Perspectives On Offshoring & Outsourcing
Four Key Questions
to Consider
Executive Summary
Your Board of Directors
has just approved an extensive program to outsource many of the so-called
“back-office” functions at your company. No one is really sure to
what extent they believe it should be outsourced, but it is clear that
something needs to happen. As the executive chartered with developing
the outsourcing program, you may be thinking of the most appropriate approach
to getting started.
There are as many
approaches as there are outsourcing advisory firms, but we believe there
are four critical questions that should be keeping you awake at night
if they are not already:
1. Which
outsourcing operating models are most appropriate for my company and which
processes are the most suitable for offshoring?
2. Is
offshoring here to stay or is this a long, expensive, and sometimes painful
journey that turns out to be the first leg of a round trip?
3. How
do I select the most appropriate service provider as a partner?
4. I
am committing my company for upwards of ten years, how do I govern and
manage the relationship to ensure success and what if it doesn’t go well?
While there are
literally thousands of detailed questions associated with out-sourcing,
we have found these four questions to be the most frequently asked by
clients beginning the journey. Additionally, we found the answers
to these questions often form the foundation for a company’s philosophy
towards outsourcing and offshoring.
Over the next several
pages, we will explore these questions and the implications on realizing
the full benefits of outsourcing.
There are two related
questions that must be answered in every outsourcing and/or offshoring
evaluation. What will the operating model / service delivery model
look like? And, what functions, processes, and sub-processes are
the most suitable for outsourcing or offshoring?
The service delivery
model options range from internal improvement efforts such as reengineering
or value chain optimization to new operating models such as joint ventures
or asset monetization with a service provider. While companies have
been embarking on improvement efforts for decades, the significant benefits
from outsourcing and offshoring have created a new paradigm for many companies.
As you can see from the chart below, outsourcing is a viable option with
significant benefits that far outweigh some additional effort and risk.
Five Year Time
Once
you have determined your portfolio of service delivery models (which can
be different for different functions – Finance, IT, HR, etc.), you can
focus on which processes within a function are most suitable for outsourcing.
A recent study conducted by Archstone Consulting and Duke University shows
the distribution of functions that have been offshored by participating
companies.
Frequency of Functions Offshored (% of Participants with Function
Offshore)
Remember,
processes that are suitable for one company to outsource may not be suitable
for your company. For example, one large bank may compete
on the basis of product offerings while another competes on the
basis of intimate customer knowledge and service. While the first
bank can successfully outsource its
customer
service operation, the second may be wise to retain it in-house as it
is a core competency for the bank.
In
general, the more repetitive a process the greater the likelihood of success
in outsourcing. Similarly, standard processes that are rules based
and do not require a high degree of interaction with other departments
or third parties make ideal outsourcing candidates. As mentioned
above, each company must evaluate their own processes for suitability,
however, some generic examples for Finance and HR may help…
For a copy of the complete Whitepaper please contact Dori Abel at
203.940.8200 or email, Dori
Abel, Chief Marketing Officer
For more information on Archstone Consulting
go to Archstone
Consulting
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