A good sourcing strategy will provide a clear indication of the desired outcomes: core business focus, service improvement, capability enhancement, cost reduction, or some combination of these. But once the outcomes are decided, the selection of the most appropriate delivery model moves center stage.
Traditionally, organizations adopt one of two approaches at this stage: outsource to a third-party provider or go captive via the establishment of a shared-services center (SSC).
In the outsourcing arena, we have recently detected a move away from the call of “your mess for less.” The initial “dash for cash” and sole focus on wage arbitrage and cost reduction appeared to have abated. However, given recent market events, we may see some resurgence within certain market segments, as organizations attempt to protect shareholder value.
We are also seeing a definite shift toward a more sophisticated and segmented view of processes with the relatively unsophisticated model of “all or nothing” morphing into a more hybrid solution. Under this approach, specific processes are stripped back to component level and sourced in the most appropriate way: captive, outsourced, or sometimes using a collaborative approach. This last strategy may ultimately deliver greater benefits, but it involves a greater challenge and careful planning to ensure the process does not become overly complex.
Captive offshore delivery centers are still feasible, and many enterprises continue to adopt this model. In considering a captive solution, organizations must ensure they possess the right skills and required scale to succeed, and they must understand that they will be competing directly with the outsource providers for the available talent to operate the services. The challenge here is to have a clear exit strategy and to recognize that the opportunity to commercialize the captive may have disappeared.
If the business case for a captive model is hard to make, usually as a result of a lack of scale, then a potential means of overcoming this is to enter into some form of collaborative venture. This approach has been actively embraced by the U.K. public sector with the Home Office, Department for Work & Pensions, and Department for Transport all providing collaborative shared services to other parts of the U.K. public sector.
Collaboration is also being driven by technological advances, which are changing the way organizations operate. In the procurement area, ProcServe, Ariba, and Emptoris have all successfully deployed a collaborative business model providing fast, flexible, and secure managed services to help buyers and suppliers trade more effectively with each other. It will be interesting to see if this collaborative model will develop further in the private sector and whether competitors see the benefits from adopting a shared managed service model or not and will begin to see the rise of industry solutions.
Solutions will continue to embrace self-service and collaborative business models, and we may begin to see the introduction and application of Software as a Service (SaaS) business models to the sourcing arena.
The benefits of technological advances will obviously prove vital, but it will be interesting to see just how far down the technology route organizations are willing to progress. Complex automation technologies (imaging, workflow, OCR, XBRL, EBPP, etc) significantly reduce the number of resources required to operate processes, challenging traditional sourcing decisions and further undermining the wage arbitrage model. Technology may in the long term prove cheaper, and it is interesting to note the move of SAP into the BPO space and the significant opportunity BPO may be providing for the ERP players.
Should we stay or should we go?
The ever-changing market requires continuous re-evaluation of the rationale behind any sourcing decision. It is also important to note that once a sourcing decision is made, it is not the end of the journey.
No one size fits all, and there are a number of challenges to be overcome to make any solution work effectively. The model may move towards a more pick-and-mix approach for customers involving service customization out of managed service centers. We will touch on the difficulties of this in our next article—how to match and manage multiple expectations.
