21 November 2013
Alan Middleton, CEO of PA Consulting Group, and Reiar Ness, who leads PA’s work in Norway, have been extensively quoted in an article in which they encourage Norwegian companies to outsource more – or face business decay.
“Norwegian companies must realise what has happened in other countries, where the financial crisis has led to major business restructuring. If the companies don’t improve the efficiency of the operation and outsource parts of their organisation, their competitiveness may be weakened substantially. A worst-case scenario is that the companies continue without making the changes needed. Then new competitors will enter the stage, and outperform the established companies” says Alan.
In the article, Reiar explains that Norway lags significantly behind other countries when it comes to outsourcing:
“When we approached senior management in major Norwegian companies regarding outsourcing five years ago, they were sceptical, but curious. In other countries, they had already started the process 10-15 years ago, and it is not until recent years Norway has started to follow" says Reiar.
The article explains that PA is helping Norwegian firm Orkla to outsource its IT services:
“Orkla has gone through big organisational changes, which led to new IT needs. They are experiencing an increasing need for flexibility and capabilities, as well as realising cost benefits” says Reiar.
Reflecting on whether Norwegian companies’ readiness to outsource has increased, Alan warns businesses against waiting for too long before taking action:
“Sitting on the fence for a while does create a potential, as the Norwegian companies can benefit from lessons learned by others. Norwegian companies and the public sector have a great opportunity to benefit from acting now. However, if they are not careful, they will end up starting the process too late" says Alan.
Commenting on the cost benefits of outsourcing, Reiar explains: “The cost level in Norway is high, and most companies realise that the situation will not change. To be competitive, companies have to cut costs and streamline operations, and a natural part of this process is to move parts of the business out of the country."
This view is reinforced by Alan in the article: “Historical facts show that outsourcing provides a net profit to the company. Some tasks will disappear, but those who have done those tasks earlier can then spend time on something else. When you are releasing capacity, you have to be more creative. The employees will be afraid, and change can be painful, but in the long run, this will be good for the company and the industry. Jobs for life don't exist anymore."
When asked whether the relatively strong trade unions have made outsourcing more difficult to manage in Norway, Reiar says:
“No, I don’t think so. We do not see trade unions as any complication in Norway. There are other countries where trade unions and employee protection are at least as strong as in Norway, and where outsourcing has taken place earlier and to a greater degree. I rather think the uncertainty whether the outsourcing of important company functions to other countries would be successful or not is the reason.”
Speaking about what the Norwegian authorities can do to retain jobs in Norway, Reiar explains:
“The authorities can facilitate and support the Norwegian industry to become more competitive, but the most important thing is that the companies take responsibility in terms of the efficiency of the business operation. The Government should not protect the Norwegian companies – it will only strengthen the illusion of how clever we are.”
Continuing, the article describes how the scope of outsourcing is expanding, with Indian service providers happy to take over a wide range of tasks, not only IT. Reiar explains that the outsourcing process requires new leadership skills, and that the leaders need to learn how to keep control of a company in transition. According to Reiar, the answer could be an Academy for leaders who are faced with these kind of challenges.
The article then moves on to explore the pressures faced by medium-sized consulting companies:
“The large consulting companies acquire a lot of small- and medium-sized companies, and they have the strength to do it. We are being contacted by the largest companies as well. "The big four", Deloitte, EY, KPMG and PwC have the auditing business in the bottom, which gives a solid base in addition to the advisory service. At the same time I think they are fighting an unhealthy game against each other these days” says Alan.
Stressing that PA has always has been a very profitable company, with strong growth over the last few years, Alan continues:
“Many clients buy consulting services from several companies, which create a market for special services. It is clear that some consulting companies will continue to drop in market share, but at the same time I am convinced that a lot of medium-sized companies will get along well. In the end it's all about to the ability to stand out from the crowd.”