Synthesis Group’s Director, William Pegg, was invited to speak at the ARCS Australia therapeutics and pharmaceutical conference in Sydney in June 2014. William presented on the topic of Strategic Outsourcing to an audience from across the industry, a number of the key elements have now been reworked into an article format.
Outsourcing. It’s a term that can send a shiver down the spine as images of off-shore call centres and questionable professional practice flash before the eyes. Even with a less emotive appraisal, it’s difficult to avoid the widely publicised examples of failed outsourced programs, staff turnover and tarnished corporate reputations.
This article however will focus on the positive. It will address the concept of strategic outsourcing and how a well-planned program can provide far reaching benefits. There are many excellent, publically available examples that address the precise mechanics of outsourcing. This is not a ‘How To’ type article but rather, aims to lift the focus beyond the nuts and bolts of process and address strategic considerations of outsourcing, how this differs from tactical behaviours and outline characteristics of success.
If outsourcing is the engagement of third party expertise to supply goods or services that have conventionally been managed in-house, strategic outsourcing needs to be something more. It can be summed up as a well-planned, fully-costed and deliberate partnership. It is characterised by robust pricing models with a business partner who can deliver higher quality solutions with performance metrics that encourage improved economic, strategic and operational behaviours.
Just as telling is to consider what it is not. It’s not straight forward, a set and forget arrangement at the lowest possible price. It does not shift responsibilities and risk to another party neither is it a means of dealing with problematic or poorly understood parts of a business since a problem outsourced will only be magnified.
An Appetite for Change:
Synthesis Group recognises that there’s a growing appetite and appreciation for the building of strong collaborative relations within corporate Australia. When a company expresses its desire to partner with key supplier(s), defensive mechanisms are regularly lowered and constructive interaction typically follows. In turn, this can lead to increased likelihood of the sharing of new technologies / innovation and a combined effort to resolve challenges – increasing competitive advantage.
Fine words you may say. Let’s first remember that collaborative relations are never designed to outrank strong economic fundamentals, deep relevant experience and a thorough understanding of high quality process. When these ingredients are combined, the likelihood of success for any program or strategy is significantly increased.
So how does this relate to outsourcing? Successful outsourcing requires broad thinking and a longer-term mindset. Business interactions need to go beyond what you can get and also consider what each party can give – it’s this thinking that is the ‘strategic’ component of strategic outsourcing.
Tactical vs Strategic:
A non-exhaustive comparison between the tactical and strategic ends of the outsourcing spectrum is tabled to the right. Contract tenure, criticality of goods / services, materiality of spend and the necessity for rapport are four of the primary considerations that will provide guidance on how to structure outsourcing relationships.
Attributes for Success:
While there is no perfect program nor a silver bullet to address all challenges, below are a number of logical, pre-emptive actions that are well worth considering.
It’s all in a Name: Business partner or vendor? One name results in collaboration, the other can lead to a minimalistic mindset. Having a resolve for constructive relations can be demonstrated to the outsourcing partner through client driven C-level support, sufficient allocation of resources (people and capital) and open communication.
Proactive not Reactive: Consult widely throughout the business prior to change. Establish a project management office (PMO), tackle challenges early and front on and have a pre-defined reporting and escalation process.
Communication: High quality and frequent internal and supply bound communication is critical. Involve the business in the journey, celebrate wins, be accountable for set-backs and ensure the end-users are prepared for the changes – there will always be change.
Establish the Right Contract: Have a clearly defined scope, specification, fee schedule and service levels. Incentivise, don’t just penalise. Ensure risk is appropriately apportioned. Encourage innovation and best practise.
Clear Commercials: Retain detailed knowledge of all process and delivery costs. You never know, in the future you may need to insource.
Accountability: Both parties and their representatives should have a clear understanding of what is required, in what time frame, delivered by who.
Partnership and Trust: Empower a talented team to manage the arrangement. Be prepared to visit your outsourcing partner. Take the time to develop relations and don’t buy into the ‘blame game.’
Anticipate Teething Issues: Patience, you can never have enough. Ensure the agreement has a risk register accompanied by pre-established remedial actions, along with a contingency plan / disaster recovery plan just in case.
Social Licence: Ensure any impact on the local community has been considered (e.g. redundancies). In some instances, a PR campaign may be required.
Never Assume: Never assume that the outsourcing partner understands your business, has the right people waiting in the wings and is able to spot the gaps. Always clarify and confirm.
Metrics: Establish in advance key metrics that allow for regular health checks and the accurate measurement of success.