Collaboration Is Key to Effective Outsourcing

Success in today's complex outsourcing marketplace depends primarily on a highly collaborative client-service provider relationship, according to a 2007 PricewaterhouseCoopers (PwC) Global Outsourcing study, Outsourcing Comes of Age: The Rise of Collaborative Partnering.

The study explores

A key finding: Many top global executives say they gain major competitive advantages from outsourcing. The CEOs, in particular, described the growing importance of collaboration with suppliers and service providers as a way to mitigate complexity, reduce transaction costs and gain competitive advantages.

Overall, the survey identified functions now being comprehensively outsourced, including human resources, information technology, production, logistics and distribution, sales, and finance.

A large majority of clients--87 percent--say outsourcing delivers the benefits projected in the original business plans. Outsourcing is perceived as such an essential business practice that 91 percent of clients, whether completely happy or not, said they will outsource again.

"Outsourcing is still very much the game, but the rules have changed," says Pat McArdle, global outsourcing partner at PwC. "The lightning pace of growth in outsourcing is only matched by the transformation of the market as traditional models are gradually being replaced by multi-sourcing, joint ventures and 'best of breed' arrangements."

Managing this extended network of relationships, McArdle adds, "requires more transparency, better communication, greater trust and genuine reciprocity. In a nutshell, success in this environment will heavily hinge on shifting the client-service provider relationship from adversarial to collaborative, from one based on procurement to one grounded in partnership."

Collaboration Pays Off

Collaborative partnering and an openness to business model innovation become more important as clients start to look at "second wave" outsourcing of functions being streamlined within shared service centers, such as HR and finance or accounting.

Companies identified as "expert outsourcers" (those that met their business plan goals completely) measured their service providers as better collaborators than "learners" (companies for whom outsourcing only partly met business goals), with 81 percent of experts stating that they have honest and transparent dealings with providers (vs. 62 percent of learners).

Clients defined as "high collaborators," based on rating their providers the highest overall on the key indicators of collaboration such as "business dealings being honest and transparent," experienced the most mutual engagement with their outsourcing providers.

These high collaborators embrace innovative outsourcing business models:

* 51 percent of high collaborators plan to increase their joint ventures, vs. 44 percent of other respondents.

* 46 percent expect their use of open, collaborative business models to grow, vs. 32 percent of other respondents.

Moreover, high collaborators have significantly greater outsourcing growth plans with regard to core products and services (often assumed to be "off limits" when it comes to outsourcing) and in other strategic areas, including:

* Innovation and research and development.

* Customer call centers.

* Information technology.

* HR services.

Other characteristics of high collaborators include:

* Greater likelihood of being open-minded, enabling them to manage better around barriers to outsourcing.

* Tendency to support multi-sourcing (many suppliers or providers) over limited sourcing (few suppliers or providers) far more than other respondents.

* Tendency to support shared risk and reward over traditional commercial terms.

Preventing Disconnects

But the continued growth and significance of outsourcing doesn't mean that the path is without pitfalls. For instance, one clear trend from survey data is the frequent disconnect between the needs and expectations of clients and service providers. While a quarter of clients think that "many suppliers or providers" work better than "few suppliers or providers," only 10 percent of service providers think so. And while 52 percent of service providers recommend offshore outsourcing, only 20 percent of clients say that this works best in real-life outsourcing.

Furthermore, 66 percent of clients say that social and environmental issues will have a significant impact on their offshoring decisions, but providers remain skeptical, with 52 percent claiming that they do not feel that these issues will be significant to their clients.

However, clients and providers agree that labor and employment standards at potential offshore locations are a key concern.

RELATED ARTICLE: Evaluating HRO Partners

When evaluating potential outsourcing partners, consider each candidate on the following:

* Financial stability. Ensure that your outsourcing partner will be with you for the long term.

* Service record. Your ultimate partner will be more than simply a vendor. You must be able to rely on your outsourcer to address challenges and issues to your satisfaction in a timely manner as they arise.

* Cost. Consider the costs, but be sure any upfront savings don't come at the expense of long-term service and support, or turn up in hidden charges down the road.

* Technology leadership. Ensure that your potential partner will be able to accommodate your changing needs due to increased staff or expansion into other regions.

* Disaster recovery. The data that you entrust to an outsourcing partner are of the utmost importance. They should be safeguarded to ensure that they are available to you even if there is a technology malfunction, natural disaster or facility damage.

* Quality of implementation. Your outsourcing partner should provide a consultant committed to the successful implementation of its solution.

* Training. Adequate training is perhaps one of the most critical but often overlooked aspects of successfully converting to an outsourced solution.

Source: Mikio Manuel, a regional HR consultant for ADP Inc. and a former member of the Advisory Board for the SHRM Human Resource Technology Exchange.

RELATED ARTICLE: Did You Know?

To determine what to out-source, a general rule of thumb is to export those activities that have high risk and low reward.

Source: Society for Human Resource Management's Briefly Stated series, Measuring the Benefits and Costs of HR Outsourcing, August 2006

Outsourcing Is Intensifying

Percentage of Respondents

                                                   outsource it to a
                            outsourcing this item  significant extent

Information technology      57%                    39
  services
Production or delivery of   53                     44
  your core products or
  services
Logistics and distribution  51                     50
HR services                 35                     16

Source: PricewaterhouseCoopers' Global Outsourcing Survey 2007.

Note: Table made from bar graph.