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To Outsource Or Not To Outsource: That Is The Question

October 12, 2008

“Here is the burning question with respect to the industry – how are folks benchmarking the respective performances of internal shared services organizations, external nearshore providers and offshore providers in the procurement arenas?”

This question came into my mailbox over the weekend. It reflects similar requests that have been posed recently at conferences and IACCM breakfast seminars, so here is how I replied.

 

Benchmarking

 

The reason that benchmarks struggle – in my view – is that it is very hard to find like-for-like comparators. The best benchmarks would look at relative process performance, focusing on outcomes. But when performing such research, you find such disparity of organization and roles that you soon realize there are too many variables to decide what it is that led to the superior performance!

 

For example, as we look at Procurement groups today, we see growing divergence in their role and status. We see some that are being pushed into a fairly narrow vendor evaluation role (perhaps as commodity choice experts), while others are expanding to cover full life-cycle supplier relationship management. Just this week, I have encountered major groups where in one case, all contracting work has been taken away from Procurement, while in another they have lost out on the SRM role and yet in a third they now have both these roles added to their responsibilities!

 

In order to make benchmarking meaningful, you need consensus on the primary values that you want to achieve from Procurement activity and how these will be measured. Then we can look at comparative performance in other organizations based on those values / measures.

 

Organization

 

I believe that it makes sense to establish the shared service with a view to using that as the precursor to decisions over outsourcing / offshoring. In other words, the shared service approach is the right umbrella and is not an alternative to outsource / offshore, but a prerequisite to their success.

 

For many groups, the move to a shared service is the method by which they ensure consolidation of resource and harmonization of role, to create a group that is capable of oveseeing organizational performance (whether internal or outsourced). Until then, there is often a fragmented process and potential inconsistency in the way that procurement services are delivered around the business. So while an instant move to offshore or outsource may yield some cost savings, it will frequently do so at the expense of service quality.

 

All this said, the process definition associated with  the creation of an effective SSU structure is the forum that allows proper discussion of where tasks will be performed. From this, you can then derive the optimum ways to deliver on those tasks –i.e. through automation, through remote resources, through service centers, through expert teams. It is within this analysis that opportunities for outsource / offshore rapidly become evident.   

 

IACCM approach

 

The primary way that IACCM is assisting members with this questions is through two primary activities:

 

1.       Capability Maturity Assessment. An on-line survey tool that can be deployed to get internal views of current performance (providers and users of the service). This generates a benchmark (against other companies that have undertaken this study) for each major performance characteristic (e.g. skills, knowledge management, leadership etc) and gives a sense of the overall performance strengths and weaknesses.

2.       Process design workshop. As outlined above, analyzing the tasks to be performed with a view to process optimization. Organizational design and roles are an outcome of this.

 

An alternative approach is to focus on specific companies that appear to be ‘best of breed’ and to conduct interviews. We are doing this very successfully for several companies at present, on a variety of topics.

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