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In-house or outsourced transformation: which is best?

In-house or outsourced transformation: which is best?
Howard Spode

In this article I examine the question of whether an in-house or outsourced approach is best when transforming business support services such as HR, procurement, customer care, etc. So for example an organisation might ask itself: “Should we establish a robotic process automation (RPA) regime in our accounting operation or should we get a business process outsourcing (BPO) provider to run our accounting for us, which would include the deployment of its RPA regime?”

I am aware that this question is a very old chestnut. Not with RPA as the specific focus of course because this is a relatively new innovation, but certainly with more mature transformational techniques such as shared services, offshoring or process re-engineering. I myself have been helping organisations to answer it for over 20 years. But I believe the question is still very relevant for the following reasons:

  • Thinking in different industries, business functions and geographies evolves at very different rates. For example, I am in Colombia as I write and it won’t come as any surprise that the environment here is very different to that, say, in the US.
  • New people come into the industry all the time, whether as clients, suppliers or intermediaries and not all will have had previous direct exposure to this particular topic. And even old veterans may feel the need for a re-spray from time to time.
  • There have been several high-profile switches of strategy over recent times. Within the UK public sector for example where the received view of a few years ago that in-house is best is I understand now being turned on its head in favour of BPO.
  • Conversely, some industry analysts are busy predicting the imminent demise of BPO, the logic being that various newly-emerging transformation techniques such as cloud-based self-service applications will eradicate the need for client-organisations to access the sources of value traditionally brought to the table by outsourcers – low-cost labour for example.

The appropriate course of action for an organisation to take in the specific circumstances that it finds itself in should always the one that represents the best all-round business case of course. I argue this strongly in my paper on how to determine the feasibility of proposed BPO/transformation initiatives. So it is definitely not a case of one-size-fits-all in the matter of in-house versus outsourcing. Nevertheless, I have a clear point of view about which direction is generally better “all-other-things-being-equal” and I share this in the pages that follow.

There is a fair amount of straight talk in this document as I lay out the arguments in support of my point of view and against the alternatives. But none of this is intended as criticism of any decisions made in the past by specific organisations or individuals – times change, the maturity of the market increases, opinion moves on. I am focussed on what I believe is right at the present time, with the objective of providing some codified guidance for anyone out there who may benefit from it.

The relationship between outsourcing and transformation

I have covered the relationship between outsourcing and transformation in several other recent papers but it is also necessary here because I will use the thinking as the basis for introducing and then evaluating six macro-level strategies that are formed by the permutations and combinations between the two concepts.

In short outsourcing is commercial change: a transfer of contractual responsibility from client to supplier for delivering a certain scope of work. Transformation on the other hand is operational change: significant modification of the way the service is delivered in terms of process, technology, people, location, etc.

The relationship can be shown graphically as follows (Figure 1):

Howard Spode Feb 2016 graphic 1

 

Often the two concepts get muddled up. For example, back in the late ’90s, at pretty-much the start of the current BPO/transformation industry, I remember a prominent question in the marketplace being: “BPO or shared services?” Countless consulting presentations, numerous media articles and even entire conferences were dedicated to this subject. But this is not really a sensible question because shared services is an example of transformation (operational change) whereas BPO is commercial change. So it’s obviously not a case of “either/or”. It’s possible to have one, or the other, or both, or neither. So an organisation could choose:

  • To set up a “captive” shared services centre – ie shared services without outsourcing.
  • To utilise an outsourcer’s shared services centre – ie to embrace both shared services and outsourcing.
  • To outsource without adopting shared services – maybe using alternative transformational techniques delivered by the outsourcer or maybe not transforming at all.
  • To neither outsource nor implement shared services – maybe deciding to pursue some other non-transformational improvement strategy or even to not do anything at all.

