“First you have to make sure the supplier’s compensation is directly tied to the customers’s success by tying pricing to business volume.”
On Where Outsourcing is Heading
I think you’ll see a couple of trends emerge in 1997. First and foremost is business processing outsourcing or functional outsourcing where a company outsources an entire business process or function as opposed to just the operation of the technology component of that function.
Outsourcers that have the infrastructure and more importantly the expertise within a given process will be able to capitalize on that opportunity.
Secondly, companies are taking a more selective approach to outsourcing where they are choosing suppliers based on the “Best of Breed” approach. They are being selective about what they outsource and to whom choosing not to outsource the entire MIS department or to outsource multiple functions to multiple suppliers with specific expertise. Another trend gaining momentum is outsourcing distributive platforms and desktop operations, and wide and local area networks. Companies will also spend a lot of money this year addressing the Year 2000 problem.
On Outsourcing Relationships Changing
The good news is that the pricing of these relationships is more directly tied to the success of the ultimate customer. In other words, the financial rewards we receive are based directly on the business volume of our customers. We’re having to be more and more an integral part of the customers management team because our success and their success is more closely aligned. Another ongoing trend is that we are being more flexible in our outsourcing arrangements we’re giving the customer the ability to change the services they require from us based on their changing business requirements.
On New Areas
Nothing is sacred anymore. Companies will look to outsource any non-core function, which typically means a staff function. However, ACS is staying focused on outsourcing processes that have a particularly high technology content as opposed to a labor-intensive component.
On Biggest Concerns
First you have to make sure the supplier’s compensation is directly tied to the customer’s success by tying pricing to business volume. Secondly, you have to address the issue of flexibility. You must be able to respond to changes in customer’s business requirements. If you’re in sync with what’s happening with the customers business and involved in the day-to-day management, it won’t be an issue. You’ll be planning diligently together and reacting to changes in the market.
On Considering Outsourcing
If you’ve never considered outsourcing before, hire a consultant who is an expert in constructing outsourcing relationships. You have to have someone on your side of the table who understands what makes an outsourcing relationship successful or unsuccessful. Secondly, consider several alternatives. There’s no one particular solution that fits every problem. Also, make sure the outsourcer is compensated for delivering the end result you want. Compensating the outsourcer simply for operating a technology platform is not necessarily the end result you want. The end result is the right cost for the right infrastructure to handle growth in the business. Most importantly, if you cannot see how outsourcing is going to directly impact your bottom line profitability, don’t do it. Find something else that will affect the bottom line profitability of your organization.