| Background | | | | must be properly defined in terms of the outputs |
| Changing sourcing arrangements from the | | | | visible to customers. This exercise should lead to |
| traditional DIY vertical model only makes sense if | | | | a degree of rationalisation. Usually functions which |
| new value can be created. The principle sources | | | | have evolved over time include some redundant |
| of value are: | | | | activity which is no longer valued by the |
| | | | customer.ii. Process: Once you have a clear |
| 1. Improved service quality -higher performance | | | | definition of the services to be offered you then |
| standards than the legacy function. | | | | need to ensure that they are being delivered in |
| 2. Lower operating costs - should cost less than | | | | the most effective and efficient way. There are |
| the previous cost base. | | | | many techniques for improving process and |
| 3. Investment avoidance - 'back office' functions | | | | different practitioners favour different methods. |
| require ongoing investment - particularly in IT. | | | | What is critical is that the process to deliver the |
| Depending on the platform, these investments | | | | required outputs is optimised both in terms of |
| can be controlled or avoided altogether a change | | | | quality and consistency of delivery and resource |
| in sourcing arrangements. | | | | utilisation.iii. Technology: Almost all business support |
| 4. Flexibility - the service can be scaled up or | | | | functions can be improved by appropriate |
| down to cater for growth, acquisition or | | | | technology support. Once the process is optimised |
| divestment. | | | | it should be underpinned and automated by |
| 5. Management focus - senior management can | | | | technology. I am not advocating bespoke |
| focus on core business challenges. | | | | software development. In theory, best practice in |
| 6. Compliance - with an ever increasing regulatory | | | | terms of process should be encapsulated in the |
| burden e.g. Sarbanes-Oxley, the risk of | | | | software design. All too often this is not the case. |
| non-compliance is lowered when using existing | | | | Having selected the software which most closely |
| platforms | | | | reflects the optimum process design it will most |
| However merely changing the sourcing | | | | likely be more cost effective to accept some |
| arrangements does not in itself necessarily realise | | | | process variation than to attempt to customise |
| these potential improvements. They have to be | | | | the software. Though Process and Technology |
| created by some kind of transformation or | | | | Design are clearly separate domains they need to |
| discontinuity in the way service is provided. | | | | be viewed as a package or the results can be |
| Traditional 'People transfer' type outsourcing | | | | painful.iv. Change Management: However expertly |
| where the entire function (often including the | | | | you define and rationalise services, and then |
| people, technology and property) move to a new | | | | design process and deploy technology to deliver |
| organisation does not in itself create new value | | | | them - in the end all this must be accomplished |
| because nothing has changed. The outsourcer will | | | | through the endeavour of the employees. Their |
| have a plan of how to lower costs over time. | | | | motivation, comfort levels and perception of the |
| Value creation is more straightforward and the 'lift | | | | value to themselves is of the utmost importance |
| and drop' type of arrangement where the work | | | | in sustaining rapid and radical improvement. In any |
| moves to a new organisation but the means of | | | | project of this kind you can divide the people |
| production do not transfer. 'Offshoring' is an | | | | roughly into four camps. |
| example of this type of deal. Cost savings can be | | | | - Early adopters |
| made from arbitrage, and from aggregation. | | | | - The Undecided |
| In addition technology costs be lower on a larger | | | | - Overt dissidents |
| optimised platform and functionality may be | | | | - Covert dissidents |
| better. However, offshore operations create a | | | | The distribution of these groups will vary but it's |
| raft of new and different problems to solve. In | | | | likely that 'the undecided' will be by far the largest |
| preparing business cases for new sourcing | | | | - perhaps as much as 60%. The leadership of the |
| arrangements it's critical to understand where the | | | | project will then do battle with the dissidents for |
| new value is going to come from and how it will | | | | the hearts and minds of that majority group. The |
| be realised. In recent years 'governance' has | | | | outcome of this contest will have a profound |
| become a key word in outsourcing and much has | | | | effect on the outcome of the project. The |
| been written about best practice in governance | | | | technique is work through the early adopter group |
| design and operation. The fact is that in | | | | - empowering them to be agents of change. |
| arrangement where sufficient value is created for | | | | Overt dissidents can often be 'saved'. They are |
| both parties to enjoy good business benefits the | | | | people who believe in saying what they think and |
| governance is less difficult. | | | | are prepared to engage. |
| Too often a great deal of effort goes into arguing | | | | If you can convince a few of these to come on |
| over the division of a 'cake' which is simply too | | | | board it can make a big difference. Covert |
| small. It makes more sense to devote that effort | | | | dissidents are the most difficult. They are the |
| into making the cake bigger instead. But how is | | | | ones who will make sycophantic noises in the |
| this new value created and how can it be | | | | public forum but do everything they can to |
| sustained? | | | | undermine the project behind closed doors. They |
| Entrepreneurial mindset | | | | see malevolence and conspiracy behind every |
| It's critical that the new service views itself as a | | | | announcement and initiative. It is important to |
| specialist provider of the services - that is their | | | | identify these people and confront them. It may |
| business. As such it has the same dynamics as | | | | be best that they part company with the |
| any other business. It needs to develop and | | | | organisation. If the leadership is successful in |
| nuture its own IP and differentiating factors. It | | | | winning over the Undecided then the project will |
| must identify, attract, develop, motivate and | | | | being to flourish and sustainable improvement |
