What Is Outsourcing Services
Outsourcing services has grown exponentially over the last decade as the primary response to events that changed the global business environment. As businesses continue to struggle with the after effects of recessions, layoffs, political unrest, social and climate change corporate strategy has shifted its resources toward ways and means to streamline cost without compromising productivity. Outsourcing has been proven to be an effective process to accomplish both cost management and revenue generation concerns of business.
Partnership or Purely Platonic?
By outsourcing services, a company can capitalize on the comparative cost advantages prevalent in another region or country. Economies of scale create greater value and added savings if a company integrates services in an outsourcing framework. But outsourcing is more than just an effective process for reducing costs. It can contribute significantly to the revenue generation programs of the company if more value can be derived from the arrangement.
The question to be asked by the prospective client is: Should we move the outsourcing arrangement toward a partnership agreement or keep things platonic as a purely working engagement?
In the context of this article the idea of transitioning to a “partnership” is only in approach and not in structure. It is not in the legal corporate definition of a partnership but rather how each party to the contract views the relationship. The “First Party” remains the “Client” who remunerates the “Second Party” or the “Service Provider” for services rendered during a specific period.
Companies that decide to outsource can be easily blinded by the amount of cost savings potentially generated. After all, based on the cost of labor alone, outsourcing services can reduce operational costs by 50%. Companies that focus only on outsourcing as a tool for reducing costs are commoditizing the process and will fail to optimize its true value.
Generating cost savings should form part of the outsourcing solutions strategy but it should not be the main focus. Otherwise, the primary criterion for selecting an outsourcing vendor is pricing. Qualifying your vendor on pricing will generate cost savings but it will not guarantee you quality of work.
The idea of adopting a “partnership” perspective into the working arrangement may introduce more value than just a regular working engagement.
In business, a partnership requires both parties to contribute their resources whether in terms of funding or core competencies proportionate to the distribution of equity. But the deeper connotation of a partnership is in having a shared interest in the success of the enterprise. Both parties recognize the relevance of the venture succeeding and will exert every effort to make sure goals are met.
A partnership is a dynamic relationship; the parties do not approach work monotonously and jointly look for ways to improve the system and ensure progressive returns. A typical working engagement runs its operations by the book; it is stagnant and does not strive to make things work better. It is a myopic relationship that runs only on a compensatory system of payment for services rendered. If payment is delayed, service is discontinued. But in a partnership, negotiations are always open. The “Service Provider” remains a creditor but he will extend credit for a longer period of time to accommodate his partner.
How does a partnership work for an outsourcing arrangement?
Adopting a partnership perspective becomes crucial for arrangements between clients and service providers from remote locations. A client that merely adopts and sustains a purely working engagement between it and the service provider will effectively disregard cultural and social nuances.
This type of mindset limits the perspective of the client and overlooks the potential contributions an outsourcing services provider can deliver to the arrangement. Clients need to wean themselves of biases and pre-conceived notions nurtured by unsubstantiated facts or research available on the internet and hearsay from likewise close-minded people.
2014 surveys conducted by research engines like Forrester show there is a growing trend toward specialized outsourcing solutions over conventional outsourcing solutions. The ascending trajectory of this trend is further proof that companies are looking past the cost benefit of outsourcing and toward its ability to improve profitability by addressing the revenue component. Thus, companies are beginning to outsource more technical and sensitive functions. The approach to meet this end should be anchored on trust and transparency; both essential qualities of a partnership.