE.
#1 Impartial Outsourcing Leveraging outsourced resources to create value is a powerful option for many companies, but unless the right analysis has been done the results can be value destroying. WGroup is agnostic about outsourcing and we are driven by our discipline to make recommendations based on rigorous fact-based analysis. In some cases, firms can deliver the greatest value to their shareholders by continuing to perform work themselves. And more and more, services are being delivered across a diverse model of multiple vendors and a combination of insourced/outsourced services. Answering the What, Who and Where questions correctly is the essence of our analysis.
#2 Provider Navigation The ITO and BPO service provider market is crowded and differentiation is difficult. Outsourcing services, whether it is aimed at achieving greater productivity and lower cost for back-office processes, or aimed at swapping a fixed cost structure for a variably priced service based on consumption, companies are quickly learning that they can find numerous providers anxious to assume the operations. WGroup is not only knowledgeable about the provider capabilities and pricing, but makes it a priority to understand what providers have significantly different service models and capabilities to deliver strategic, innovative and value-adding services. It is in your best interest to ensure providers have the opportunity to showcase their ability to deliver value and not be boxed into templates that don’t allow for creativity. It is also important that your outsourcing consultants ensure providers are making a fair margin.
#3 Tailored Strategies WGroup believes “non-prescriptive” approaches, developed collaboratively with service providers, result in the best outcome you want to achieve. Rather than contentiously directing providers to respond to a service delivery model that has been created for you by a consultant, we work with all providers, agnostically, to help them understand your requirements and how they can best leverage their capabilities to deliver the optimal solution that will result in value creation. Collaboration and hard business analysis always works better than creating a contentious relationship with a potential partner.
Today, BPO and ITO Agreements Leverage the Experience of Both to Support an Evolving Business Environment.
In the early days of BPO the structure of deals was modeled after the ITO deals of the day. The primary goals of the original BPO deals were to make sure the client got every bit of margin possible out of the provider and to structure the deal so that it was absolutely clear what services were to be provided at what cost based on the client’s current environment. Any fluctuations in demand, up or down were forced into the ITO adopted ARC/RRC approach whether it worked on not.
This strict approach to structuring contracts for both ITO and BPO was a detriment to both the provider and the client. The challenge was as the businesses evolved, needs changed and as technology became more accessible the strictly structured contracts were not able to address this evolution. Through WGroup’s experience in working with numerous CFO’s and Contract Managers, we have found that their one complaint was that their contracts made it too difficult to address business changes. This resulted in frustration on both the client and provider side of the agreement.
The good news is, next generation agreements are being re-structured or newly structured to deal with the realities of business and the fact that a successful business changes and evolves.
As we see IT moving into the business due to the demands for better business knowledge, the consumerization of IT, and the use of outsourcing as a tool to optimize overall business performance, we understand the need to leverage the lessons learned from both ITO and BPO deals. Therefore, WGroup works with you to structure contracts with this evolving environment in mind…not the old rigid contract that had to be renegotiated whenever changes occurred.
Outsourcing Buying Behaviors Are Changing and IT Services Are Becoming More and More Commoditized—Are Service Providers in the Value Game?
Systems Integration, BPO and ITO providers are increasingly being asked to differentiate themselves through their solutions and their ability to commit to linking services to value creation. The alternative is to submit to the “low price” auction process for cookie-cutter solutions. The market is bifurcating into commoditized services that offer low value, contrasted with solutions that enhance shareholder value and allow service providers to achieve a level of intimacy with their customer, along with an acceptable level of risk and responsibility.
WGroup believes clients should make “fact based” selection of providers rather than an instinctual selection. Ensuring the integrity of the solution is paramount. Finding the appropriate market-pricing for the solution is somewhat less problematic. Cultural matches are important.
The logic for win-win transactions based on market pricing is obvious to us as a prerequisite for success. We do not consider sourcing deals to be procurement transactions and consider all of the dimensions of risk and relationship, including future investment impacts, skill requirements, technology upgrades and refreshes, as well as IT and business process re-design. WGroup works with clients to align sourcing strategy with where they envision their business in the future, rather than creating your “mess for less.”
The pressure to reduce IT spending continues and companies have had to become more sophisticated in their approaches to finding and maintaining those cost reductions, conversely, we are beginning to see more CIO’s challenged by the prospect of driving IT initiatives which are focused on revenue increases.
WGroup’s calls this “Business Driven IT” and it is a reality that has changed the role of the CIO forever. Today’s CIO’s are questioning ALL of the work that is being done by their organization. The rationalization of services and the linkage of IT services to measurable business value is a trend that is gaining significant momentum. WGroup is seeing this impact in the way Service Levels are constructed and managed end-to-end business process measures.
The economic climate has certainly impacted the way CEO’s and CFO’s view IT. They have found that IT assets do not need to reside on their balance sheets in order to deliver value. Nimbleness associated with variably priced IT services, sometimes delivered through “Cloud” solutions offer the kind of flexibility that is required in this economy.
BPO: Should CFOs Transfer Work Before Re-engineering Processes?
Many organizations do not believe they should outsource any business processes until they are consolidated, standardized and re-engineered. This position is frequently reinforced by many of the mainstream management-consulting firms.
The logic being… if the processes are not reengineered before I turn them over to the provider, I am giving away monies to the provider to optimize the processes. They may even charge me more on a run rate basis for operating the processes.
If an organization is very good at project execution and very good at dealing with the politics of change, then the logic of reengineering the work in-house may prove to be correct.
However, in WGroup’s experience most companies are experts in the goods or services they make or sell, but are not experts at project execution and are challenged by the politics of change. Therefore, we maintain that in most cases it makes much more sense to let the outsource provider do the consolidation, standardization and re-engineering work on the processes. Provider organization’s core competency is improving and operating processes.
Changes in the outsourcing industry are subtle, but are increasingly having significant impact. The commoditization of many IT services, the obvious shift to multi-sourcing global service delivery models and the leverage of labor arbitrage have had significant impact on the industry over the past 25 years.
More recently WGroup is seeing an emphasis on linking outsourced services to value creation. cars domain In many ways we are moving from the price-focused procurement era into a more sophisticated time that requires all IT services to be linked to value creation. There are a few trends that are influencing this shift; including the shift in responsibility for IT to the business, and the imposition of the discipline of IT Portfolio management through structured IT Governance models.
The Hype is Reality and the Role of the CIO is Changing. Are You Prepared?
The CIO role has been transformed. Today’s CIO is an orchestrator of IT services delivered globally; most often by a technology provider, rather than by his/her own staff. Consequently, CIO’s are becoming more skilled at managing provider relationships to ensure that value is being created for shareholders.
CIO’s are increasingly taking responsibility for the outsourced solutions that are implemented by technology providers. CIO’s are progressively concerned about the operational risk that has too often plagued “low price” outsourcing agreements. The architectural integrity of the solutions, the quality of the team doing the work and the evenhandedness of the financial arrangement are critical components of a successful outsourcing agreement. CIO’s are actively embracing this growing and important responsibility.
The primary role of the CIO has always been “business systems/process” thinking. This role is increasing in visibility and importance. CIO’s are expected to take a leadership role in leveraging technology services, trends and solutions to create shareholder value. Accordingly, CIO’s want partners, internal and external, who are innovative, responsive and experienced to leverage the capabilities of IT. CIO’s are coming to the conclusion that competitive advantage is no longer derived from Data Centers, Networks or ERP, but rather through analytics, managing the ubiquity of our computing and communications world and the opportunity to leverage unprecedented amounts of information about customers.