Meet vested outsourcing. It’s how outsourcing is meant to be
Meet vested outsourcing. It’s how outsourcing is meant to be
By Scott Alman
The concept of outsourcing emerged from business academia in the early 1980s and gradually gained adherents. Today it’s simply part of normal business practice.
In fact, the underlying idea of outsourcing has been a long time coming. It originates from the economic principle of comparative advantage identified by David Ricardo in 1817.
Just ponder on that. For
more than 150 years, organisations have housed under their
roofs all sorts of functions irrespective of their level of
competence.
Peter Drucker, one of the giants of management consulting and education, succinctly made the case for outsourcing saying: “Do what you do best and outsource the rest!”
However, rather than properly implementing Drucker’s ideas, many seized on outsourcing as a way of cost-cutting, causing Drucker to describe the outsourcing equals cost-cutting crowd as “delusional.”
In
Drucker’s view, outsourcing should be about creating
eco-systems in which best-of-breed organisations cooperate
to deliver value. He noted that outsourcing “…may
actually increase costs, but you also get better
effectiveness.”
You have to wonder how many
managers and business leaders understand outsourcing in this
way.
The Drucker version of outsourcing is inspiring
with profound implications for professional services, in
particular.
There is no shortage of data showing
that white-collar work, professional work, remains
“grotesquely unproductive” recalling another Drucker
rhetorical firebomb.
“Vested outsourcing” is a way of tackling lacklustre professional services productivity. This creative approach is named this way because the company that is outsourcing and the service provider are vested in each other’s success.
Each party brings its core
competencies to achieve something neither company could
achieve on its own. Under arrangements like this both the
company outsourcing and the service provider cooperate for
tangible benefits, either through tangible or intangible
incentives. In other words, they work together to identify
and bring about improvements in their relationship.
Here’s how it works: The outsource provider looks at how it can best apply processes, technologies and capabilities that will drive value to the company that is outsourcing. This commitment to deliver results for that company – such as a drive to improve quality, lift brand impact on identified market segments or increase market share – shifts risk to the outsource provider.
In
exchange, the company outsourcing commits to allow the
outsource provider to earn additional profit – above and
beyond industry average profits for their service area –
for achieving this lift in value. Finally, the company that
is outsourcing commits to providing a certain level of
business for the outsource provider.
The globalisation
and digitisation trends disrupting so many industries are
now lapping at the shores of professional services.
White-collar industries might recoil at comparisons with
production line approaches that are upturning so many
business models, but the essence of professional work is not
so different.
The forces that have disaggregated and
dispersed manufacturing will eventually hit professional
services too. Far-sighted professional services participants
should now be forensically examining all components of their
value chains and bringing the best together to deliver the
highest possible value for customers at each point.
ENDS