Here’s why you should refresh your outsourcing strategy
For some organisations, their outsourcing strategy starts with choosing a supplier, negotiating hard and then managing the relationship. As the nature of the contract changes, the number of suppliers increases and there is critical dependency on a few selected ones, management often gets back to figuring out what its outsourcing strategy was. A solid strategy is about making a set of choices and developing a framework to make sourcing decisions. It is a board defensible document that provides clarity on the execution roadmap for its various stakeholders: Leadership, Middle Management, Employees, Suppliers, and the Regulator.
Given the recent trends in the market, listed below are a few reasons why organisations preparing for the future should consider refreshing their outsourcing strategy.
- Your sourcing decision-makers are changing. Organisations often have a large part of their IT outsourced. With the rise of social, mobile, cloud and the digital revolution, a Gartner study revealed that by 2017, the Chief Marketing Officer (CMO) will spend more on IT than the Chief Information Officer (CIO). The Marketing department traditionally has its own significant budget and will have its own thinking and approach on how to procure services from a supplier. However, in some organisations, Lines of Business have also started to procure their own services. This change requires the organisation to listen better to its new stakeholders and set clear guidelines on where the organisation will be in the future as it embarks on an outsourcing journey.
- Exponential technologies are going to disrupt your industry. With the phenomenal growth of Uber and AirBnB, established organisations have realised by now that it takes just a few months for a startup to disrupt its entire business model. Exponential and disruptive technologies such as Artificial Intelligence, Robotics, 3D Printing, Nanotechnology and Biotechnology will redefine the future in the next two to ten years. It is important that the organisation is ready to deal with the technologies and the vast new range of suppliers. Key questions around what business areas and services should use these technologies, what risks are involved, what capabilities are required and how will the strategy change in response to internal or external factors need to be discussed.
- Leveraging the wisdom of crowds will provide a competitive advantage. Organisations are increasingly beginning to explore crowdsourcing to achieve their goals. The most significant impact of crowdsourcing is its ‘outcome-based’ model. Crowdsourcing sites such as Amazon’s Mechanical Turk, Kaggle, Gigwalk, TaskRabbit, Upwork, Elance and Field Agent allow organisations to dynamically source specialised skills from virtually anyone, anywhere, and whenever needed. In the future, this “on-demand” labour pool is going to give organisations a competitive edge: great quality output for a predefined spend. A favorite case study of crowdsourcing was Goldcorp – a mining company that offered prize money consisting of $500,000 for the best ideas on finding gold. Geologists, students, mathematicians, scientists and even military officers identified 110 sites that yielded about $3 billion in new gold in one year and turned Goldcorp into one of the most profitable companies in the industry. Recently, Integra Gold Corp initiated a similar challenge and is offering $1 million to anyone who can strike gold in six terabytes of data. As crowdsourcing becomes the norm of the future, the strategy needs to decide the policies and processes that must be in place to deal with crowdsourcing.
- Organisations need to comply with the regulatory authorities. Various organisations are under the scrutiny of regulators about how they define their outsourcing strategy and manage their suppliers. Various regulatory authorities such as OSFI, FFIEC, OCC, FRB, OTS and FSA are providing outsourcing guidelines. Making sure that the strategy aligns to the regulatory guideline is becoming a key requirement from the Board of Directors through to senior leadership.
- Give an opportunity to suppliers that are innovating. Traditional suppliers are now upping their game and are innovating to stay alive or climb up the value chain. Suppliers are investing in the latest technology and presenting innovative offerings that have the potential to optimise existing processes or support future business. They are eager to invest and co-create with the organisation. Examples are the Indian IT firms which are betting big on AI. These firms, traditionally offering software services powered by people, are gradually focussing on artificial intelligence: Tata Consultancy Services’ big bet on Ignio and Wipro’s HOLMES each offer huge potential if they can deliver.
The outsourcing strategy has the vision, objectives, goals and the key milestones that need to be achieved in the next three to five years. Maintaining an agreed-upon strategy with the above factors will make it easier to communicate and leverage outsourcing in order to gain a competitive advantage.
About the Author
Biswajit Das has over 15 years of experience servicing clients in outsourcing both as an advisor and a service provider. He has assisted clients across industries and developed strategies for optimisation and effective sourcing for joint success of both clients and suppliers. His management consulting experience spans across the globe.