| retain the right people. It must sell its services into | | | | becomes a real possibility.v. Infrastructure: Very |
| the marketplace and grow revenues year on | | | | often back office functions have poor |
| year. It must design pricing and operating models | | | | infrastructure. They may operate out of poor real |
| such that it generates an attractive margin for | | | | estate both in terms of location, quality and |
| stakeholders. Whether the 'new' provider is an | | | | layout. They may have poor equipment and |
| internally managed shared service or an outsource | | | | materials. Investing in infrastructure can often |
| vendor - it is now a provider of (for example) HR | | | | produce a payback both financially and in terms of |
| services to customers - not the support function | | | | improved performance. Better designed facilities |
| of a company producing food products. This is | | | | will often occupy less floor space producing a |
| important because the top talent, management | | | | direct operational saving. Attention to Indirect |
| focus and investment budget available to the food | | | | Procurement categories also has strong cost |
| company will quite rightly be directed at the core | | | | reduction potential in addition to opening the way |
| business. | | | | to 'fit for purpose' provision of the right tools to |
| Those working in 'support services' will be | | | | do the job. |
| regarded as of secondary importance. They will | | | | Programme Management |
| not enjoy the same career prospects or rewards | | | | Each of these five areas can yield significant |
| as those working in the core business however | | | | benefits in terms of transformation - but the key |
| exceptional they may be. Their departments will | | | | is to work all these elements together in a |
| struggle to compete for the investment required | | | | co-ordinated plan - Programme Management. |
| to keep quality at benchmark levels. This is a | | | | There are some consecutive elements and some |
| critical underlying change factor in back offices. It | | | | concurrent efforts. |
| will be at its strongest in an enterprise partnership | | | | While the design of each individual programme will |
| model because the former back office becomes | | | | be different to take into account context and |
| a new stand alone business with the freedom to | | | | cultural factors - the principles are shown above. |
| reward those who contribute to business growth. | | | | Managing the Programme and the people is an |
| A traditional people transfer type deal or a 'lift and | | | | ongoing task. The Change Management challenge |
| drop' deal will experience this change in as far as | | | | begins before the deal is signed and continues |
| the outsourcer has an entrepreneurial approach. | | | | throughout the transformation process. |
| In a shared service arrangement much will depend | | | | Infrastructure development can have long lead |
| on the way the service is set up. If it is set up as | | | | times due to existing leases or supply |
| a profit centre rather than a cost recovery | | | | agreements. Deriving benefit in this area will |
| operation it will have a more entrepreneurial | | | | involve a series of discreet projects that will |
| outlook - but internally that can be seen as a 'zero | | | | normally need to be completed in a coherent |
| sum game' and there can be resentment at a | | | | order. Service, Process and Technology need to |
| new profit centre creating revenues 'at the | | | | be approached in that order as noted above - |
| expense' of an established profit centre. While an | | | | with the important caveat that the use of |
| entrepreneurial mindset does not directly create | | | | standard technology platforms is in itself an |
| sustainable change it cannot be underestimated as | | | | important route to value. However, it is important |
| a powerful motivational factor. Outsource | | | | to follow the design process logically first and then |
| providers are potentially well placed to introduce | | | | understand the potential for increasing value |
| this entrepreneurial attitude. There talent within | | | | through modification of the processes. |
| these companies can be a valuable source of | | | | A critical aspect of Programme Management is |
| innovation and new thinking - both inside the | | | | ensure that sustainability is built into the overall |
| scope of a sourcing arrangement and potentially | | | | approach. At today's pace of change assumptions |
| outside it as well. | | | | made in the business case can erode rapidly so |
| A Systematic Approach | | | | these must be kept under constant review. Failing |
| Creating superior performance in back office | | | | to do this can lead to 'value leakage' - where |
| functions requires an analysis of the success | | | | business benefits can dissolve. This is a particular |
| factors - both direct factors and those which | | | | danger in a long outsourcing contract where the |
| enable stronger performance. There are five key | | | | provider may be relying on a stable period of |
| areas:i. Service: Most back office functions are not | | | | higher margins at the end of the contract to |
| service orientated. They are 'gatekeepers of the | | | | compensate for more volatility and lower margins |
| process' there to tell you what you can or can't | | | | in the earlier years. |
| have. This mindset has to change in the new | | | | Conclusion |
| sourcing arrangement. A satisfied customer is one | | | | The key to creating new value in back office |
| whose perception of the service they have | | | | transformation is to undertake a well designed |
| received is at least equal to their expectation. This | | | | coherent programme of multi-dimensional |
| is critical to understand. Their perception of the | | | | improvement. However, if one thing matters |
| service may not be the same as an objective | | | | above all others it is to change the culture and |
| measurement of technical delivery. Research has | | | | 'mindset'. Without this change is unlikely to be |
| shown that quality of delivery accounts for only | | | | sustainable because initiatives will be blocked and |
| one third of service perception. Customer | | | | crowded out. It can be likened to trying to |
| expectation needs to be understood and if | | | | re-direct a river. If the effort falters for a |
| necessary modified and managed. Too often this | | | | moment the water will find its old course again. |
| important activity is omitted. The service offered | | | | |