By Dr. Karin Stumpf and Johannes Deltl, Managing Directors of Acrasio, Germany for the Outsourcing Journal Special Editions – In the last years outsourcing has seemed to slow down and dou- ble digit growth rates for providers are not achievable anymore. This is partly due to the maturation process of the industry and also the result of unrealistic expectations regarding outsourcing engagements. But there is light at the end of the tunnel.
Nevertheless outsourcing is still on the agenda of western companies for several reasons. First massive cost reduction are expected as there is still a significant difference in labor costs between western and developing countries. In addition there is the demographic development and based on this a foreseeable shortage of local resources in the next ten years. Plus outsourcing companies are moving up the company’s value chain: new areas like outsourcing knowledge intensive processes are being explored.
Taking these developments into account and learning from the mistakes and pitfalls of the past we are suggesting four steps for the successful outsourcing of knowledge processes.
- Strategic identification of knowledge processes that are outsourceable
- Glocalization – the usage of on- and offshore-components for the operations model
- Invest in change management
- Utilize all possible communication channels
1. What shall be outsourced? A strategic view on internal processes
The processes identified for outsourcing should be reviewed to make sure the decision is commercially sensible and is aligned with the business strategy. Not all (knowledge) processes are outsourceable, some should be kept in house. Reasons not to outsource could be manifold e.g. in the case of market intelligence for confidentiality reasons, or when coordination or training effort is too high, or when company-internal knowledge is necessary.
The challenge when outsourcing knowledge processes, is that very often these knowledge intensive processes are not well defined. Take for example the provision of critical market intelligence for decision makers. Often market information is collected in more than one department, there are a lot of redundancies and a high level of inefficiencies. Critically reviewing such setups gives you plenty of improvement potential independent whether you want to outsource the process or not.
Based on their industry and knowledge process experience outsourcing providers are also able to come up with suggestions for new solutions, workflows or in some cases even revenue generating ideas that the company has not thought of – they therefore can also be considered as external innovation driver for your company.
2. Glocalisation – Use on- and offshore-components as operations model
Outsourced processes of transactional nature can, after some setup and training periods, be handed over to several service providers around the globe. But when outsourcing knowledge intensive processes you need much more supervision and ongoing direct contact with the team. If we take the example of outsourcing strategy support processes, the topics of interest will change over time or the work might get interrupted for more urgent requests from the top management.
Our experience is that the best operations model is a mix of onsite and offsite-resources. A native local person can help minimize the potential of cultural misunderstanding and can translate the requirements and needs for both sides (client and offshored team) and will put the request in the right context.
As attrition rate in outsourcing countries is generally higher than in Europe this solution also reduces the risk to lose too much critical knowledge. On the other hand the flexibility in ramping up and down a team based on the client requirements is given in the BRIC countries but are restricted in Germany and in Europe in general. So a mix provides the best of both worlds.
3. Consider (and budget for) change management activities
Outsourcing often lead to fears of getting replaced, losing status or control. When tackling more complex tasks like knowledge intensive processes, highly skilled employees in the company are being confronted with situations they never thought of and are not ready for. Be it strategy, investment research, marketing, market research or market intelligence – nowadays a large fraction of the current (even core knowledge) processes can be run by outsourcing providers. Three different agendas collide in such a outsourcing situation: Client’s Employees – Provider (and Its Employees) – Client’s Business.
As for any outsourcing project it is crucial to invest in change management activities to clarify the company’s strategy, the upcoming changes for the individual due to the outsourcing and to share the companies’ objectives. It is important not to reduce change management to training and information activities: proactive change management should cover the redefinition of the internal roles and clarification of the outsourced responsibilities, the ongoing governance as well as cultural alignment of the different teams.
Consider a separate budget (and do not cut it during the project setup) as it pays big dividends when running a smooth outsourcing activity.
4. Utilize all possible communication channels
As we are dealing mostly with countries that have different cultures, religions and values the success rate of outsourcing projects depends on the understanding of each other and also on effective communication. The need for information increases with the complexity of work streams and geographical distance. Clients often have difficulties defining their exact needs or the output they want to achieve upfront, so in an iterative and ongoing process the solution will be developed together. Giving the nature of work and the need for ongoing communication the analysts in an outsourcing setup with these more complex processes will be much more visible than in a more administrative environment.
To ensure ongoing communication we usually use shared virtual project rooms, collaboration tools, video conferencing and chat communications. It´s also advisable to setup regular phone calls and meet or invite the teams frequently in person.
Another important topic that is often overseen is the development of a unified taxonomy – especially in a multicultural setup it is crucial to have an aligned understanding of terms. These goes beyond company specific jargon and acronyms and should also covers basics like the same understanding of time (“next week”), delivery status (“nearly finalized”) and feasibility (“slightly difficult”) to avoid frustrations over time.
Outsourcing is still a vital and important strategic tool for senior management especially if you plan to outsource knowledge intensive processes. To take advantage of the engagement you need to be in-line with your strategic vision and understand the different objectives and cultural mindsets of all participants. With the right investment in change and communication activities your outsourcing engagement is well prepared for success.
Authors: Dr. Karin Stumpf and Johannes Deltl are managing directors of Acrasio, where they consult multinationals implementing strategic changes. They have outsourced operations to Western and Eastern Europe, Asia, South Africa as well as South America.
Read the entire article at the “Business Process – managed & outsourced” Special Edition of the Outsourcing Journal. This edition is available for free download via the website of the German Outsourcing Association (free membership required, 2 min sign-up, instant access) here: https://www.outsourcing-verband.org/outsourcing-journal-special-editions/