Optimize Value from Your Outsourcing Partnerships

Is your company taking advantage of all the opportunities to add to their corporate value by partnering with the right outsourcing service provider?

If your company now partners with an outsourcing service provider, are you managing the relationship as effectively as you can to create the best corporate value for your company?

Based on many outsourcing industry surveys, as well as our firms experience in this area, the answer is: most companies have significant room to improve in both areas.

Today, with the large growth in the outsourcing, companies using the services have become much more dependent on these service providers as partners in their success in the marketplace. This was not always true.

Now outsourcing companies are presently providing services well beyond the services envisioned at the birth of the industry. Initially, their customers engaged these service providers to process only non-core transaction-based applications. The objective was to reduce the customer’s costs and remove their back office processing off-site with very little impact on the company’s day-to-day core activities.

Today, the applications that many companies outsource and the reasons that they contract with an outsourcing provider have expanded well beyond this initial description.

From the early traditional non-core transition-based processing outsourcing deal agreements; present day agreements have expanded to include:

• ·         Co-sourcing Partner Relationships where companies take advantage of opportunities to leverage additional resources and technology;

• ·         Strategic Sourcing Relationships where companies take advantage of opportunities to be better positioned from a technology and processing perspective for the future;

• ·         Value-Chain Networking and Shared Asset Relationships where companies take advantage of opportunities to co-create for future value by focusing on asset sharing/ pooling of resources; and

• ·         Entrepreneurial Venturing and Hybrid Spin-off relationships where companies take advantage of opportunities to capture specific breakthrough business opportunities.

While these partnerships have become more sophisticated and strategic than ever, our research and experience suggests that the partnership tools for effectively managing these relationships have not kept pace with these changes. The result has been lost value creation opportunities for both parties.

Improving the processes for both managing the evaluation and ongoing relationship efforts is especially important now,  not only because there are so many strategic partnerships in place that can be improved but also because there are so many additional companies considering initiating new relationships with service providers.

According to industry surveys, 58% of the companies surveyed said they are still at the initial assessment stage of evaluating potential outsources opportunities. Of those, 38% are still defining their outsourcing strategy.

Based on our research and experience, Bonocore Technology Partners has developed a data base of outsourcing industry management relationship best practices to optimize value from your outsourcing partnerships.

The first “management relationship best practice” is to look at your outsourcing relationship in a much more strategic way.

Many companies view the outsourcing effort in a somewhat narrow view by focusing their goal as: Selecting the right outsourcing partner & signing a contract.

To get greater value from your outsourcing partner, many companies are utilizing more of a three step long term management relationship approach to selecting their outsourcing partner. This is designed to achieve optimal benefits out of a relationship that you know will change and evolve over time.

The steps, which we also use in our consulting approach, are:

·         Step I:           Selecting the right outsourcing partner;

·         Step II:         Agreeing on the ongoing effective management relationship; and

·         Step III         Effectively managing & monitoring the ongoing relationship.

In our experience, many companies are doing a very good job in Phase I: Selecting the right outsourcing partner. Most of the changes we are making with our clients are helping them to be more effective in Phase II: Agreeing on the effective management relationship and Phase III: effectively managing & monitoring the ongoing relationship.

The latter two phases can be argued as just as important as Phase I because of one phrase: change during the life of the relationship!

During the life of the relationship there will no doubt be significant changes taking place that will affect the agreement. By setting in place a good framework in Phase II and executing effectively in Phase III, the company can go a long way in achieving the results that were anticipate in the company’s outsourcing strategy.

We would be happy to discuss more information related to each of the three steps and some best practice examples that should be considered when engaged in any outsourcing effort.

Joseph Bonocore

jbonocore@bonocore.com