Outsourcing is like ripping off a Band-Aid. Do it slowly, it's a slow and painful experience. Do it quickly, and the pain is gone before you know it...
Outsourcing of IT and business process has always been a game for large enterprises, where well-executed large-scale employee transitions have resulted in profitable endeavors for both providers and buyers. But while the large buyers like saving the money (see Part 1), it’s actually the mid-market sector ($1bn-$3bn revenues) which is getting a lot more out of the experience:
This graphic shows where outsourcing has been very effective for organizations. And the mid-market buyers have been enjoying considerably more success in every area – from cost reduction through to global effectiveness, through to getting better business process improvement and technology.
HfS believes much of the reason for this is that mid-market buyers are forced to jump into outsourcing more aggressively to attract a quality provider, which, in turn, is forcing them to transform their operations much more rapidly to incorporate the provider's global delivery infrastructure. Let's examine this further...
Why mid-market buyers are enjoying more successful business outcomes when they outsource
Mid-market firms appreciate the global scale, expertise and process acumen providers bring to the table
In the mid-market, organizations are less well-resourced – they often have legacy IT and can’t often afford to have well-paid top-notch finance, procurement, HR and operations talent. Hence, having skilled service providers take on their stuff has been – by and large – a positive experience for them. Their bigger counterparts tend to have more sophisticated ERP and empires of IT, finance, procurement and HR. When the large firms outsource, they don’t really want to change the way they do things – they simply want to run them the same way at a lower operating cost. While a mid-market organization may not wield the same level of aggressive cost reduction through large-scale labor arbitrage as larger enterprises, they clearly enjoy the benefits of accessing improved technology and process expertise.
Mid-market buyers initially outsource a greater proportion of their staff and processes to make the economics work, which is leading to more positive business outcomes
Enterprises usually have a lot more staff supporting business functions, and many of them are today outsourcing in increments, perhaps starting, for example, with accounts payable, before extending to receivables, reporting, procurement and analytics. They are large enough to be able to dictate to suppliers their preferred pace of outsourcing. Many mid-market firms may only have, for example, 150 people in finance and 25 in procurement. They're pretty much going to have to bundle as many staff into the first deal to attract a top tier provider and don't have the "luxury" of outsourcing step-by-step.
Moreover, the fact that most of the mid-market buyers have to outsource more processes and staff faster correlates with the increased satisfaction ratings - a more rapid transition to an end-state clearly helps drive transformation and improvements in process.
Many enterprise buyers are outsourcing in an incremental fashion, which doesn't encourage business transformation
Large enterprises continue to dominate the lion's share of current outsourcing activity - because they are tending to outsource in smaller increments which, in turn, is inhibiting change and encouraging them to muddle through with their existing processes, which are often inefficient and not very effective in a global outsourcing delivery model.
Business Process Outsourcing (BPO), Buyers' Sourcing Best Practices, Captives and Shared Services Strategies