The six strategies for pursuing outsourcing and/or transformation

“Transformation”, “outsourcing ”, “both” or “neither” make four strategies. I mentioned that there were six in all and the other two are formed if we bring sequence into the equation – ie the very-relevant possibility of planning to initiate either outsourcing or transformation first and subsequently embrace the other concept on top of the first.

Here are the six plotted onto our model (Figure 2):

Howard Spode Feb 2016 graphic 2

 

An organisation contemplating whether to pursue outsourcing and/or transformation sits in the bottom left section and the possible paths ahead are:

a. Neither transform nor outsource
b. Transform only (no outsourcing)
c. Transform first, then outsource
d. Outsource only (no transformation)
e. Outsource first, then transform
f. Outsource and transform simultaneously

The general effect of outsourcing on transformation

Transformation can bring great benefits to an organisation if, as per the following “business case equation” borrowed from my paper on business cases, the positive aspects of the change (green in the graphic below – Figure 3) outweigh the negative aspects (red) to the extent that the change is justified:

Howard Spode Feb 2016 graphic 3

But it’s important to bear in mind that even with the strongest business case like the one implied in the graphic there will always be some significant negatives to deal with.

And because transformation is complex and challenging there are many things that can go wrong in the execution of the business case, however strong it is on paper. For example:

  • Design of the new operating model not fit for purpose
  • Implementation plans unrealistic or poorly executed
  • External resources (consultants and contractors) not managed properly
  • Change management activities ineffective
  • Ongoing operations poorly delivered

As an intervention, transformation is much more powerful than outsourcing – significant change in the operating model is going to generate many more benefits than mere change in the contractual responsibility for delivering a certain scope of work. But notwithstanding the fact that outsourcing and transformation operate in different dimensions as described above, outsourcing can have a profound positive effect on transformation in that it can:

  • Amplify the overall effect of the transformation by increasing the benefits and reducing some of the negatives.
  • Provide a benefits-realisation mechanism to ensure that what is envisioned actually does comes to pass, and what isn’t doesn’t.

As long as the outsourcing is done well of course, which is what I will assume here (I cover the scenario where outsourcing is not done well below).

Let’s look at the amplification and benefits-realisation effects separately – although in practice they are closely inter-connected and operate simultaneously.

Amplification

As can be seen in Figure 3, the main benefits of transformation are around:

  • Cost – reduction, transparency, fixed versus variable.
  • Quality – improvement, consistency, transparency, discipline.
  • Mitigation of existing risk – eg of loss of key skills in small teams.
  • Focus – ie increased attention by key staff on high-value activities.
  • Other – eg organisational flexibility.

These benefits are driven by features of the future (post-transformation) landscape such as: economies of scale, optimal cost labour, rightsizing, new processes and technologies, front-office as opposed to back-office culture, service management regime, etc.

I contend that the positive effect of every one of these features, every single one, is to some extent increased in the well-run outsourced environment as opposed to the in-house one. Or conversely is weakened in the in-house environment as opposed to the outsourced one. This “positive delta” in the outsourced environment may be small or it may be large, but it is always a positive. Let’s look at a couple of examples from the list above. The principle works with all of the features as I said but space constraints prevent an exhaustive review:

  • In an in-house scenario a client-organisation can generate significant economies of scale by sharing various resources between its different business units. An outsourcer can do this for a client too, but in addition the outsourcer has the possibility of sharing some costs between different client-organisations as well.
  • A front-office culture can certainly be encouraged in a captive operations centre. But for example accounting operations in an automobile company will always be back office at the end of the day – the front office for that organisation will always be about designing, making and selling cars. For an outsourcer on the other hand, providing accounting operations for a car manufacturer genuinely would be the front office.

Turning to the negative aspects (reds in the graphic), these comprise:

  • Downsides – bad things that will happen – eg investment, people displacement, loss of service flexibility.
  • Risks – bad things that might happen – eg change resistance or failure in implementation or operations.

