| LogicaCMG:
Smart Sourcing Outsourcing Posted:
16 April 2003
LogicaCMG recently held briefings in Abu Dhabi and Dubai
on the trends and issues surrounding outsourcing
LogicaCMG has been established in the Middle East for over 14 years
and is based in Dubai Internet City.
Using the lessons learnt from previous Outsourcing agreements LogicaCMG
was able to provide an insight into the Outsourcing relationship
based on its successes in Europe, US and Australia.
Unlike other buyer/vendor relationships experience shows that the
Outsourcing relationship differs in the way the vendor is controlled
and how the service is measured.
Deciding to Outsource is a business decision that not only effects
how the enterprise is supported as it carries out its day to day
function but can effect financial performance of the company.
A survey of the UK’s FTSE 100 companies by Morgan Chambers
showed that average share price rise of more than 5 per cent over
and above sector average for companies that had used Outsourcing.
The effects experienced by these companies included:
- The elimination of capital expenditure
- Reduce headcounts
- Move from fixed costs to variable costs
- Access to specialised skill set
Outsourcing has moved considerably over the last twenty years,
initially focussing on ‘doing the same for less’ such
services as payroll, food services and transport were often given
over to a third party to run in an outsourcing deal.
The outsourcing market matured and encompassed more services including
training, supply change management, call centres, production and
IT, amongst others. The focus shifted from ‘supplier’
to ‘business partner’.
Outsourcers were required to be pro-active in bringing solutions
to their clients rather than reacting to business changes. In recent
years IT/IS, including communications, has become the most popular
functions to be outsourced.
Much of the services provided by the IT department have become
a commodity services, new joiners to a company expect the phones
and PC to be there when they arrive, their e-mail and server accounts
to open and ready for immediate use.
Today companies are using Outsourcing to redefine their business
using the innovation that outsiders can bring to the business; this
has shifted the focus of relationship from that of business partner
to an agent of change.
The move from outsourcing just the IT function to total Business
Process Outsourcing has dramatically changed the way enterprises
do their business and accelerated the speed to market for many new
services.
While IT is the strong enabler for outsourcing whole business processes
the decision making and driving through the strategy is now often
in the hands of CEOs, Financial Directors and Sales/Marketing Directors.
So if the IT Director is not considering outsourcing within the
organisation then others may be doing so.
Due to the changing nature of Outsourcing it is becoming evident
that ‘one size does not fit all’ and that smart sourcing
rather than total outsourcing is the way to go.
In smart sourcing the client may use two or more outsourcers to
deliver best of breed solutions for them. For companies who have
strategically outsourced different areas of their business, 72 per
cent have used smart sourcing to gain maximum benefit from strategic
outsourcing.
This requires a different way of managing and controlling the services
delivered, the relationship is more of an alliance than the traditional
buyer/vendor roles.
The business and the outsourcer work closely together by sharing
a common vision but the business controls the quality by having
a robust Service Levels Agreement (SLA) that has teeth.
The SLAs need to be based qualative rather than quanatative outcomes,
clearly measureable and above all aligned to business needs.
Best Practice recommendations for those considering outsourcing
include the following:
- Ensure the decision for outsourcing is business driven.
- Craft the outsourcing agreement with flexibility in order to
withstand the inevitable changes in the business arena and technology.
Use short-term service levels agreements within the overall contract
for the terms and conditions of the long-term relationship.
- Be sure to carefully define the scope and boundaries of the
services in the process description so there will be no disagreements
or misunderstandings if new services are added later in the ongoing
relationship.
- Measure the quality of the work, not just how quickly or timely
it is performed.
- Include penalties for missed service levels.
- Write service level specifications and metrics that are tied
to business results the buyer hopes to achieve by outsourcing.
- Buyers that have continuous improvement, as a goal must define,
measure and price the continuous improvement steps/increments
before the contract is signed.
- When all of the employees who understand the business process
in the pre-outsourcing environment are to be transferred to the
supplier’s organisation, it is wise to retain one individual
who understands the process to be a member of the buyer’s
governance or oversight team.
- Include an effective governance contract within the overall
outsourcing agreement, defining the steps to take in problem escalation
and conflict resolution.
- Approach the relationship as allies, rather than partners
Further more information see www.logicacmg.com
or e-mail Michael Sheridan at michael.sheridan@logicacmg.com.
Posted by Richard Price,
Editor Pipeline Magazine
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