I recently read through Deloitte’s latest outsourcing survey and found the statistics and analysis to be pretty spot-on. If you want the high level summary of current outsourcing trends and common themes, make sure to keep reading.
The following three key areas were the biggest themes throughout the report: outsourcing perspective, contracting and relationship management.
1. Outsourcing Perspective
The outsourcing perspective is continuing to shift beyond cost. Companies are taking a different approach because it is becoming more than just cost savings. Value is in higher demand than lower cost.
While cost continues to play a big role in outsourcing relationships, there continues to be growing importance in the following areas:
- Operational capacity, flexibility and scalability
- Service quality
- Risk mitigation
- Process improvement
- Enablement of Mergers & Acquisitions
Contracts are changing to include value metrics. However, companies struggle to define, measure and motivate in outsourcing relationships. Only 21% of those surveyed make innovation contract based. Still, companies are expecting more from providers:
- 58% want to see an increase in overall quality
- 44% still need to decrease delivery cost
- 38% expect an improved customer experience
- 31% need a partner to help increase client revenue growth
Clients are beginning to look for service modules within a contract to provide agility for constantly changing environments and customer needs.
3. Relationship Management
Survey participants noted the importance of establishing a strong partnership and engagement model early on with their external partners. Some of the benefits noted, include:
- Neither party is surprised down the road (at CBE we call this the “no surprise rule”)
- Risk mitigation with special focus on cyber security
- Overall efficiency of the Audit process
- Necessary resources are identified and budgeted for up front
- Engagement at all levels
Furthermore, how relationships are managed is also changing with enhanced SLAs and governance structures. Effective Vendor Management is key, but still under funded by many companies that were surveyed. The business case does exist to invest more in Vendor Management Organization (VMO) to enable value creation and develop agile SLAs. However, while many are working to improve VMO capabilities, 91% spend less than 8% on VMO today.
Lastly, survey results show that an effective governance structure supports operational excellence. There is a positive correlation between operational excellence and governance oversight maturity. Respondents with an advanced governance structure noted the advantage of oversight for clear escalation paths versus termination. This also allows the ability to quickly bring on another external partner instead of taking on the work internally if escalation continues to termination.
I oversee CBE’s First Party Outsourcing Operations, so this study was of particular interest to me. Prior to CBE, I was on the client side with responsibility for outsourcing relationships for over ten years and I had many of the same pains with my providers as noted in the survey. As a result of this experience, the guiding principles for my division at CBE are: Transparent, Agile and Engaged. If my team is relentlessly focused on the consistent delivery of these three principles, we will bring the value clients are looking for in a partnership.