Some of these negatives are undoubtedly also increased (ie made worse) in the outsourced environment. Again a couple of examples:

  • In terms of investment, the client will have to pay the outsourcer’s margin and this is a cost that will not exist in the internal environment (although it has to be said that the fees of the various external resources usually utilised in an internal transformation will certainly add up too).
  • The risk of change resistance can be higher in the outsourced scenario. It is bad enough for people to have to deal with major upheaval and maybe even lose their jobs – but it can seem even worse when the service is being “given away” to an external party.

However, some of the negatives are also reduced (ie made better) in the outsourced environment. A couple of examples once again:

  • Consumers (ie managers and employees in the line) will almost certainly feel a loss of service flexibility in the transformed environment as formal access channels, standards and processes are introduced. A number of them might be non-too-happy about this at least in the first instance and the level of discontent is likely to be higher in the outsourced environment because the new regime will probably be stricter than in an in-house one. However, it might just as well be argued that increased service discipline is in fact a key benefit of transformation because the “service flexibility” typically enjoyed by consumers in an internal environment is actually an unnecessary cost and a key inhibitor of transparency, standardisation and continuous improvement.
  • Access to the outsourcer’s specialist competencies can help mitigate the risk of failure in implementation and operations. A good outsourcer’s key people will possess the deep, hands-on experience that comes from actually doing the work for a living, whereas in the purely internal scenario there is usually a need to supplement part-time and/or inexperienced internal resources with external consultants and contractors who even if they know how to talk the talk may have never walked the walk.

So, all the benefits are increased and even though some of the negatives are increased, some of the negatives are reduced. This creates an overall net gain – the “amplification” effect.

Benefits realisation

Through the establishment of a commercial environment, outsourcing increases the probability that the positives will be maximised and the negatives minimised. It makes a profound difference to individual and organisational performance when money can be made by doing things well…or lost by doing things poorly. In the internal environment it is possible and indeed advisable to establish a “pseudo-commercial” environment that looks and feels as much as possible like the real thing. But it isn’t the real thing. The rewards and penalties that might flow from one part of the organisation to another are ultimately “wooden dollars” and one business unit in an organisation is never going to sue another (much as it might want to). In the outsourced environment, it’s a real contract, real cash and a real courtroom if it ever comes to that.

Evaluation of the six strategies

Let us now bring the conceptual stuff to life by evaluating each of the six strategies in order to provide some codified guidance on which is generically “the best” as per the purpose of this article.

Those readers who accept my points above about the “catalysing” effect of outsourcing on transformation may well find it easy to agree with most of what I say below. Those who don’t are likely to have more issues but still might be convinced following a more detailed review and some additional arguments.

Neither transform nor outsource (“a” on Figure 1.)

After proper investigation, an organisation might decide that there isn’t a strong enough business case for either outsourcing or transformation, however combined or sequenced. There are plenty of other activities that could be more appropriate in a specific set of circumstances – staff training, culture change or continuous improvement for example. None of these would qualify as “transformation” on a stand-alone basis, but any of them could be effective in the right environment.

Or there is always the possibility that things can be left as they are. The current set-up might be deemed to be meeting requirements to an acceptable standard, especially in the light of other key priorities the organisation may need to focus on. Even if significant improvement potential hypothetically exists, it makes no sense to over-engineer a service by doing more than is necessary. After all, the definition of “quality” is “meets requirements”.

So the “do neither” option should always be treated as a very viable possibility and on many occasions it will be the right choice.

Transform only (no outsourcing) (“b”)

If it is accepted as argued above that outsourcing catalyses transformation by both amplifying the business case and helping ensure that it is realised, then to run transformation on an in-house basis obviously misses out on these effects and it’s pretty-much game-over for the “transform only” strategy – why have a smaller, less certain business case when you can have a larger, more certain one?

However, for those not convinced by this logic there is a second strong argument against the “transform only” strategy.

