Playing with fire

Searching for solutions
Many entrepreneurs at organisations, large and small, no doubt agree with Forde, as there is a clear global shift to use outsourcing to make operations focused, efficient and leaner. That said, according to new research by outsourcing consultant TPI, the value of global outsourcing contracts in the first three-quarters of the year is down two per cent on the same period in 2005 and 11 per cent on 2004. It makes the last quarter the worst in four years for the total value of major contracts awarded. Despite this downward turn, though, TPI found the number of major contracts being awarded to companies this year is higher than ever before, bringing in an extra $9.7 billion
(£4.9 billion) in annual revenues. This is three per cent higher than in the same period last year and again a record high. Outsourcing is not going to disappear anytime soon.
Peter Moller, partner in charge of outsourcing advisory services for Deloitte UK, says many observers expected the market to take off in the 1990s, but nothing really happened until ‘Eastern Europe and India started to come on tap’. Off-shoring has, he notes, created a workable labour arbitrage for outsourcers to make their 15 to 20 per cent margins.

Over the past 15 years or so, the outsourcing market has matured greatly on all sides. Peter Brooker, principal consultant for programme management at Molten, a consultancy, notes businesses have moved away from outsourcing operations to one supplier. ‘There is a strong fear in large organisations of vesting too much interest in a single supplier, hence the move to splitting risks across a number of smaller contracts,’ he says. Moller agrees: ‘The market is moving towards more contracts being signed in specific functions like finance and HR, rather than big contracts across all of them.’ When deciding to outsource, no matter what size your business, it’s important to consider what you are letting someone else have access to. Specifically, this includes customer data, market intelligence, client information and other intellectual property directly relating to what your business is doing.

In the case of IT, Brooker comments that ‘some companies fall into the trap of giving away their competitive advantage’. He goes on: ‘It could be lists of clients and whole knowledge banks you would be better able to exploit if you had it all at your disposal, as opposed to saying: “Well, I can’t easily get to that because I’ve outsourced it”.’
The answer here is to think small. Brooker says: ‘You have to ask: “What parts are smart for me to outsource and what parts aren’t?” There are elements you could outsource easily without selling the farm by doing it.’

Finding the balance
Moller makes a similar point in relation to outsourcing finance functions. Up to now, it’s consisted of transaction processing like accounts payable. Now organisations are seeking to provide other accounting services, such as closing the books, producing reporting information and even the financial planning or “business partnering” of
a company. ‘The idea has been you split finance into transaction processing, which
gets outsourced, and business partnering, which stays in. And then there is a centre for excellence and decision-making and policy-making which also stays in, along with risk management,’ he says. Relinquishing control and direct oversight of the management accounts used to be deemed unthinkable. Not any more. Moller comments: ‘Outsourcers are saying: “We’ll do your budgeting, forecasting, planning and analysis”.’

For Moller, this is a step too far. The point of outsourcing, he thinks, is to bring onboard specialists better able to focus on periphery aspects of a company, thereby freeing up management to allow them to fully concentrate on what the business is about.

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