The Outsourcing Competency

As Carol Burnett once said, “Only I can change my life. No one can do it for me.”  To succeed as a leader in business today requires keeping pace with rapid changes occurring in our business environment.  Two of the key changes and opportunities today are outsourcing and globalization.   So increasingly, the responsibilities of CFOs, HR executives, procurement executives, and others is becoming dependent on successful management of third-party partners. This requires executives to add a new skill set: The Outsourcing Competency.

An executive today must also be able to govern third-party relationships and ensure delivery from outsourced or globalized operations. Whether the service provider is delivering a project that has a fixed timeline or delivering services for ongoing operations, the ability to seamlessly integrate service providers with an internal team is becoming a critical part of an executive’s resume.

Managing third party deliverables sounds simple, but is wrought with challenges and difficulties when examining it more closely.  Deliverables must be defined properly, aligned with business objectives, delivered on time, and, of course, within the defined budget.   In many organizations, information is captured in employee’s heads rather than a knowledge management system, this making knowledge transfer a big challenge. And then, how does one integrate an outside partner or remote location into the process?

Whether outsourcing information technology, human resources, finance, or procurement, executives must understand the core processes, be able to objectively assess the current operating level of the internal organization, and orient the service provider or globalized operation toward the outcomes (service levels).  This skill requires an adept ear for listening to what could be done and balancing it for what should be done, while maintaining a business relationship that should be transparent to end users.

Our experience in outsourcing and global services consulting and research shows that executive that are successful establish the processes as shared above and then pay attention to the following factors:

1.     Life Cycle Commitment
Organizations tend to launch services globalization initiatives rigorously and with the appropriate management involvement in governance. However, the senior level involvement and attention dwindles when the initiative progresses into its second year. Despite comprehensive plans or contractual clauses to enhance productivity, such obligations are neither proactively monitored for positive results, nor are they pursued. It is important to ensure that the attention stays strong throughout the entire life cycle of the project.   

2.     Internal Commitment
Organizations wishing to benefit from services globalization should undertake a realistic internal assessment of their ability and readiness to pursue such complex initiatives. Aside from cultural and skill differences, other aspects like internal communication structures, resistance mapping, and cultural sensitization need to be adequately addressed prior to commencing such initiatives. We have seen time and again, when an organization is not poised internally to take on services globalization projects it will face resistance from internal stakeholders resulting in lack of focus on such initiatives.  These executives focus on readying their organizations.

3.     Decision Making
Organizational hierarchy and culture play important roles in defining the decision-making authority within an overall governance organization. Executives needs to ensure that bureaucracy is not built into this governance structure. The structure should be able to clearly delineate responsibilities across the strategic and tactical, while ensuring that it is flat enough to encourage timely decision-making and appropriate controls. At the same time, not enough structure and staffing can lead to problems. 

4.     Staffing of Governance Teams
Most global corporations have delegated initiatives to a sourcing division and let it manage the offshore piece, regardless of the level of complexity, spread of global delivery, contractual commitments, etc. By doing so, organizations are yielding to a restrictive approach towards continual and effective program governance that could prove detrimental. For example, management commitment to a simple single-site offshore delivery initiative has been similar to a more complex, multi-site multi-country multi-vendor offshore delivery initiative.

5.     Leverage Role of Influencers
Another important facet is to ensure that while nominating managers / individuals to staff appropriate governance teams within the structure, their ability to influence others is taken into account. Such individuals can become vocal champions and ambassadors of the initiative, resulting in increased and more importantly, consistent attention throughout the longevity of the project.

6.     Investment in Time and Effort
For governance to be effective, operating staff and managers will need to budget anywhere between 15% to 28% of their time and effort dealing with ongoing offshore initiatives. The CXO level should budget approximately 5% of their time on governing services globalization initiatives year-on-year, consistently. It should be recognized that such investment in time would be on the higher side during the beginning phases of the initiatives.

7.     Adequate Governance Budget
Based on our experience helping leading firms adopt best practices, we recommend companies to budget governance at approximately 8% of their overall initiative expenditure, spread across the life of the entire initiative.  This investment pays off both in the short term and the long term.

Successful executives recognize the need for above and thus elevate their outsourcing competency.