Are You Still In First Gear With Your Outsourcing?

Dr Ross McKenzie The Startup Business Outsourcing

What happens when you have outsourced? Well in many businesses, not much else.

You have now successfully transitioned outsourcing into your business and operationally it is ticking along – what about the value proposition though? Are you exceeding your expectations?

Several years back, I was asked to conduct an independent outsourcing review with a global corporation that had outsourced several thousand-equivalent personal, across business and technology functions. Part of this review involved conducting interviews with stakeholders across multiple organisations, and from junior to senior positions, and included two questions:

How’s your outsourcing performance going, on a scale of one to ten?

How would you rank your current outsourcing performance based on these ten industry standard criteria, on a scale of one to ten?

Experience over time in outsourcing does not ecessarily lead to value

Instead, a focus from day one in driving improved performance continuously will lead to value

I then gave my own “independednt” assessment based on further questions, reviewing artefacts and observing management interactions across multiple levels.

So, what did I find out?

Well, surprisingly, when stakeholders were asked the question, “how’s it going” (business perspective), they typically scored this higher than they scored against the industry standards which were higher than the independent assessment.

It was as though there was an ingrained belief by all parties that, the longer they had been outsourcing, the more experience they had, and therefore were better at it.

So here is the rub…

You may think you are performing very well right now but how do you compare against industry standards and benchmarks? How would an independent third party assess your outsourcing today?

This dilemma to achieve value from outsourcing led me to the creation of the sixth practice of The Seven Practices Of Highly Effective Outsourcing™ as Exceed The Standard Others Look To.

We all want to be “best in class”, or the leader of our industry. But why is it that so very few pursue this noble cause with a passion?

So, the purpose of this sixth practice is to provide the concepts and frameworks for you to pursue value in outsourcing in your own business and thereby choose magnificence over mediocrity.

In terms of outsourcing maturity, I am a great advocate of capability maturity frameworks of which the Carnegie Mellon eSourcing Model is a favourite.

One of the capabilities this model defines is Value Management and this contains seven sub capabilities or activities.

It is important to highlight that these seven Value Management activities are not separate autonomous functions with distinct and unique processes, rather they serve as a way to bundle the concepts of Value Management into one framework or over-arching capability when managing outsourcing relationships. Furthermore, it is also possible to position the seven activities as either operationally focused, strategically focused, or at some point between.

Therefore, for you to address this challenge of driving increasing value into your business when you outsource, there are three things you must do and it first starts by improving the business…

Improve The Business

The first thing you must do is implement a continuous improvement process into your day to day operations. This could be as simple as a suggestion box where ideas are put forward, or more engineered, where there are clear processes, documentation, and technology tools for enablement and governance.

Both can work very well, as the key to success will always be focus. Doing that in your own business might be around making it fun for everyone to participate, or perhaps there are incentives. However, when you are outsourcing, to drive continuous improvement, it gets a little more complex because of these possible drivers…

Your outsourcer may only implement improvements that help them and not you.

Your outsourcer may not feel motivated to implement improvements or even call things out that will lead to improvements.

Your outsourcer may have a view that if they help to improve things, then potentially they lose out because it could reduce their revenue.

Your outsourcer may see opportunities for improvement, but because implementing them requires both you and them collaborating, it all seems too hard.

Now there are some quick things you can do to help alleviate some of these restraints.

Firstly, if you are paying your outsourcer based upon time only and the longer it takes them to do things generally means they get paid more, you insert clauses into agreements that might request an annual productivity saving. Of course, to do this, you need to have all your processes clearly defined and key performance indicators mutually agreed. Oh yes, you also need a commercial agreement as well!

Secondly, you may just have an agenda item on your regular weekly meeting to discuss improvement ideas – this in itself can lead to driving value because as the old saying goes: “inspect what you expect”! Yes, that’s right, you need to ensure you have regular meetings as well!

Continuous improvement is …

Instead, a focus from day one in driving improved performance continuously that will lead to value

You see, if you implement outsourcing the right way, with the appropriate disciplines in place, such as meetings, clear outcomes and agreements, you will drive performance. So, it is no surprise that most businesses do not get value; because they have failed at just those two fundamental imperatives alone!

