Using IT to Accelerate the Benefits of Outsourcing & Offshoring

In an effort to improve overall efficiency, it is not uncommon for organizations to consider embracing some form of outsourcing.  When properly conceived and executed, outsourcing models can provide significant value.  Sadly, these efforts often fall short or take far longer than expected to deliver sought after benefits. Many drivers contribute to this shortfall, but I suspect the most consistent is the implementation strategy.

An organization's outsourcing transformation typically evolves through a series of engagement models.  The initial phase often looks like a simple subcontracting engagement with a transaction company to supplier relationship model.  From this model, a more general outsourcing arrangement develops.  More expansive outsourcing is next and often an offshoring component might be added.  Also at this point, the relationship matures to the point that the service provider becomes a partner.  In this role, the outsourcing partner can offer value based on their own expertise and resources.  Eventually if they are persistent, true business process outsourcing is achieved.  It is only in the final steps that significant efficiencies can be unlocked.

The delay in recognizing benefits can be attributed to many factors, but a significant one deals with when the issues of duplicative human and capital resources are addressed.  During these evolving phases of outsourcing, organizations tend to be conservative and focused on the next phase; larger issues are often not recognized.

When an outsourcing arrangement is initiated, there is a testing phases where the model and vendor are proven.  More often than not, this phase continues far longer than necessary.  At the time duplicative resources are eventually addressed, conservative approaches are the norm.  From this inaction stems negative results due to perpetuated inefficiencies.  Stranded capital costs continue to burden the ledger and potential value is not delivered.

More significantly, the remaining people strain to demonstrate their value and necessity to the organization.  Inevitably, this effort reduces the outsourced partner's effectiveness.  The larger an organization, particularly global entities, the more significant this factor becomes.  Cumulatively, all these factors drive lower and slower value generation for both organizations.

Outsourcing is a complex undertaking, with many people, process, technology, and strategy issues requiring careful consideration.  Fundamentally, it is an effort involving people and therefore organizational change.  To bring these pieces together, a strong change management plan should be an essential component of the overall effort.

Perhaps the most important issue for the change program to address is the common perception that outsourcing equates to the loss of jobs.  Although, I suspect there is a significant correlation, it is not the only outcome.  Outsourcing programs are advised to establish a governing consensus with respect to impacted staff.

Smartly executed outsourcing programs can leverage displaced personnel into other areas of the organization.  Another approach is to make provisions for "re-badging" employees to the outsourced partners.  Creative thinking can lead to a range of alternatives.

To drive outsourcing initiatives, organizations need a variety of leaders with key functional, technical, and transformation skills.  In searching for these leaders, a proven source of experienced professionals can often be found within IT organizations.  Outsourcing has been a major driver in the IT field for close to 25 years.  IT leaders are often proven veterans of multiple engagements. Leveraging their experience and organizations can improve the effectiveness and accelerate the value delivery of outsourcing efforts.

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