How Will Holistic Solutions Impact Your Outsourcing Strategy?
“Concentrate your energies, your thoughts and your capital. The wise man puts all his eggs in one basket and watches the basket.” – Andrew Carnegie
After years of broadening their supplier base to cover different capabilities, geographies, and languages many organizations are now narrowing their list of suppliers to a handful of larger partners with strategic capabilities. In the “New Normal”, organizations need to look beyond mere supplier consolidation to find suppliers able to provide more holistic solutions and deliver meaningful business outcomes.
In a holistic solution, the supplier is responsible for providing everything required to deliver a prescribed business outcome including the people, process, and technology. Because the buyer is focused on achieving business outcomes, and the supplier is not overly constrained by prescribed solutions, it becomes possible to introduce new platforms and business models (e.g., Cloud Computing, Everything as a Service, Industry Utilities, etc.) which can enable breakthrough performance through cost spreading, scalability, price variability, more efficient processes, etc.
These are important benefits not easily created or sustained in traditional sourcing approaches. Internal shared services typically do not have the process-centric focus, scale, capital, capabilities, resources, or incentives to deliver holistic solutions.
Perhaps the biggest challenge (some might say opportunity!) of a holistic BPO solution is it forces buyers and suppliers to shift their focus from inputs to outputs. For example, instead of contracting for a certain number of bodies at a certain cost per body (inputs) holistic BPO focuses on the business outcome you’re trying to achieve (outputs). The goal is to move the attention and performance of the organization toward meaningful business objectives like increased revenue, larger market share, faster product launches, higher customer satisfaction, etc.
One potential downside of holistic BPO is the inevitable reliance on a small group of suppliers. Not many BPO suppliers have the depth and breadth to pull it off at global scale and those that do may only be able to provide real value across a handful of verticals or processes. That being said, these risks can be mitigated through effective supplier selection, alignment of business incentives through the contracting process, and on-going governance – fortunately this is the bread and butter of outsourcing advisory firms who would happily help buyers and suppliers through the process.
Much of what I just said flies in the face of some firmly held beliefs and practices of many sourcing executives. I’m not suggesting buyers need to completely turn their procurement processes upside down but they do need to find some select areas where they have strong business leaders who are willing to take a more innovative approach to improving business outcomes.
In the New Normal, organizations need to rethink their approach to sourcing and shared services to engage a smaller number of more strategic outsourcing suppliers who have the IP, domain expertise, technology, global scale, and balance sheet to deliver improved business outcomes.
How will Holistic Solutions impact your outsourcing strategy?