As mentioned in Figure 3,, one of the main potential benefits for transformation is that it allows a support function to really focus on partnering with the core business – building relationships, understanding requirements, providing insight, etc. This is a very powerful factor – sometimes the single most prominent driver for change and almost inevitably present in some shape or form in all transformation business cases.

But how is this end served by a support function embarking on a major programme of internal transformation that will demand a significant commitment of its key resources for several years? Designing, implementing and operating internal transformation isn’t focusing outwards from the support function on helping the core business – it’s focusing inwards on the workings of the support function itself. Taking things to their absurd conclusions, let’s imagine an HR department that says: “We know how we can really help the business – let’s build our own HR Information System from scratch!”

As you can see, I am not a big fan of this strategy. Nevertheless, there could conceivably be circumstances where the approach could represent the best all-round business case. Assuming there is a dire need for transformation, maybe some key stakeholders are so against the concept of outsourcing that to outsource would damage the core business – for example with owners withdrawing capital or customers withdrawing patronage. Or maybe the supply-side market in the specific field in question is too immature to provide any reasonable level of confidence about pricing or service delivery. Or maybe there have been previous disastrous attempts to outsource and it’s a case of “once bitten twice shy” – which would be understandable from an emotional perspective although not really from a rational one.

Before I move on I need to touch on an “enhanced” version of the strategy, which goes so far as to contemplate the host organisation actually selling the support services in question to other organisations once it has completed its transformation. So not only would the support function’s attention be taken away from the core business for a few years whilst the transformed operation is established, but on an ongoing basis thereafter the function will be busy marketing and selling its services on the open market? So much for “focus”. And hello…what possibly could convince an in-house department that it had the technical and commercial competence to compete with battle-hardened suppliers who do this stuff for a living and would have gone out of business long ago if they had not learned how to do it well? A Finance Director of, say, a bank might as well go to his/her CEO with the idea of selling cars as go with the idea of selling the bank’s operational accounting services.

Once again though one can never say never and there may be circumstances where even this thinking could fly. It has in the past because a few of the leading outsourcing suppliers in the world today started life as in-house operations. But they did emerge at a time when the BPO market was immature so they had space and time to establish themselves. Such an environment may still be available in some very specialist functional niche or other but in recent times the main opportunity for this approach has been where there is some type of distortion in the competitive environment which an organisation believes it can exploit – for example the presence of public money to fund the venture or the existence of some kind of friendly or even captive market of potential clients which themselves lack real commercial incentive to find best value. A good example is the explosion of in-house shared services centres, including in-house business-to-business service providers, in the UK public sector in the ’00s.

Transform first, then outsource (“c”)

The logic here goes something like “we should get our own house fully in order, then it will be easy to outsource” and it’s often coupled with “you can’t outsource a mess”.

I will return to the concept of outsourcing a mess (which I will be arguing you absolutely can do) below but for now let us focus on the argument that outsourcing can be better implemented once internal transformation (for example the global ERP system, the process re-engineering, the internal SSC, etc, etc) has been done and dusted.

My main objection to this thinking is if the internal transformation has been delivered really well what would possibly be the point of outsourcing? As mentioned above, the fundamental operational change of transformation is much more powerful than the commercial change of outsourcing. So if the internal transformation has been executed flawlessly the lion’s share of the value will have all already been realised by the client organisation – the costs will be optimal, predictable and transparent; the quality will be fully meeting customer requirements; transactions will be right first time, every time; business partners will be working closely with the line; centres of excellence will be innovating and delivering specialist skills. So why launch a second major upheaval (outsourcing) for a bit more value? And start paying an outsourcer’s margin?

It is conceivable that there could be circumstances where an outsourcer would want to acquire an fully-transformed in-house operation as some kind of platform for its own business purposes – for example to exploit some market niche. But these circumstances are pretty rare.

The sad truth is that the “outsource after internal transformation” idea usually only really makes sense if the internal transformation has failed to deliver what was expected of it. So outsourcing comes along to realise the value that the in-house transformation has been unable to. And even if an outsourcer can be persuaded to pay some money for taking a partly-transformed operation off a client’s hands, it won’t be a top-dollar “acquisition”, more a case of financial engineering to aid the client – for economic reasons or even those of face-saving.

