How To Maximise The Value Of Outsourcing
Insights From A Proservartner Roundtable
Outsourcing plays a pivotal role in an organisation’s dynamism, growth and development – it is the key to unlocking new avenues of efficiency, productivity and cost savings.
In a recent roundtable discussion, senior procurers and BPO experts from across industries shared their experiences, insights and valuable advice on how to leverage outsourcing to the max. Here are the top six takeaways from the conversation:
Pay attention to where you are outsourcing
Attendees shared experiences and expressed interest in outsourcing beyond India and Philippines to countries such as Hungary in Europe and Malaysia in Asia.
It is important to consider the size of talent pools and specialisations that different regions may have. India and the Philippines remain popular outsourcing destinations with other regions often being more costly. However, not every outsourcer and every region is created equal and should factor heavily into your consideration. Roundtable attendees praised Mumbai for its quality FP&A services whereas Bangalore was recommended for outsourcing IT services. China is now also a viable outsourcing destination, bringing speed and cost-effectiveness to the table.
However, in all cases the specific needs and skillsets required should still always be the primary consideration. Outsourcing should be tailored to specific needs and consider factors like talent pools, retention rates, and inflationary rates.
Re-evaluate and Innovate
Don’t be complacent with outsourcing arrangements. Consider redesigning and expanding the scope of business process outsourcing (BPO) deals, ensuring the outsourcer adapts to evolving needs and challenges. Look at outsourcing business areas not conventionally considered for outsourcing like finance, HR, procurement or marketing.
Innovation and long-term planning often go hand-in-hand. Sometimes you just need to make sure a five-year plan is in place to encourage an outsourcer to not just focus on short-term objectives. These techniques were highlighted as often being the best way of adding value and being creative as opposed to technological shortcuts. The example of Adidas outsourcing to Infosys was raised as an example of a business not focusing on the fundamentals and instead looking for shortcuts which eventually went wrong.
Focus on the Right Metrics and Data-Driven Benchmarks
One attendee highlighted her experience outsourcing to a Hungarian partner which provided her with a clear dashboard where she should could easily track of key performance indicators (KPIs). The transparency provided by this tool was reassuring for everyone involved in the process. This is particularly valuable businesses are increasingly realising the importance of data and KPI-driven conversations in determining what “good” looks like in outsourcing. Another attendee emphasised that benchmarks should not be arbitrary, they should instead reflect industry standards and community expectations. Using process mining can help bring a data-driven approach to outsourcing with everyone at the table being interested in incorporating this.
An often-unappreciated metric mentioned was monitoring an outsourcer’s attrition and staff turnover. This could significantly impact the success of an outsourcing relationship. If attrition is too high at 25% or higher, institutional knowledge of your business is lost and performance will drop. If attrition is too low at 5% or below, however, the ability to contribute fresh thinking and innovate can suffer.
"If attrition is too high at 25% or higher, institutional knowledge of your business is lost and performance will drop."
Find cost savings and then look for quality
BPO usage continues to increase post-COVID, as companies recognise the benefits of flexible, remote workforces and the tools to work remotely effectively have also improved. More companies than ever are looking to BPO specialists for their services and potential savings.
However, traditional locations such as India are no longer purely low-cost, transactional destinations for outsourcing services. Many areas are now a source of skilled, diverse talent. So, although cost savings remains the main driver for much outsourcing, BPO deals are increasingly taking into account efficiency and location arbitrage with a growing emphasis on value and quality.
Maintain a Strong, Positive Outsourcing Relationship
The leaders round the table compared outsourcing to a marriage, suggesting that it’s essential to work collaboratively with outsourcing partners and look for mutually beneficial opportunities. He recommended a proactive approach to understanding the partner’s perspective.
Ask yourself if you are making it easy for your partners to excel in their tasks. Setting clear expectations and then working to remove roadblocks in the outsourcer’s way can be a powerful way of unlocking more potential.
Perhaps consider a gain-share model to develop a relationship further. Offer increased access to various parts of your business on the basis of targets in a service level agreement being hit. Creating a ‘reward system’ like this can be a great way to encourage better performance with positive reinforcement instead of relying on penalties for poor performance.
"Creating a 'reward system' like this can be a great way to encourage better performance with positive reinformcement."
Employ the BATANA Strategy
An attendee mentioned the concept of BATANA (Best Alternative to a Negotiated Agreement). They emphasised that, while switching from an outsourcer is not recommended, potentially switching gives you a lot of power and leverage during renewal which can lead to significant cost savings. What is important is being careful how the leverage is used. Threatening to switch with one month to renewal would be totally transparent and clearly an empty threat. However, if this is done several months in advance and is made to appear like a move which could actually happen then it will be taken much more seriously.
The discussion wrapped up with all attendees emphasising that although their BPO journey had largely begun with an aim of creating cost savings, once this was achieved their organisations were shifting their focus to quality and impact.
The roundtable conversation shed light on the importance of many aspects of the outsourcing challenge, from choosing the right location to finding the win-win scenario with an outsourcer and driving innovation. Every business will have to find their own answer to many of these questions but all of these insights could help inform the decision-making process.