In a survey of 177 Canadian executives, IDC Canada of Toronto, Ontario and Accenture-Canada report that Canadian executives want outsource providers to share the risks and rewards of their relationship. The report, Outsourcing-Shared Risks and Shared Rewards, discovered executives are now recognizing that by collaborating with their service providers, they can gain a critical competitive edge. They now view outsourcing is a business strategy, more than simply a technology or cost savings issue. Consequently, companies are taking a more measured incremental strategic approach for outsourcing projects by establishing business goals and sharing the objectives with the service providers.
Buyers Want Providers To Accept Some Risk
Blake Hanna, an Accenture partner in the communications and high tech practice, notes that enterprises will embrace an outsourcing provider willing “to sign up for the risks.” He also noted that, “Even with a tall order, the provider can be confident since it can reuse the tool set, technology, people, skills and processes.”
Jason Bremner, program manager, outsourcing services, for IDC Canada, points out, “An important finding from the survey is business is always trying to do something new if possible. Sharing the risk in doing this is absolutely critical. It is a key factor in selecting a provider. What the study shows is that those who are willing to commit to business outcomes are more appealing to buyers.”
Hanna notes, “Conversations that we have with clients today could not have happened 12 to 18 months ago.”
SLAs for Shared Success
More mature and precise service level agreements (SLAs) designed around mutual business objectives and shared risks and rewards are creating win/win scenarios for both participants in an outsourcing relationship.
The SLA has undergone a major shift from a standardized contract based on metrics to a collaborative road map. Through some hard lessons of the past, enterprises and service providers have learned lessons. SLAs now center on business outcomes, according to Hanna.
A major factor has been the change in who is driving the process. Service providers and software vendors in the past offered their services and products largely on an as is basis, offering limited customization. SLAs would span years. Increasingly, customization to meet the unique business needs of the organization has supplanted the one size fits all approach and SLAs are now offered on an annual, quarterly, even monthly basis.
Businesses have also changed course in how they evaluate their needs, according to Bremner. “They want the SLA to measure business outcomes. People are recognizing that more in Canada because vendors are willing to do this now. The new style takes different tact.”
Focus on Core Competencies
Hanna explains enterprises are reordering their priorities and taking stock of where they can best utilize their internal human capital and resources. “Executives want to focus on core business functions. A preponderance of companies want access to new leading edge business processes and a skilled workforce.”
“New projects require changes in organizational design,” reports Bremner. “An outsourcer can take the expertise and disperse it across its customers. Each customer benefits from increased expertise without increasing head count and the expertise does not get stale. There is no reinvention of the skill set and the expertise increases.”
As the chart below shows, businesses increase their access to skilled resources when they outsource. Key personnel are free to focus on the mission critical functions of the business without increasing head count. Staff is no longer plagued by distractions from core initiatives and strategies by teaming with an outsource provider with specialized expertise and resources.
Hanna adds, “It is not just about cost, it is about putting in place capabilities that they couldn’t do themselves fast enough. Organizations will use outsourcing to better align, redesign and streamline business processes.”
Hanna concludes that business has a new approach. “Organizations increasingly realize they must focus on business outcome and not just cost reduction. They need increased skills and capabilities that they don’t have in-house and would have a difficult time of growing internally. It goes back to the reproducibility of the outsource provider having done it before, many times, as their core business. That is the number one benefit that they perceived they were getting. Canadian companies are comfortable with giving providers greater discretion based on the expectation that they would get something more from the outsourcing arrangement.”
As organizations plan for getting down to business when the economy revives, they approach it not unlike racing in motor sports when the caution is lifted and the green flag drops. The survey of Canadian executives shows that capabilities will be required that are beyond the internal competencies and resources. Outsourcing can provide the formula for winning the race by producing a team comprised of specialists with a common goal.
Lessons from the Outsourcing Journal:
- Businesses want to team with outsourcer providers who will share in the risks and rewards of the business outcome.
- SLAs have matured into collaborative instruments that define mutual business objectives. They also have shortened timeframes.
- Buyers are outsourcing to gain access to a skilled workforce that they can’t grow internally.