Outsource only (“d”)

In the early days of outsourcing, before even the concept of “BPO” truly emerged, it was quite common for there to be little or no transformation in an outsourcing agreement. So for example in a Catering, Facilities Management, Desk-Side IT Support or even Payroll arrangement, the location of the work might remain unchanged as might the ways of working and the people performing the activity. Yes, the employment of those people would be transferred from the client to the supplier and a certain service management environment would be introduced but fundamentally the operating model that existed prior to outsourcing would remain in place in the post-outsourcing environment.

Except in very specific circumstances, those days are gone. It might still be possible to get some value from simply transferring headcount or risk to a supplier if for some reason this is very high on a client’s agenda, but without the fundamental change in the operating model delivered by transformation the benefits are usually going to be pretty meagre.

Outsource first, then transform (“e”)

There are two main scenarios where this strategy manifests itself. The first, which I will call “in situ transfer”, is where an outsourcer assumes responsibility for the client’s in-scope activities in their current form and in their current location. So on “Day One” of the new outsourced regime the only key aspect of the service that changes is who runs it. I use the word “only” but for a large client organisation with many locations perhaps in multiple geographies this can be a pretty big deal in itself. The transfer of responsibility marks the start of an initial phase that usually involves activities such as re-branding, the introduction of a service management regime and the implementation of “quick win” operational improvements. As soon as reasonably possible thereafter the outsourcer proceeds to initiate true transformational activities such as re-location of the work and the introduction of new technologies and processes.

In the second scenario, for which I will use the term “lift and shift”, the client and the outsourcer re-locate the in-scope work from the client’s to the supplier’s location (often offshore but not necessarily so). The outsourcer assumes responsibility for delivery of the service as the re-location is completed. As in an in situ transfer there is minimal change to the core processes and technologies in this initial phase – the key changes concern who runs the service and where it is run from. Operational quick wins and other non-transformational improvements are actioned as the re-location is being consolidated. Once this consolidation has been achieved true transformation activities are launched.

Both scenarios benefit from the fact that change happens quickly which can have a positive psychological effect on various stakeholder groups. And both put the outsourcer in a position where it can drive transformation – although it almost always takes two to tango of course so I am talking here about which party leads the dance. Improvement efforts start from a low base – ie the client’s current way of working which may well be a “mess” relatively speaking, so initial wins can be impressive.

In the lift and shift scenario, significant early financial benefits can be realised through access to lower operational costs in the outsourcer’s location and by using the opportunity to “right-size” the workforce. Even though the situation is often “the same mess for less” at this stage, the savings realised can fund later transformation activities and again have a positive impact on certain stakeholder groups. Investment costs are higher in lift and shift of course because physical re-location of work is not cheap. On the other hand, whereas investment is less in the in situ transfer scenario, operating costs are likely to go up in the first instance as the outsourcer’s margin is added to a cost-base that remains untransformed. But in both scenarios (and indeed in any strategy involving outsourcing) financial engineering can play a part in alleviating negative up-front impact on the client.

A key difference between the two scenarios is how the various HR ramifications are managed. In the in situ transfer scenario most of the people currently performing the relevant activities will have their employment contracts transferred to the outsourcer. In most countries this is a legal obligation but even where it isn’t it is a practical one – the outsourcer needs the people to perform the work. The client and outsourcer’s HR teams will co-operate on this transfer. But when the subsequent transformation activities are launched, it will be the outsourcer that is very much in the driving seat to manage the HR ramifications of jobs being radically re-structured or disappearing altogether. This can be quite attractive to client organisations for reasons of both risk management and public image.

In the lift and shift scenario it is the client’s HR team that will manage the ramifications of the initial re-location of work and these will be profound if there is anything but minimal geographical distance between the current location and the new one. During this phase the outsourcer’s HR team will be busy recruiting and training the new workforce at the future location.

