Intangible factors that make outsourcing relationships work are highly valued and are seen to be equally as important as the more technical elements such as cost, service level agreements and expertise.
Businesses are looking beyond the traditional procurement factors when choosing outsource partners, according to Grant Thornton’s latest International Business Report (IBR) 2015 on Outsourcing.
“Softer skills have become important differentiators, which has significant implications for the outsourcing industry,” says Jason Glass, partner and head of outsourcing services at Grant Thornton.
Glass adds that, while the availability of advanced technology platforms, such as work flow management systems would not encourage a client to consider outsourcing back-office processes, the adoption, use and development of bespoke internal processes combined could be influential in their decision making about the choice of service provider.
“The adoption of technology platforms that can offer clients creative solutions can in fact be a major differentiator,” says Glass. “Greater connectivity and data storage capacities – thanks in part to cloud computing – will make outsourcing a more realistic option for more and more clients.”
The IBR has been running since 1992 and is the leading mid-market survey in the world, covering more than 10 000 business leaders in 36 economies on an annual basis. This particular survey – “Outsourcing: Beyond technical expertise” explores what companies look for in their outsourcing relationships and why companies bring outsourced services back in-house. Grant Thornton’s Outsourcing survey was conducted during February 2015 and responses were based on interviews with 2 571 business executives in 36 economies around the world.
The survey highlights that outsourcing of back-office processes is now a well-entrenched business practice at companies around the world. Approximately two out of every five businesses globally (40%) use it as an important means to reduce costs, improve efficiencies and, in many cases, ensure compliance. The picture is a little different in South Africa, though, where companies are more reluctant to outsource. According to the Grant Thornton IBR survey only one in every five South Africa businesses outsource back-office processes.
“For companies already outsourcing, or planning to do so, the striking importance of non-technical aspects of the relationship is significant,” says Glass. “Softer skills and the fit from a relationship perspective are clearly highly valued by business, which has been shown to look beyond the traditional procurement factors of costs and service level agreements when choosing an outsource partner.”
Glass notes that, provided government and business succeed in stimulating entrepreneurial growth, the outsourcing sector will increase in South Africa.
“Much-needed growth in this country will come from dynamic young people starting small businesses,” he says. “They are likely to be big drivers of outsourcing. They don’t want to be caught up in red tape, compliance and repetitive transactional processes, but would rather focus on their core business while relying on the technical expertise of outsourcing companies for everything else.”
He adds that outsourcing is extremely beneficial for companies with operations throughout Africa because skills are often very scarce and tax requirements between different countries can be complex to navigate.
Payroll and HR are the most common back-office processes to be outsourced: worldwide, 34% of businesses either currently outsource these processes or plan to do so, while the picture in South Africa is similar (30%).
“Our data highlights that most companies outsource primarily to improve efficiencies and reduce costs, so it is a given then, that these processes are typically the first to be moved out-of-house as they tend to be heavily transactional,” says Glass.
A smaller share (27%) of the surveyed businesses worldwide outsource, or plan to outsource, finance and accounting processes. In South Africa, however, only 13% outsource these processes, while a mere 4% plan to do this in the long term.
“Although such processes can be transactional, the fear of giving away control – over critical aspects of internal reporting as well as confidential financial data – is apparent,” says Glass.
The report investigated what companies look for in an outsourcing relationship.
With an ongoing focus on boosting cost-efficiency, businesses might be expected to focus on provider cost as their primary selection criterion. But the survey suggests this is not necessarily the case. Globally, reliability of service trumps other factors (56%) when companies select their outsourcing partners.
Cost naturally comes into the equation – 43% of global respondents say it is an important factor – but it is more important in some regions than others.
“In South Africa, cost is a less significant factor (50%) than service reliability (68%), and is closely followed by trust in the supplier (44%) and an understanding of the business (41%),” says Glass. “Interestingly, only 38% in Africa say cost is an important factor and cost is well down the list of selection criteria in Latin America (23%).
“In emerging markets, it appears that the provider’s reliability and its understanding of the client’s business are much more important factors. However, in developed markets these may well be considered more of a ‘given’,” he says.
Glass notes that this finding highlights an opportunity for outsourcing providers.
“While most remain resolutely focused on the cost of delivery, there are clear possibilities for providers to differentiate their services around a stronger trust-based relationship. This can also become the basis for more value added services to follow.”
The survey also focused on the ingredients of a successful outsourcing experience. Companies that outsource expect their providers to have all the specialist skills, internal processes and IT systems needed to deliver the contracted services. However there is more than technical expertise behind any good outsourcing relationship.
“As in most types of relationships, it’s all about the chemistry, meaning that non-technical skills count too,” says Glass. “The soft skills a provider brings to a relationship are more often the main contributors to a successful outsourcing experience.”
Communication (88%) and quality of the relationship between client and provider (87%) are viewed as the most critical ingredients in a positive outsourcing experience globally, while locally the percentages are even higher, at 94% each. The provider’s experience (91%) is also a major factor in South Africa.
“Responsiveness is also an important differentiator,” says Glass. “Nearly three-quarters (74%) of businesses globally and 79% of South African businesses say it is important that their lead outsourcing provider is able to meet with them at very short notice – within 24 hours.”
For outsourcing providers, these findings highlight a shift in emphasis on the criteria that their success will be judged on.
“This has some clear implications for us,” says Glass. “Providers need to consider how we invest in our team performance, and the skills we hire for. Furthermore, we need to think about how we position our services to clients, emphasising both the technical and non-technical merits of our approach.”
The IBR results confirm that the majority of outsourcing contracts deliver the desired benefits to businesses. Once a business process is outsourced, it tends to stay that way.