During Part III of our interview with KPMG’s Cliff Justice, we talked about the demise of the “O” word from our vocabulary:
Outsourcing is a term that has been abused and politicized. It doesn’t have the same meaning to the general population as it does to those who are close to it. So I would certainly propose the industry find a different term for the use of third parties to create partnerships to provide services.
Cliff Justice, Partner and U.S. Leader, Shared Services and Outsourcing Advisory, KPMG, November 2012
Phil Fersht (HfS): Cliff, looking back over the last 15 years, would you say we were really playing a short game with outsourcing? Wasn’t it all about “how do we take out cost, make things happen quickly and minimize disruption”? Isn’t it a long game today, because the quick hits are no longer there. Aren’t thinking about how to develop a 5, 10 or 15 year plan?
Cliff Justice (KPMG): Phil, in the early part of the 2000s, there was a herd mentality around cost take out. There wasn’t a strategy around large-scale outsourcing. Some companies had a short-sighted view that labor arbitrage was a value driver. Labor arbitrage by definition is temporary. Many companies executed long-term changes to their business purely on labor arbitrage; those companies suffered the consequences from this strategy.
That approach has changed as clients matured and grew more knowledgeable about outsourcing and the value of sourcing. I view that change as starting on a mainstream level around 2007. At that time some leading companies had epiphanies. They were visible enough to be vocal about those changes. You started to see the service providers alter their marketing and focus more on value within a business approach to differentiate themselves.
After the financial crisis, there was a lull. But now we’re seeing companies really start to take a long view of their services organization and how they can leverage their business cross-functionally (finance, HR, IT, supply chain and procurement). How can they leverage this asset to provide information and insight back to the business? This is much more about business value creation.
However, this is only happening at the leading companies. There are still companies that take a short view. The most prominent successes we’re seeing in the market are being achieved by companies that have taken the long view; they started that approach four years ago and are seeing the benefits today. They are able to control their portfolios, enter new markets, be pragmatic and get their products to market faster because of the way they’ve organized their services organization.
Phil: How is the current economic situation impacting thinking? We’ve been in a difficult situation for four years now and uncertainly still is rife, particularly with the European situation. Do you think this is impacting how clients are handling their sourcing planning?
Cliff: Absolutely. Companies are looking at their services organization for flexibility they can’t get in another way. Companies built fixed cost and had a structure that is hard to move around. Today, with the acceptance of the cloud technology platform and the as-a-service mentality, we’re in an era that is more flexible than ever. You’re able to scale up and down. Clients are accepting a more standard set of services than they have in the past. There has been a mind shift from a cap ex structure to more of an off expense mentality. Companies are trading high levels of customization for flexible technology and services packages. We are starting to see much more one-to-many arrangements.
That’s a big change from how large-scale outsourcing agreements were done eight years ago.
Phil: And finally… when you look back at everything you have achieved and all of your career’s challenges, would you have done anything differently if you could start all over again?
Cliff: I don’t think I would have done anything different. I’m fortunate to have had the opportunities that presented themselves and the good people I met along the way. I am certainly fortunate to have worked for KPMG and have built those relationships; without the EquaTerra and KPMG integration, we wouldn’t be where we are as a consulting firm today.
Phil: Cliff this has been a great discussion and I am sure the HfS reader will really enjoy your insights. Good luck with the journey!
Cliff Justice (pictured above) is Partner and U.S. Leader, Shared Services and Outsourcing Advisory at KPMG LLP.
Click here to read the whole interview