My article ‘Ensuring the OCM domain delivers full value in BPO programmes‘ offers some key lessons learned for these “HR transition” activities as well as in the related field of change management.

Now let us examine the downsides of the “outsource first, then transform” strategy.

We have already seen the main reasons why transformation fails. However, the outsourcing element itself can fail, independently of the transformation element. The main reasons are:

  • Business case not robust – by this I mean the business case to outsource, over-and above the business case to transform.
  • Wrong choice of supplier – poor competencies, mis-match in culture.
  • Bad contract – unfavourable terms, incentivisation of wrong priorities.
  • Poor relationship – “us and them”, ineffective governance.
  • Parallel business activities of supplier – eg focus on wining new clients as opposed to servicing existing ones.

By way of illustration, let’s look at one of the most common pitfalls of the “outsource then transform” strategy. This is a relative failure of the second step in comparison to the first and it is particularly prevalent in the “lift and shift” version. The initial outsourcing and physical relocation is usually a significant effort in its own right that generates some very welcome financial benefits as mentioned earlier. But once this phase is complete things often slow down – just when the real transformation should be kicking in. Why is this? Everybody breathes a sigh of relief but also takes their eyes off the ball? The outsourcer was chosen for its competence in lifting and shifting but does not possess true transformational capability? The contract has no adequate mechanism for incentivising ongoing win/win transformation efforts? These are all possible reasons.

Just as a good outsourcing “wrapper” can amplify and realise the benefits of transformation, a bad one can spoil the whole arrangement so it’s crucial to get things right.

Transform and outsource simultaneously (“f”)

This strategy sees the commercial change of outsourcing and the operational change of transformation executed simultaneously – so the outsourcer takes responsibility for the in-scope work at the same time that a radical new way of working is introduced. I call this approach “transformational outsourcing”.

We saw above that in the case of an in situ transfer, the main change in the first phase is about the “who?” and in a lift & shift arrangement, the main changes in the first phase are about the “who?” and the “where?”. In transformational outsourcing, the “who?” the “where?” and the “how?” all change together. In fact, the “what?” may well change too, because radical transformation may see a function amending the portfolio of services it provides to its internal customers.

Normally the methodology for transformational outsourcing is as follows:

  • A core design for the new way of working is developed by the client and the outsourcer.
  • This design is then compared to the current situation in the client’s various business units (a process often called “fit-gap”) with the emphasis on identifying the actions that the business units will have to take in order to adopt the core design. But also identified are any unchangeable local practices (eg based on legal constraints) that will have to continue to exist in the future and will therefore have to be woven in to the final design for that business unit.
  • Implementation plans are then finalised and executed by the client and the outsourcer.
  • The outsourcer takes responsibility at the point that the new model is switched on in each business unit.

My article ‘Lessons Learnt in Transformational BPO‘ describes this methodology in detail along with the key potential pitfalls and how to avoid them.

The benefits of transformational outsourcing are that the positive effects of transformation are brought forward in time and can be fully enhanced by the amplification and benefits-realisation effects of the simultaneous outsourcing. There is also the organisational psychological factor of making significant change happen quickly and irreversibly which can help avoid problems of resistance or fatigue.

On the downside, there are obviously more moving parts to deal with, and if anything is fundamentally wrong with the transformation and/or outsourcing components then a programme can get itself into a big hole quickly. The trick of course is to avoid anything being fundamentally wrong in the outsourcing or transformation elements by not making the mistakes in transformation or outsourcing described above.

Sometimes where a client organisation has many business units with some much larger than others, a combination of the “outsource then transform” and transformational outsourcing strategies is adopted to form two macro-level phases of the BPO/transformation programme as a whole. The large business units are outsourced without transformation to create a “critical mass” of scope for the outsourcer. Once this critical mass is in place, it is subjected to transformation. Once the transformation is proven, the remainder of the client’s business units (medium-sized and small) are rolled into the new model with their transformation and outsourcing occurring simultaneously.

