Banking On Outsourcing Alliances | Article

Saving money in a piggy bankNetworks are the new life form in Europe on the outsourcing front. Companies, seeking to capitalize on the competencies of other organizations, are working together to help both bottom lines. Trust is the cement of this relationship, according to Dr. Han van der Zee, director of the Nolan Norton Institute in De Meern, the Netherlands. The Institute is the research facility of KPMG Peat Marwick.

Europe is a continent defined by boundaries. The most obvious are geographic. But there are language and cultural dividing lines, too. While the Internet is blurring these boundaries, they remain a defining problem for the continent. “The main issue in Europe is to conquer these boundaries,” says van der Zee, who is a professor of information management at Tilburg University in the Netherlands.

The language difficulty is evaporating as English becomes the international tongue of business. And the geographic ties are dissolving, too. The professor says until recently a French company would only outsource to a French provider. Germans only wanted to work with Germans. Today, the search for outsourcing partners has become global. Now companies want the best partner for the project. “They want an organization with strong skills,” says the professor.

He says this desire to work with providers with superior skills is becoming more important than cost when buyers select a provider. “Cost is still important, but buyers are more interested in complementary competencies. They aren’t selecting the cheapest offer,” says van der Zee.

Working Together For A Common Success

This shift has created a subtle change in thinking. Before, a buyer expected the supplier to perform the work proficiently. This was how a successful outsourcing relationship worked. Now, both the buyer and the supplier have to work together to create a common success. From the perspective of the network, each participant has to keep the common goal in mind. Then, everyone can perform their role in the spectrum.

Van der Zee says outsourcing partners now do not look at each other as adversaries. Instead, they are creating a business family where everyone works for the best of the group. “Everyone has to work together to get the financial rewards,” he says. When the profits arrive, the professor says each partner takes its set percentage.

Labor shortages are fueling the move to networks. In Europe van der Zee says there is a lack of skills at the high end. “Everyone is screaming for good people,” he says. If you can’t hire ‘em, then you have to partner with a company that is known for those skills.

Also lacking are managers skilled at managing outsourcing relationships. Managers today measure their power in how many people report to them. But in these networks, the people with power are the ones who manage the communication between the various partners. They have the power because they are the ones who keep the network together.

Buyers Balk at a Single Provider

Buyers are balking at giving all their work to one outsourcing provider. Instead, they want to build a network of organizations that can help them. Van der Zee says a maximum of three organizations form the core of this network and dominate the workflow.

He says these networks are very difficult to create because they have to override the traditional control systems in a corporation to be successful. For centuries people in business have been taught to look out for Number One. Workers have to learn a new mindset, which is not easy.

The professor says Anglo-Saxon countries have a more difficult time with this shift. Movies like “Wall Street” show how deeply ingrained the profit motive is woven into the fabric of the culture. Southern European countries, on the other hand, find it much easier to become a business family since their cultures have put more emphasis on personal relationships.

Negotiation is the operational strategy these companies use when a dispute arises. Van der Zee says they don’t refer to the contract or turn to lawsuits to resolve differences. One side will lobby the other and try to influence behavior instead of phoning their lawyers.

Another difficulty with networks is trying to determine which network to join since they are springing up like wild flowers after a spring rain. Another question to determine is how many networks a company can participate in concurrently.

Lessons from the Outsourcing Primer:

  • Skilled labor shortages are encouraging companies to outsource to a company that is known for the skills it needs.
  • Buyers are not giving all their work to one outsourcer. Instead, they want to participate in a network of at least three outsourcers.
  • Each partner in the network works for the common good of the relationship.
  • Trust, not legal contracts hold these networks together.
  • English is now the global business language.
  • The Internet is globalizing outsourcing and helping to break down boundaries and provincialism in Europe.

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