It?s time to welcome the latest wunderkind on the outsourcing front: bundled outsourcing. It?s a step beyond shared services and BPO, a great stride toward unlocking the maximum value of outsourcing as a high performance business strategy. We all know that outsourcing is not just about cost, done right, outsourcing will make your organisation more nimble, more agile and more competitive.
Over its relatively short history, outsourcing?s growth has proceeded along two paths: the outsourcing of a single process?e.g., accounts payable, payroll or help desk?or a comprehensive set of processes within a major business function?e.g., finance, IT or learning. Bundled outsourcing is fast emerging as a strategy adopted by both businesses and government executives to drive value while simultaneously pushing cost out. Interestingly, according to a study we conducted with Everest Research Institute, the market for outsourcing multiple processes under one relationship is growing at a 25% compound annual growth rate, compared to a 10% rate for outsourcing a single business process.
As organisations mature in their experience with outsourcing, bundled outsourcing is fast emerging as a strategy to improve topline growth opportunities and increase bottomline savings. Bundled outsourcing delivers a host of benefits: deeper competency in important business functions; lower upfront costs and better management of ongoing costs by moving to a variable, usage-based model; reduced risk of labour acquisition in lower-cost countries; and access to solutions that have already been configured for world-class processing levels. If companies are to continue to derive value from outsourcing, they need to develop third-party relationships with the expectation that multi-function outsourcing synergies will result. By incorporating scalability and expansion into the planning from the beginning, companies can adopt a bundled approach that can help them achieve and sustain high performance
Common bundling options are bundling of the finance and HR functions, along with the applications supporting them, to a single provider. Some companies may bundle finance and procurement, learning and HR, or other key functions in different combinations appropriate to their needs, often bundling a particular function or business process with the underlying applications and infrastructure management.
For example, a global pharmaceutical company became the first organidation in its industry to adopt a bundled outsourcing arrangement. The company was looking to outsource three major business functions?application management, human resource operations and payroll, and finance operations?and initially planned to select different providers for each of the functions. Instead, they took a bundled approach. By choosing to outsource all three functions to the same provider, the company is simplifying its governance processes, improving performance, taking advantage of business synergies and reducing redundancies and operational costs. This bundled outsourcing approach will allow the company to reduce the costs previously associated with the delivery of shared services by up to 40% annually.
How does an organisation know that a bundled outsourcing strategy is right for its needs? Here are key indicators to check if bundling is right for you:
Current costs for business functions in the third or fourth quartile
If your organisation?s costs for key functions such as finance, HR and CRM are not close to or at first quartile, this is a cause for concern. Bundled outsourcing can create cost efficiencies not just through volume discounts but also by reducing many hidden costs. Increasing the volume of work with existing suppliers limits the proliferation of meetings, minimises the cost of negotiating and maintaining legal agreements, leverages pre-existing infrastructure investments, and simplifies management processes.
Aging application software for front or back-office solutions
As software ages, maintenance and fixes begin to eat up everyone?s time, and the majority of spending often seems to go just towards ?keeping the lights on.? Yet the costs?to say nothing of the hits on time and internal productivity?required to replace aging software will be daunting. Bundled outsourcing can be a means of achieving more rapid benefits in the short term, and then a means of staying on top of new technologies in the long term, as it becomes the job of the outsourcing provider to incorporate new technologies and approaches.
Major business events on anvil
If major events?divestitures, acquisitions, geographic expansions and so forth?are in your company?s 18-month planning horizon, you?ll need critical business functions that quickly scale, up or down. Bundled outsourcing solutions are far better suited to a dynamic business environment than internally managed and developed solutions. Ensuring coordination across multiple functions with a single provider reduces the burden of managing complexity
Pressure to demonstrate measurable business outcomes
The business outcomes of bundled outsourcing can have a dramatic impact on return of assets, share price and operational performance. Bundled outsourcing can produce a range of measurable results such as greater working capital, faster inventory turns and enhanced retention.
The need to become more agile
In competitive industries, many companies are scrambling to increase their speed in connecting to new suppliers, contract manufacturers and business partners. But achieving that goal requires internal systems and processes with a faster change capability. In a volatile business environment, bundled outsourcing can make an organisation?s processes and solutions more variable, flexible and scalable, too.
According to the Everest Research Institute, companies that outsource an initial system or business function will outsource at least one more within two years. Essentially, that means executives will have a decision in front of them: to proceed with the same supplier or not.
Some visionary executives are beginning with a sort of ?big bang? approach, starting out by immediately thinking about the most optimal way to combine multiple functions under a single outsourcing relationship.
Think about it?reduced governance headaches, improved compliance, increased efficiencies, better cash flow and more productive employees.
Look beyond the traditional silos of outsourcing individual processes and consider the natural linkages between purchasing and accounts payable; HR spend tied to learning and content development.
Maybe you?ve seen an industry analyst report, or heard about one of the emerging bundled outsourcing contracts. But have you thought in much detail about the business outcomes that can be achieved through the bundling of outsourcing services.
Outsourcing is easy. Smart executives do it well. But with bundled outsourcing, you can achieve maximum competitive advantage and new levels of high performance.
The writer is lead executive, delivery centre network for BPO, Accenture India