A word about Joint Ventures

For the record, everything I have said above also applies in the case of Joint Ventures (JVs) so I do not feel the need to deal in depth with this model here. Nevertheless, let me say a few words to justify my stance.

A JV in the BPO world is where a client-organisation (“ClientCo” let’s say) and an outsourcing supplier (“SupplierCo”) together form a new company (“JVCo”) which ClientCo and SupplierCo jointly own. JVCo then provides services to ClientCo.

JVs like this were quite popular some years ago and some suppliers liked to tout them as “alternatives” to BPO. But this is not so. To a business unit of ClientCo there should be no difference whatsoever between dealing with JVCo (which just happens to be part-owned by ClientCo) or with any other outsourcing supplier – service discipline, commercial environment, transformation activity, etc should all be identical. If there is a difference in terms of the relationship being some kind of “outsourcing light” then the power of the outsourcing is proportionally diminished. Such a scenario would in effect not really be true outsourcing at all but actually some kind of internal model as described earlier.

So the six strategies and their evaluations apply fully in the JV scenario too.

Whilst I am talking about JVs I will say that, from experience, I am not a supporter of the model. One reason is that the outsourcing relationship can become weakened in the way described above. Also, I have noticed how difficult it is for the client organisation to differentiate between its role as shareholder and its role of customer, and similarly for the supplier to differentiate between its role of shareholder and its role of supplier. So strategic-level discussions at JVCo board-level (ie between representatives of ClientCo and SupplierCo) are indistinguishable from governance-level meetings between JVCo and ClientCo – everything gets very messy and unnecessarily complicated.

Conclusions

Whilst always remembering that the right approach for any client-organisation is the one that presents the best business case given the specific circumstances the organisation finds itself in, the purpose of this paper was to provide some codified guidance on which approach is generally best, all-things-being equal. We have now examined all six strategies so are in a position to rank them in terms of generic attractiveness.

For ease of reference, here again is Figure 2 which introduced the strategies.

Howard Spode Feb 2016 graphic 2

 

I will exclude the “neither transform nor outsource” strategy from the ranking. If there is no strong business case for either outsourcing or transformation, then obviously don’t do either.

But assuming transformation and/or outsourcing is to be pursued, here is my view of the winners and losers, in order of worst to best:

  • Transform then outsource (“c” on the graphic) – only makes sense if the transformation fails to deliver optimal results. Why plan for failure?.
  • Outsource only (“d”) – benefits not significant.
  • Transform only (no outsourcing) (“b”) – misses out on the catalysing effect of outsourcing and consumes focus of key resources in the function being transformed. But if you’re going to do it, make sure you get it right – otherwise you’ll probably find yourself defaulting to the “transform then outsource” strategy sooner or later.
  • Outsource then transform (“e”) – makes change happen and generates early wins, setting up a platform for ongoing transformation to generate further benefits. But make sure that the “transform” step is properly executed as opposed to just being a fantasy. And of course make sure the outsourcing arrangement is a good one – the “transform only” strategy is better than “outsource then transform” with a bad outsourcing arrangement.
  • Transform and outsource simultaneously (“f”) – the best of both worlds. More moving parts but these days the competence is out there to handle this. That doesn’t mean that the competence is everywhere though so make sure you get both the outsourcing and the transformation components right. If you’re concerned that this is too big an ask, step back to the “outsource then transform” strategy.

About the Author

Howard Spode 150Howard Spode has worked in BPO since the mid-’90s when the industry began. He is hands-on familiar with every stage of the life-cycle, from all angles of the market (client, supplier, intermediary), in numerous geographies, sectors and business functions. He is the Managing Partner of BPOpronet, an organisation that provides advice and support to help BPO initiatives be evaluated, initiated, implemented and operated.

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