Customers Make Clear that Outsourcing is About Adding Value

As the global economy improves, customers are looking to outsourcers to not only save money, but to drive growth, improve quality and drive innovation.

Those were among the key themes from two days prowling the corridors and break-outs at the Sourcing Interest Group (SIG) spring summit. Speaker after speaker, whether the topic was procurement, category management or macroeconomic trends, described how their employers are trying to use outsourcers not “just” to save money but to make a more strategic contribution.

Beyond Short-Term Savings

The need to drive strategic, ongoing business benefits runs throughout the top concerns presented during a summary of the executive roundtable. They include:

Revenue enhancement: The need to drive more sales, and higher profit sales. Outsourcers and other service providers can help by suggesting new products, services or delivery channels and then helping to create them.

Cloud and what comes after: Understanding the various flavors of the cloud, the true nature of the risks and benefits, and how to use it effectively is confusing for most organizations. It can also be a great opportunity for outsourcing providers, especially those who can tailor their regional advantages (such as in Latin America) to the requirements of the cloud. Execs at SIG also want partners who can help them understand the Next Big Thing after the cloud.

More automation: Also known as the “relentless elimination of non-value added activities.” Automating ongoing processes is a great way to deliver “sustainable” savings over time, versus one-time cost savings that can fade as business requirements and outsourcing requirements change.

Managing complexity: As customers use more different outsourcers for more different functions, the environment gets more complex and harder to manage. This is an area where an outsourcer with the best practices for managing “portfolios” of applications, services and relationships can deliver the most value to customers.

Close interaction with the business: This also comes under the heading of “alignment.” It means really understanding the most strategic, long-term needs of the entire business, rather than the short-term, tactical needs of individual departments. Achieving this alignment requires both the outside partner and the internal purchaser to have the attention and respect of senior management.

Outcome-based contract: Rather than pay outsourcers per full-time equivalent (FTE) or per transaction (both of which incent the provider to do more work, even if it’s not useful) many customers hope to pay vendors based on their ability to deliver business results. This is still a hoped for, rather than a usual, state of affairs. It requires changes in both thinking and processes, which speaks to the next area of concern:

Organizational readiness: There was a lot of talk at SIG about the need for customers to change their own behavior to accept new and better practices from their outsourcers. This means not only developing ways to measure the benefits of innovation, but changing incentives so internal departments don’t act like “junkyard dogs” protecting their own turf and keeping out new, better processes from a partner.

What all these concerns have in common is they reflect the need to move beyond short-term cost savings (especially those where the savings fade over time or drives up costs elsewhere in the organization) to newer, fundamentally better processes that drive value over time. That’s what some leading customers say they want – now comes the hard work of implementation.

This article originally appeared on our sister publication Global Delivery Report