An Outsourcing Evolution — from Transactional to Relational | Article

From her position as Andersen Consulting’s director of integrated marketing for business process management practice worldwide, Mary Ellen McKee scans a broad horizon as she looks at the future for outsourcing. Like many others who know this industry well, she notes that the major trends are for clients to approach outsourcing with a view toward its strategic value rather than simply as a traditional cost-reduction tactic. Tomorrow’s clients are looking for ways to gain competitive advantage, to increase efficiency, to transform their workforce, and to reach new levels of performance.

McKee also predicts that the well-accepted practice of outsourcing the Information Technology (IT) function will rapidly change and expand into business process outsourcing. Rather than taking a view of a single function, clients will seek opportunities to modernize entire business processes. And as an integral part of this change, outsourcing providers will be held accountable and responsible for what she calls “the full life-cycle of design, build, and run.”

“Outside providers are going to have to actually live with what they design and build,” said McKee, “and certain measures will be applied to make sure an appropriate return on investment is being achieved.”

From her position as Andersen Consulting’s director of integrated marketing for business process management practice worldwide, Mary Ellen McKee scans a broad horizon as she looks at the future for outsourcing. Like many others who know this industry well, she notes that the major trends are for clients to approach outsourcing with a view toward its strategic value rather than simply as a traditional cost-reduction tactic. Tomorrow’s clients are looking for ways to gain competitive advantage, to increase efficiency, to transform their workforce, and to reach new levels of performance.

McKee also predicts that the well-accepted practice of outsourcing the Information Technology (IT) function will rapidly change and expand into business process outsourcing. Rather than taking a view of a single function, clients will seek opportunities to modernize entire business processes. And as an integral part of this change, outsourcing providers will be held accountable and responsible for what she calls “the full life-cycle of design, build, and run.”

“Outside providers are going to have to actually live with what they design and build,” said McKee, “and certain measures will be applied to make sure an appropriate return on investment is being achieved.”

No More Discrete Process Views

Traditionally, design and build functions have been seen as two different processes. Clients used to create a product or service and establish a manufacturing or delivery infrastructure. Then, when they discovered that managing its ongoing operation consumed too much time and energy, they outsourced it. The trend for the future is to combine these functions, and this requires an entirely different kind of expertise from outsourcing providers. Their horizons must expand well beyond discrete functional operations and expertise towards a much broader, more integrated perspective on business process management.

The new demands and integrated business process view require new measurement devices. While a great deal of work is being done on benchmarking functions and business processes, McKee expects to see clients focus significant attention on new performance measurement that will provide data on how the outsourcer is affecting return on investment.

Effects of Globalization

Even more significant than economic influences will be the impact of globalization on outsourcing partnerships. The primary questions facing companies in a global marketplace today are how a client operates in a global economy versus a local economy, how to retain balance between local and global demands, and how clients open up their organizations to become more like virtual organizations. The outsourcing providers’ ability to react to these issues and manage the organization’s response and performance will determine how successful they are.

In looking at the global market, McKee notes the tremendous growth in Latin American countries as outsourcing is embraced widely, especially in the IT function. Australia, Spain, France, and Germany are accepting outsourcing on increasingly wider scales. And Japan offers an insight into the profound effect outsourcing has on management philosophy.

“Japanese companies are beginning to look at how they can run their companies better, and it’s not all going to be life-long employment,” said McKee. “What you are going to find is what I refer to as an alternate organizational structure — ways in which the Japanese will justify maybe not completely turning over a process to someone else, but doing it better and in a way that is like outsourcing in nature.

“Outsourcing will never be called outsourcing in Japan,” she added. “They will probably call it joint ventures, but it will have a lot of characteristics that you see in an outsourcing arrangement.”

A New Basis for Outsourcing Relationships

The view at Andersen is that the nature of outsourcing relationships progresses along a path from traditional transaction-based relationships, which focus on cost and efficiency, toward relational partnerships, which focus on enhanced services to the end-user, joint marketing, and process integration. In between these extremes are teaming and strategic partnerships.

McKee believes that outsourcing today has moved from the traditional relationships into teaming relationships. “While everyone talks about their aspirations to develop entrepreneurial networked relationships, realistically we have really good, solid, team-spirited relationships. We are moving toward evolving those into strategic partnering relationships,” said McKee. She believes that while teaming incorporates some elements of risk-sharing, clients will begin to push for more shared risk-taking. That trend also will drive the move toward a more integrated, life-cycle process approach to outsourcing business processes.

Obstacles to Next Generation Relationships

McKee has seen little change in the main concerns of clients, who are primarily interested in control. That control, according to McKee, is viewed as a reassurance that clients have secured the best possible deal. Client concerns in the more value-added relationships are going to center around the viability of the provider, particularly the provider’s ability to work with the client through unpredictable changes. Depth of capability, global reach, and the provider’s tools and methods for accommodating change will get more client attention in the future when relationships span 10 years or more.

Preparing Clients for the Future

McKee had three major suggestions for outsourcing clients. First, she said, is the need for “a burning platform” driving the outsourcing effort, meaning that the client must have an incentive or motivation to undertake the difficult process of creating the right kind of partnership. Second is to secure sponsorship within the organization before interviewing potential providers. Don’t expect the outsourcing provider to act as an internal change agent who will win the minds and hearts of the board of directors. Finally, McKee encourages clients to have a thorough understanding of what goals and objectives are desired and to articulate them very clearly to potential providers. Be prepared, she advised, to define realistic expectations given the nature of the market, the industry, and the competitive situation.


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