Changing sourcing structures from the conventional DIY vertical model only makes sense if a new value can be produced. The principal resources of value are:
Improved service quality -higher performance standards than the legacy function.
Lower operating costs – should cost significantly less compared to the former cost base.
Investment avoidance -‘back office’ functions require ongoing investment – particularly in IT. Depending on the platform, these investments could be controlled or prevented altogether by a change in sourcing arrangements.
Flexibility – that the service may be scaled up or down to cater to expansion, acquisition, or divestment.
Management attention – mature management can concentrate on core business challenges.
Compliance – with an ever-increasing regulatory burden e.g. Sarbanes-Oxley, the risk of non-compliance is reduced when using existing systems
However merely changing the sourcing structures doesn’t in itself necessarily realize these possible improvements. They need to be made by some kind of transformation or discontinuity in how service is provided. Traditional’People move’ type outsourcing where the whole function (often including the individuals, technology, and property) moves to some other organization doesn’t in itself create new significance because nothing has changed. The outsourcer will have a plan of how to reduce costs over time. Value creation is more straightforward and also the lift and fall’ kind of structure in which the job moves to a new company but the way of production do not transfer. ‘Offshoring’ is an illustration of this kind of deal. Cost savings can be made out of arbitrage and aggregation.
Moreover, technology costs are lower on a larger optimized platform and functionality may be better. But, offshore operations create a raft of new and different problems to fix. In preparing business cases for new sourcing structures it’s critical to know in which the new value is going to come from and how it will be realized. Recently’governance’ is now a keyword in outsourcing and has been written about best practices in governance design and performance. The fact is that within an arrangement where sufficient value is made for the two parties to enjoy decent business benefits the governance is not as difficult.
Malibu architectural services – too often a great deal of effort goes into arguing over the branch of a cake’ which is simply too small. It makes more sense to devote that attempt to make the cake bigger rather. But how is this new value generated and how can it be sustained?
The new service has to view itself as a specialist provider of their services – that is their business. As such it has the very same dynamics as any other business. It needs to develop and cultivate its IP and identifying factors. It has to identify, attract, develop, motivate, and retain the proper people. It has to sell its services to the market and grow revenues year on year. It has to design pricing and operating models such it creates an appealing margin for stakeholders. Whether the new’ supplier is an internally managed shared service or an outsource vendor – it is presently a supplier of (for instance ) HR services to clients – not the support function of a company producing food products. This is vital because of the very best talent, management focus, and investment funding offered to the food company will be led in the center business.
Those working in support services’ will be regarded as of secondary importance. They won’t enjoy the same career prospects or benefits as those working in the core business however exceptional they may be. Their branches will fight to compete to get the investment necessary to keep quality at regular levels. This really is an essential underlying change variable in back offices. It’ll be at its strongest in an enterprise partnership model since the former rear office becomes a new standalone business with the freedom to benefit those who contribute to business development. A traditional people transfer type deal or a lift and fall’ deal will experience this shift in as far as the outsourcer has an entrepreneurial strategy. Learn the basics of Malibu eco-friendly construction and how it would change your office beautifully!
In a shared service arrangement, much will depend on how the service is put up. When it is installed as a profit center rather than a cost-recovery operation it will have a more entrepreneurial outlook – but internally that may be seen as a zero-sum match’ and there may be bitterness in a new profit center creating revenues in the cost’ of a proven profit center. Even though an entrepreneurial mindset does not directly make the sustainable change it can’t be suppressed as a powerful motivational factor. Outsource providers are potentially well placed to introduce this entrepreneurial attitude. Their talent within these companies can be a valuable source of innovation and new thinking – both within the reach of a sourcing structure and potentially outside it also.