New Directions for Outsourcing in Italy
Italy – its name brings to mind the pungent parmesan and garlic odors, magnificent golden treasures in the cathedrals and palaces, crowded canals of Venice and mysteries of Pompeii. The nation holds many charms for tourists. Part of the culture of this historic land is endurance and pride. Those characteristics carry over into the business arena.
“There are people who created their businesses from nothing, and they have worked all their lives in those businesses. They are not open to change,” says Stefano Valentini, an outsourcing consultant in Rome. He explains that Italy has a lot of small (under 50 employees) and medium (under 250) companies and that 80% of production comes from these companies.
Although many executives even in the United States are just coming to grips with it, the fact is that a company can’t be good at doing everything. An attitude of mistrust and not wanting to let go of control of business processes only results in being hamstrung — as crippling as cutting the tendons at the ham of the knee. In today’s competitive global marketplace, it’s impossible to be competitive with that attitude. In Italy, Valentini says the problem is that “the approach toward suppliers is always ‘I don’t trust you.’ They have persuaded themselves that the only way to do things is the way they know.”
Altering the Approach
Valentini is on a mission to educate Italian businesses about using outsourcing to become more competitive and successful. He is the author of a 1999 bestseller, Gestire L’Outsourcing (Managing Outsourcing). Because in Italy there were very few sources of information about how outsourcing works, Valentini wrote the book and now publishes articles on the Internet. Although 28% of Italians have Internet connections, he says most people don’t “use it as the powerful tool that it is. Very few of them use it to communicate, exchange data and get information.” An even smaller number use the Internet to purchase products because they don’t trust putting their credit card numbers on the Internet. Nevertheless, Valentini will be at the forefront for those who turn to the Internet as an information source. His new outsourcing portal is expected to launch in March 2001.
In a recent project, he was given the task of developing the service level agreement for outsourcing cleaning services for the postal service. He says it will be their “first case of linking the value of the contract to the performance of the outsourcer.” After an hour of discussing what could be done to improve performance, “it was clear that there was no incentive for the supplier to execute good service. There was no possibility to apply a penalty because the accounting system of the postal company is so complicated.”
He has designed the SLA to include flexibility and incentives. The metrics will be adjusted during the contract term if they turn out to be too high or too low. “If this mechanism will work, we will apply that to all the 14,000 postal offices in Italy,” he comments. “If we deliver results with the incentive rewards, all the SLAs will be modified to include rewards.”
BPO in Italy
Valentini reports that very big contracts in facilities management are being signed in Italy. Public administration, or companies that were owned by public administration and now have become private, arrange these deals. He cites an example of a recent request for bid, with which he was involved, for facilities management of a large building in Rome, housing Italy’s national work insurance company. Different suppliers had been handling one each of 20-25 services for the building. The new six-year contract will now have one supplier providing services and is projected to achieve a substantial savings in direct costs as well as a savings because of reduced internal management.
Grandi Stazioni, the new company that owns most of the railway stations in Italy, has recently gone to market with a request for bid for maintenance of the utilities technologies of the 14 railway stations (processes include air conditioning, thermal systems, access systems, fire protection, etc.). The request for bid seeks a single supplier, but Valentini points out a weak spot. “Their approach remains the same – just penalties (36 different types, in fact); there are no incentive premiums or gain-sharing.”
Large companies are not as concerned about transferring control of a process to a supplier. Driving many of these deals is the desire to leverage a supplier’s economies of scale. In addition to facilities management, call centers are one of the more popular processes to be outsourced. Valentini reports that large companies are quickly becoming attuned to outsourcing any non-core process. He is educating smaller companies to embrace follow their lead. He also targets companies that were small and quickly grew large. Many of these companies have retained the original owner as the manager and, thus, retained a small company attitude toward outsourcing, conducting business the same way as before).
So there are successes; yet many in Italy are still hamstrung. Recently, he tried to assist a group of Sicilian companies in setting up a “purchasing group.” They were each purchasing the same product from the same supplier but for different prices. “In three months it was not possible to commit them to go as a group to the supplier and say, ‘From now on we multiply our leverage toward you by ten and let’s negotiate new prices.’ But this was not possible,” explains Valentini.
Still battling the culture and tradition front, his Web site includes information about “foreign knowledge” and presents ideas that are working successfully outside of Italy.
“Italy is in a strange phase,” says Valentini. “Many people have lost their work because Italy must master the European Union. Now companies are asking the government to sustain their growth. Government and unions often say, ‘ok, let’s move people to specialist companies.’ At the same time they have to guarantee they will work for three years and create a market for themselves in the three years.”
Often they are unable to trade with Italian suppliers. The European Union rules state that when a request for bid is valued at or above a certain level, they must conduct a European bid and invite European companies to participate in the bid.
Speaking of the future of outsourcing in Italy, Valentini states that “we will not change the culture. We will change the people. My son is five years old and uses computers better than his mother. And I think that in five to seven years we will look to see something that will explode in Italy.”
Stefano Valentini got his start in outsourcing as the purchasing manager at Procter and Gamble in 1987. P&G wanted to reduce its cost to produce detergents, and he was tasked with finding ways to achieve that objective by working with outside suppliers. In 1997 he became sourcing director for GE Capital Services for long-term car rentals. In 1999 he became an independent consultant, having learned that “working together with consultants is much more productive than working against them.”