Despite the global economic downturn in recent years, many outsourcing deals have been re-negotiated and extended. In many such cases the deals changed, in the sense that the commercial model was scrutinised and optimised to meet client objectives, says Dr Andrew Hutchison, expert for intelligent networks at T-Systems in South Africa.
In some instances this was also done with an associated relaxation of volume commitments and service levels, or a bringing forward of the financial benefits of transformation projects.
In South Africa the marketplace mirrors this, and companies are now, more than ever, regarding outsourcing as a means to distribute IT resources – and share costs.
With this newly shaped landscape, a new set of challenges emerges for outsourcing service providers. Whilst companies stay committed to outsourcing they also have new or evolved requirements. Organisations want flexibility – finite contracts are something of the past and options to change requirements and even terminate contracts – with relative ease – have stepped to the fore.
These attributes are a natural result of the current economic climate; companies don’t want to be trapped in a contract that has to run its course despite market turbulence.
Additionally, organisations now require assurances that their chosen outsourcer is backed by a stable, parent company that will step in if the provider in question experiences its own economic challenges.
This said, companies will undoubtedly continue to support smaller outsource providers for less substantial projects; however, in the case of multi-year agreements companies that form part of a larger organisation now enjoy preference.
The emergence of multi-outsourcing
A substantial number of major SA organisations have gone the outsourcing route, and many of these “first generation” outsource companies have subsequently added additional elements or business layers to their outsourcing strategies.
Unfortunately, second and third generation outsource agreements can be challenging in terms of achieving additional savings of the order that were made during an initial outsource. For this reason re-negotiation and re-scrutiny of the outsource principles and details can be a way to allow organisations a financial benefit beyond what would otherwise be possible.
In the case of multi-sourcing strategies, companies have to proceed carefully with an understanding that while it can be good to spread risk and responsibility across multiple service providers, there is an additional “co-ordination” requirement that is introduced. It can also be difficult to isolate and assign responsibility in the case of technical incidents when multiple providers are involved.
In such cases it is almost always necessary to have an “aggregator” type function performed either by one of the service providers, or by the client organisation itself.
In essence, the aggregator represents multiple, outsourcing service providers but serves as a single point of contract.
In some cases the aggregator may sub-contract services for the client, but in many cases the client retains a direct commercial relationship with each of the suppliers while using internal or external aggregation to ensure that technical and commercial management occur in an orderly and co-ordinated manner.
The customer is king
In a trying economic climate companies must ensure that they manage contracts very closely, and can achieve the levels of flexibility that they require from a commercial perspective.
It is also important to look beyond pure ‘service levels’ to judge the quality of a contract. Similar value systems between client and outsourcer plays an important role in the harmonious establishment and subsequent success of a contract.
Like-minded organisations, with the same goals in mind, will stand an outsourcing project in good stead. Additionally, it is always prudent to establish a group of experts that monitors a project, ensuring that initial goals and resultant strategies stay on track and are met timeously.
Behaviour and intent should also be aligned, particularly when it comes to large outsourcing deals. It is important to get the most from centralisation and standardisation efforts.
Each of these elements is essential for companies to gain the most from their outsourcing investments. The onus is also on service providers to convey and demonstrate the importance of realising centralisation and standardisation, without which the processes and delivery are unlikely to able to meet targeted levels of efficiency and optimisation.
Ensure that the responsibility for success of an outsource is shared: this entails keeping certain competencies in-house, while others are outsourced. Customers can sometimes make the mistake of outsourcing too much of their core competence.
Organisations are experts in their own fields of business and should continue to focus on what makes their businesses unique and a success. This cannot be the outsourced partner in the first instance, although the technology base and flexibility can be strongly enabled by an agile and innovative outsource partner. It should be a shared, mutually beneficial relationship.
A shared model enables organisations to become leaner without compromising the goals they want to achieve. Here, shared and standardised platforms – which are aligned to the service provider and enabled through centralisation – can be a compelling approach.
Ultimately, the outsourcing relationship should move beyond mere costs savings or functional delivery, and support the realisation of tangible business benefits based on shared responsibility via a clear-cut, appropriate contractual agreement that stands both the company and outsource provider in good stead.