Outsourcing Journal interviewed Mr. Albrecht, IT and Sourcing Consulting Expert, Germany on Project Management, Provider Selection, Decision Hurdles and Business Relationships
Mr. Albrecht, during your roles in leading consulting companies, like e&Co AG, Gartner and now your own company OrgSource you have accompanied many companies in their endeavors to implement changes in various areas. Can you share some of your experience regarding the role of outsourcing in corporate change initiatives and the development of the market over the last couple of years in Germany?
Outsourcing appears to have arrived in the middle of major business initiatives. Whilst some organization do now benefit from their learnings from 1st and 2nd generation contracts, others start initiatives to generate value from next generation offerings, like as-a-service or cloud offerings and near- and offshore sourcing of manpower intensive services.
The market has seen new providers entering with new offerings, whilst the traditional outsourcing market is further consolidating to generate the required economies of scale.
Within the IT departments the love to outsourcing initiatives is not too intensive, since the risk of job-loss becomes present. This continuously leads to internal initiatives, which definitively meet business requirements for the sake of very high levels of customization. So, the hurdle for providers to increase their position remains high.
If a German buyer organization is looking into implementing or optimizing sourcing strategies, specifically the co-operations with external service providers, what are the core areas to focus on and where do you see the best opportunities in terms of cost saving and acquisition of additional skills?
The question requires a differentiated answer. The best cost-saving opportunities start with a more rigid requirements management, typically ways before sourcing is considered an alternative. Here, rigid requirements does not mean to disrespect business needs. It simply means to stay tuned.
In means of additional skills from a German buyer perspective the increasing lack of specialists requires a look across the border. Either near- as offshore the provision of very skilled persons is high and appears attractive in means of cost. Appears means, that the cost of management of near- and offshore sourcing engagements shall not be underestimated. The local culture and work ethics might differ significantly. This typically leads to higher than expected cost of coordination. E.g. when offshore providers advertise with high degrees of maturity, this conflicts with buyer organizations which are less mature in concretely describing the expected product, feature or user story. The workforces of the provider will deliver what they have been asked for and not consider daily tuning of the requirements.
To the next element of my answer: From both sides, provider and recipient, there is nothing more important than building relationship and keeping it sane. Depending on the capacities in provider management these relations do not need to remain uniquely focused on a single provider. Honestly, whilst keeping relationships sane, still the market mechanism has to be kept alive to keep dependency low.
What are the hurdles for a pro-outsourcing decision, expressed by German clients?
German clients, as probably all others worldwide, love to have reliable and flexible partners. And the German ‘accounting & engineering’ culture drives the requisition to define prices of any screw, to add the ratio to the gut feeling of making the right decision. The less experiences international providers have with German buying centers, the more detailed price discussions might negatively impact the demanded flexibility.
And sometimes the perspective is still on seeing the IT holistically as the backbone of the enterprise. Which should remain in-house. And, as described in a former section of the interview, even non-core services to the business might have been so customised, that any customised industrial and especially really industrialised offer might fail in the evaluation.
Back to the previous strategy question. It is important to understand from a business perspective which services are strategic and which do deliver highest business value. Less strategic and low added value might be a good choice to source from the outside. And with a chance of consequence serious savings can result from simply receiving a good industry standard instead of requesting the maintenance of the existing service.
What are the main difference between large and smaller service providers and what conclusions can be drawn from that for sourcing strategies?
Typically, smaller providers appear to be more flexible. … until they realize that divergent customization costs their margins instead of increasing their economies of scale. Small cloud providers are different. They understood by heart, that only highly industrialized offerings guarantee growth of revenue and margin.
Larger service providers represent a more stable choice and less uncertainties. Especially during earlier stages of evaluation and operation process they will impress with very skilled staff, presenting interesting change opportunities and innovations to process and technology. Rather soon after transition phase these innovators do typically hand over to a next center of excellence, before the contract is going to be operated. Still, from a German buyers perspective the international presence of large providers have to be taken into account, when the service sourced either has an international character and serves users around the globe.
In means of the strategy the buyer shall as well consider his relative positioning versus the provider. Even if from a business comparison the deal can be considered a deal amongst equals, in fact the provider is a specialist, whilst the buyer typically has other areas of specialism. E.g. its IT department might be best in class in comparison to other companies in the same industry and is probably pretty customer-oriented, but it probably lacks efficiencies in comparison to well established providers.
Small buyer organizations might suffer over time from the observed level of flexibility of larger provider organizations, its structures and rules and processes. And in case, their lever is probably less effective.
If large buyer organizations close deals with small provider organizations they might find a flexible partner, which hopefully has the financial strengths to stand the deal and a strong enough backbone to deal with the massive amount of specialists caring for the contract and the operations.
From project management perspective, what are your suggestions to both sides – buyer and provider in order to secure the frictionless run of sourcing projects and to maintain a beneficial relationship?
The most important elements are to remain in an ongoing exchange, tracking of all observed obstacles and at least – common efforts to keep tracking lists short and current.
It helps both sides to clearly state, if any additional demand is going beyond the border of the contract or certain service quality was below expectations.
Common workshops will establish a better understanding of each other’s positions, opportunities and threats.
And to establish a deep level of collaboration I recommend using a common workspace for a common set of contracts, minutes, process descriptions, tracking list also. A common WIKI-like handbook with defined editing rights and documented changes leads to immediate solutions and avoids discussions on validity of certain texts.
Which further suggestions you have for German buyer organizations on the operational side when evaluating and running outsourcing projects?
By heart, I have a lot of sympathy for the scene of cloud service providers. This sympathy is more directed to those smaller providers offering concrete business adequate solutions as services. I feel – and experienced – that these providers add value, since they keep the services simple and low-cost.
Even larger buyers should consider these offers as options to free up resources for the upcoming chances of digitalized products and organizations.
More general speaking I can suggest to observe the market ongoingly and in advance to concrete decisions to meet regional, provider-specific and as well overall opportunities resulting from the growing maturity of the market.
And finally its worth carefully considering the advantages and disadvantages of the duration of contracts.
Thank you for this interview!
Roger Albrecht has more than 19 years of experience as a consultant – primarily in the automotive, aerospace, telecoms and retail industries – he offers excellent knowledge in the areas of organizational development, change management up to C-level, management development programs and leadership coaching. Furthermore he is an expert in topics regarding the IT strategy (organization, sourcing, governance), developing and implementing IT sourcing strategies, transition and bid management, project management, ICT benchmarking and post-merger integration (especially of IT companies).