Som Mukherjee, Director, Global Shared Services, Stanley Black & Decker, Inc.
Outsourcing has evolved over the past decade from being a cost reduction play for large organizations into a true value generator, largely enabled through adoption and seamless integration of technology. During the late 90s, the notion of salary arbitrage fueled the exponential growth of outsourcing in the services space like Finance, IT etc. with companies rarely focused on true supplier excellence in areas of efficiency and productivity. But the value proposition has evolved over the last decade as buyers today are looking at outsourced services providers not just to deliver the tasks but to actually make them more efficient and generate productivity to contribute to the bottom-line.
There are typically three key components in a successful outsourcing offering:
1) The essential human capital element
2) A leading practice process template
3) An appropriate technology enabler.
The human capital element fueled by cost arbitrage was the early driver but its No.2 and 3 are now top of mind for buyers across industries. So what really changed? What was considered “great” before has now become the new normal as most mid to top tier outsourced services providers bring the cost arbitrage to the table at more or less the same level, hence productivity and scalability are becoming the true differentiators driving the decision makers.
A Partnership to Drive Exponential Value Creation
With the change in competitive landscape and increased pressure to show continuous year over year bottom line growth, organizations are increasingly looking for solutions to unleash more value in the SG & A space. An outsourcer can become a true partner in such situations.
“Emergence of online fraud, data privacy concerns and changes in Regulatory environment can drastically impact how things truly unfold in coming days”
The value proposition for an outsourcing offering increases exponentially when true end-toend processing is considered, minimizing handovers and increasing efficiency and process controls. However, this can only be realized when providers bring a “solution platform” to the table that includes human capital, a leading practice process template, and the “right” technology enabler.
This allows customers to realize two important benefits:
1) Reduction in CAPEX & OPEX as investment burden shifts to the outsource provider
2) Ability to tap into a consumption OR subscription based model allowing businesses to scale seamlessly without need for huge investments from time to time Looking ahead, adoption of cloud based technology and the emergence of cognitive intelligence in software (referred also as “robotics”) will hasten the adoption of the Business Process as a Service (BPaaS) model as a more viable option for organizations so that they can truly focus on their core competencies.
The alternative scenario for an organization is to invest and maintain their own process infrastructure (including technology) and have an outsourcer merely transact on it. This structure severely limits realization of ROI (Return on Investment) as technology life span continues to shrink and hence the business case rationale becomes less tenable for companies, for whom such CAPEX spend, could come at the expense of an investment in a core competency or revenue generation initiative.
Future Landscape: Strategic Alliances
As outsourcing companies continue to enhance their business model and value offerings, strategic partnerships between outsourced services providers and process application developers is the logical area for future investments and focus. An outsourcer whose core process competency includes a robust integration of process and technology across various domains like accounting, payables, and receivables etc. can become a go-to partner allowing companies access to a complete solution platform to connect into and start processing. Larger outsourcers can develop and sustain multiple ecosystems within the same process domain enabled by different technologies, while niche players can focus on single platform solutions with more focus on productivity.
Strategic partnership between outsourcers and technology providers will allow for solutions that are more effective because users will have direct input into the development of future capabilities and solution design. This will allow outsourcers to design a more productive human capital construct within their operating model leveraging technology to compete more effectively in the marketplace, maximizing their own profitability and bottom-line impact.
As the industry matures around us, it is important to remain prudent and manage strategic investments after thoughtful evaluation. Not all industries or customers will embrace change at the same pace and hence it is important for outsourcers to be able to support their clients appropriately throughout this journey. Companies will value partners who are flexible and can continue to seamlessly support critical operations, while navigating the inevitable evolution of business processes and technology over the next decade. Emergence of online fraud, data privacy concerns and/or changes in regulatory environment can drastically impact how things truly unfold in coming days – Companies will need to be convinced about data safeguard standards and business continuity plans within the outsourced environment, so more attention is warranted when outsourcers design their solution platforms. All things considered, the outsourcing industry is poised for exciting challenges and robust growth in the near future.