Outsourcing Evolution
02.06.2019 admin
In Articles

The new partnership format as a tool for additional profit.

Outsourcing Evolution

The future has come, the world has changed. The reality is transforming before our eyes. Technologies rather than politicians create history. The old models are being replaced by a new lifestyle, new standards of behaviour and consumption, new systems of managing people and business.

We are lost on the fact that we are at the unique historical moment when, for the first time in the history of mankind, global communication has become free. It is important to realize that today we have in our hands incredible opportunities to build mutually beneficial partnerships. The economic situation toughening, the development of competition are pushing us to revise our approaches and promote transformation of usual tools for improving business outcome. Now in the knowledge-intensive economy (that is the economy we are starting to live in), the need of change the paradigm of traditional outsourcing to a new model of the true cooperation is boiling up like never before. And the cooperation participants make a significant contribution to each other’s success.

The slogan of the new time is “The value, not the price.” Both parties should be interested in bilateral development, realize mutual benefits, and purposefully steer toward an expected outcome. The outsourcing path is not suitable for those not aware of its feasibility, those who see only high risks, inadequate pricing and who are only worried about cost reduction and total savings.

The new time outsourcing is the choice of companies, corporations that know what their key business process is, have a vision of how a future partner will help them expand, improve, strengthen their positions, improve their product quality, reduce a period for a new product launch into the market or end labour shortage. In this case, success and risks are shared by the customer and the supplier.

Weak Link of Traditional Approach

In Russia, within the classic managerial paradigm, the process approach, unless we talk about large structures, is not so often applied. As a rule, an emergency approach is applied to current problems solution. Despite the wide spread occurrence of outsourcing in business, the cooperation models used in Russian often bring no desired result. Sometimes you have to go through nine circles of hell before you manage to work out the basic principles of partnership, agree on a level of the project elaboration or evaluation. This is like tug-of-war: the parties work against each other, instead of being single-minded and achieving good overall results.

This approach causes a number of problems in cooperation with the supplier, reduces the quality of services rendered to the end customer, and over the long run misses additional profit.

The key challenge is in Russian entrepreneurs and managers who are not always clear which business process should be focused on, and what is more profitable to be outsourced. Is there anything at all that needs to be outsourced, how and who can perform part of the work? It is important to separate clearly that we develop ourselves the basis around which everything revolves, and that an auxiliary business process had better been given to professionals.

Note that outsourcing can become mutually beneficial only due to high professionalism. When we deal with professionals, with a mature business, adequate standard of management (after all only, trust in each other appears), corporate cultures more often coincide, it becomes possible to talk about real synergy between the customer and the executor, effective results of bilateral cooperation. Then the commercial success of one party is intimately connected with the success of the other party, and there is no talk about any unnecessary checks, the contract toughening, sophisticated punishments for their violation. Moreover, the contract based on the cooperation principles, encourages the supplier to bring innovation into play, and not just adhere to strict service rules.

More information on the main troubles of the traditional outsourcing model you can find in the book “Mutually Beneficial Outsourcing. Five Rules That Will Transform Outsourcing Process.” The main “symptoms” of the disease of modern outsourcing relationship are highlighted there. Authors Kate Vitasek, Mike Ledyard and Karl Manrodt also focus on the unhealthy orientation of many companies to a short-term profit; buck-passing to the executor is actually lack of opportunity to take the initiative; payment of each operation without regard to its necessity; overstaff to control the supplier.

That is true that outsourcing contracts cover expenditures rather than performance indicators, real achievements. The bottom line shows measurements made for the sake of measurements. At the same time, the complex control systems introduced are sometimes not used in the future business development. All in all, it is a zero-sum game. According to our observations, successful examples of the introduction of new outsourcing principles are clearly visible in the field of commercial education.

Game Rules Change: Mutually Beneficial Outsourcing

Amid the modern conditions Russia has a unique resource. It is not oil or gas. In the knowledge economy, the most scarce resource in the world is human capital. In our country, there is a personnel potential that can make unique products. The problem is organising the successful management of these people.

The issue of prospects for business development is in effective using own strengths and disadvantages. To build a new outsourcing business model, you need to find your place in division of labour and to use modern experience. Do what you do best of all, and delegate the rest to others.

One of the golden rules for transforming the outsourcing process is stake on the result rather than operations, matching the interests of the supplier with what the company really wants: selection of an effective and low-cost common solution.

It is better focusing on “what” rather than “how”. Using the Vested Outsourcing model, it is enough to indicate what should be the outcome. These are questions of principle. The paradox of outsourcing is that companies when applying for a service provider, knowing that he will be able to perform these tasks better, drawing up a contract, as if they forget that they are not the experts. Results-based partnerships allow each company to do what it knows best.
You should agree in advance about clearly defined and measurable results. Pay the service provider for the value obtained through the use of their integrated solution rather than for the operations performed. It is justified to lay a reward for the supplier’s investments in the new business model, provided that the profit exceeds the contract requirements. Remember that a mutually beneficial contract should provide incentives for solving the company problems. Management structures should get to the root, not just control. A culture of understanding the very essence of the process, rather than controlling the latter, should be created.

The future is hard to predict, but it can be built. We call all participants in the outsourcing market to take a fresh look at the principles of building relationships, and constantly learn how to get benefit from cooperation. These solutions are simple, elegant, cheap to use, but they can change entire production cycles and set new rules for the game. Implementation of even a few elements of the model of mutually beneficial cooperation can lead to a qualitative breakthrough in business.