Ideate For Opportunities

The term Ideate or Ideation is used relatively broadly, however I like to position it with our clients as the middle path that sits between daily tactical continuous improvement ideas and long term strategic innovation. It is a combination of top down and bottom up as well as internal and external input and contribution.

In strategic outsourcing partnerships, I also like to see it where the outsourcing partner is taking a more pro-active role in their client’s business and they are leveraging back into their own organisation for deeper and richer capability, as well as a broader industry network, which could be global, to draw on.

There are six steps to the ideation process in which we would expect the strategic outsourcing partner to take a leading role…

Step 1: Framing

This is about the strategic outsourcing partner obtaining a more holistic understanding of their client’s business objectives and context, and to ensure that both the client’s business and their end customer “value” are clearly framed. The outcome from this is a shared viewed on the ideation engagement scope and the objectives to achieve.

Step 2: Discovery

Through discovery the strategic outsourcing partner will look “internally” by undertaking targeted interviews within their client’s business, to better understand the specific nature of their strategic objectives, imperatives, challenges, and opportunities. As an outcome, there is a strong understanding of current business as usual initiatives, issues and strategy, which will form the basis for focusing external research and synthesis of ideas that are generated to build into prototyped concepts.

Step 3: Concept Creation

At this step, the strategic outsourcing partner shifts their focus to look outside of their client’s business and begins researching opportunities identified during discovery. Looking out, the strategic outsourcing partner may leverage its global network to engage their other customers and non-customers, subject matter experts and others within and outside their client’s own industry.

The strategic outsourcing partner will next synthesise the insights from looking “in” and “out” to build prototyped concepts, ready for testing and implementation.

The strategic outsourcing partner will build prototyped concepts that can be tested, refined and implemented by their client. This prototyping may include sketches, screen mock-ups, story boards, journey diagrams, case studies, and other artefacts to communicate the prototyped concepts in a meaningful and powerful way.

Step 4: Test & Refine

In step four, the strategic outsourcing partner will conduct a dry-run of its findings with a few key people form their client’s business, to test and further refine its presentation and approach prior to step five; the ideation session. The purpose here is to ensure a refined approach which is nuanced to reflect their client’s context and not just generic.

Step 5: Ideation Session

In the ideation session, the strategic outsourcing partner would be expected to present the approach and findings of its engagement with their client and include the prototyped concepts that may identify new capabilities that the client can leverage, or solve old problems with new and disruptive thinking.

The outcome of these sessions is further refinement, prioritisation, and endorsement of prototyped concepts, and agreement on a roadmap for implementation.

Innovate For The Future

It’s hard to know where to start with this topic of innovation. Clearly there are vast amounts of literature, frameworks, models, and concepts that are all successful and readily available, as there are definitions of what innovation is. However, as we are looking at it in an outsourcing context, its best to define innovation to be as…

“Innovation in strategic outsourcing is a strategic approach of solving problems and presenting new opportunities that would never have been conceived if the two parties involved (the client and the outsourcing partner) had tried to do so on their own, in isolation. In essence, it is this collaboration where there is alignment and synergies but also differing experiences and perspectives that make innovation in strategic outsourcing an awesome force to be played with.”

So how do we make this real? What do we need to do to start innovating in our business when we have a strategic outsourcing partnership?

To answer these questions, we need to just quickly go back to our first approach to driving more value from outsourcing, and that was in relation to continuous improvement. In this scenario, it is basically individuals or teams coming up with ideas from anywhere, which are then put through some form of assessment process.

In ideation, it was where our strategic outsourcing partner is taking the initiative to drive to a specific outcome.

For innovation in outsourcing, it is very much a collaborative process, even to the extent that if funding is required, then both parties may contribute equally and, of course, they are likely to benefit equally as well.

Inputs into innovation can come from anywhere – that is why establishing continuous improvement and ideation capabilities are essential, because they are the feeders into innovation.

In a recent study by Boston Consulting Group (The Most Innovative Companies 2016), they found that having a strategic partnership in the pursuit of innovation is a major benefit.

Essential also, is the client organisation to be willing to have those sorts of conversations with their strategic outsourcing partner. They will not happen overnight because a lot of this is around building trust and building collaborative relationships, however by getting the fundamentals in place, there is no reason why businesses who do outsource today can’t aspire to create innovation partnerships as well.

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