Sharhabeel Lone of SAKS Consulting will be speaking at the masterclass ‘Strategic Outsourcing: Hype or Reality?’ at the forthcoming Softworld HR & Payroll event.

HR Zone: Is outsourcing suitable for all organisations?

Sharhabeel: The short answer is No. The need to analyse benefits and risks is paramount to a successful business strategy. The ‘me too’ syndrome has shown to be a painful and strategically undermining one, the ERP implementations of the 90s are a prime example.

The answer to rapid cost cutting is certainly not a quick outsourcing of support processes. An outsourcing business focussed strategy demands a comprehensive process of value chain and process analysis that needs to deliver a well researched business case showing a firm Return on Investment model.

Furthermore, there needs to be a thorough risk review and mitigation strategy in place before the board authorises embarking on any outsourcing strategy. You need to remember that outsourcing removes important business processes and puts them in the hands of an external organisation – bringing obvious risks that need to be mapped and managed.

HR Zone: What are the strategic benefits of outsourcing?

Sharhabeel: Typically, organisations have several strategic drivers for outsourcing. Scarce internal support resources are usually being pulled in two directions. They need to meet the growing business related demand from their corporate end users whilst keeping pace with fast changing enabling technologies.

On the other side, especially given current economic conditions they are required to further cut their internal process costs – acutely aware that they are typically seen as an overhead that continues to be under a magnifying glass.

Successful outsourcing can go a long way in reconciling these corporate issues. In short, the company is then free to concentrate on its core business. This not only enables a value alignment that positively hits the corporate bottom line but the outsourcing provider further benefits the business by bringing in best practice and best practice enabling technologies that would have been cost and knowledge capital prohibitive had the outsourced process areas stayed within the organisation.

However, the above does not necessarily mean that outsourcing benefits every organisation – nor that it is a solution for every organisation.

HR Zone: Some organisations report low levels of satisfaction with outsourcing – what tend to be the main reasons for this?

Sharhabeel: A recent report cited that up to a third of companies who have outsourced processes are unhappy with their service providers. When we undertake audits, we tend to find several key areas for outsourcing dissatisfaction amongst our clients.

Our experience demonstrates that the primary reasons for dissatisfaction are an inability of the service providers to manage expectations. Having said that, we also firmly point out to our clients that a large part of the
reasoning behind such dissatisfaction lies behind their own inability to both articulate their requirements in a coherent manner up front at the start of such engagements and enforce a strict regiment of tools for monitoring SLAs, as well as risk mitigation strategies at the contracting stage.

HR Zone: Are certain HR functions more suitable to outsource than others?

Sharhabeel: Gartner recently quoted that it estimates the market for HR outsourcing to be in the region of $46 billion this year reaching $51 billion next year, which is the largest single business process being outsourced today.

We find the most commonly outsourced HR functions tend to be benefits and payroll. Both activities can consume significantly more time to administer than you might expect, yet are fairly straightforward to process. Moreover, you may be able to obtain a better benefits package by working with a third-party HR firm.

But we’re seeing organisations focussing on other HR areas where outsourcing vendors are increasingly becoming more proficient and trusted by organisations, such as recruitment and training.

HR Zone: Is outsourcing always a cost-cutting exercise?

Sharhabeel: A flawed strategy that we consistently see in some organisations, particularly those going through survival strategies is the use of outsourcing as solely a cost cutting option. We often find that organisations do not fully appreciate that they will lose control of the outsourced activity and in most cases the internal expertise to handle it. The impact of employee morale coupled with a separate front of internal political bickering can further lower productivity at a time when an organisation needs to be firing on all cylinders.

We recognise that a cost reduction is often associated with the outsourcing mantra, however in many organisations clearer financial visibility coupled with leveraging process/technology best practice and access to leading edge knowledge capital can far outweigh the benefits of a pure cost cutting exercise.

HR Zone: How can organisations ensure a return on investment?

Sharhabeel: Ensuring a tangible ROI requires a considerable amount of work upfront. To avoid a repeat of the 90s business cases for enterprise wide implementations that tended to promise huge benefits that were in many cases neither measured nor achieved except in the minds of consultants who wrote them, a clear strategy of tangible return needs to be executed.

This requires organisations to have established key performance indicators with their vendors that can be measured ideally almost on a real time basis. It also involves clients being up front with vendors about their processes (or lack of them in certain cases) so that those areas can be tightened and enabled for monitoring before the outsourcing contract gets underway. The use of agreed scorecards or other established tools is fundamental in ensuring a fast and tangible ROI.

HR Zone: What are the likely future trends in outsourcing in the next year?

Sharhabeel: We see more organisations opting to outsource non core functions, however we are also seeing these organisations assessing needs and internal processes more than they have ever done. Many have learnt of the folly of imitating competitors or fads and have learnt quickly of the need to have thoroughly researched outsourcing strategies.

As strategic outsourcing both in-shore and off-shore increase we believe that the utility based pricing models will become more popular. Maintaining the use of certain strategic outsourcing services as a commodity seems to be a popular concept with both CIOs and CEOs that we talk to. Developing realistic workable models that ensure consistency whilst delivering enhanced measurable quality and performance will be a key focus of leading BPO vendors.

We see the utility based offering models being refined over the next 36 months, especially as large outsourcing contracts gain traction and both vendors and clients learn from their experience.