The Outsourcing Conundrum: Chapter Summary 1 – Define the Need
Best-in-class service companies know the power of being purpose-driven. Without ever chasing profit, a company with clear purpose will inevitably become profitable because it engages and empowers its people.
Today, most organisations outsource some activities to suppliers and, on average, 70 per cent of labor cost is transferring from the company payroll to being invoiced by suppliers. Choosing the right outsourcing partner is becoming as important as choosing the right people for your own team – particularly with “inside-outsourcing” (IOS), where the supplier is working right in the customer’s location. Sure, you understand your purpose, but how can you be sure that your inside-outside service provider (IOSP) is as clear about their purpose, and yours?
Alignment is most effectively created when everyone understands the purpose behind what they are being asked to do. And the first step in understanding purpose is to Define the Need. Most companies looking for IOS are seeking a solution in one of these categories:
- Financial: Most IOSP opportunities include this component, as the customer seeks financial relief by outsourcing non-core activities to reduce employment costs and improve competitiveness.
- Performance: The work is not getting done, resulting in a negative impact on the company’s core business. The key for the IOSP here is to define the desired standard of performance.
- Quality: The quality standard is not being met, putting the end product and the company’s brand at risk. Clearly define the level of quality being sought to avoid over- or under-pricing the service.
- Risk Avoidance: IOS is attractive to companies increasingly uncomfortable with risk (e.g., danger to employees). The more risk, the higher the potential profit for the IOSP, but full evaluation of the long-term cost of the risk is key, especially if this is the primary purpose for outsourcing.
- Culture: Often the most desirable engagements and most conducive to partnerships, as they are strategic rather than strictly cost-cutting or activity-based.
- Perceived as Non-Core: High-growth area of outsourcing, where companies decide not to manage certain areas of their business.
Sometimes you need to fish and probe to find the real purpose or need behind an opportunity, or risk the relationship failing. It’s also important for the IOSP to have a good understanding of what they value in a new customer or contract.
When an IOSP successfully aligns their process and people with the customer’s true purpose, they can quickly be perceived not only as a valued service provider, but also a strategic partner.
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