Many of my colleagues at Enfocus Solutions Inc., including myself, have had extensive experience serving as advisors on large outsourcing arrangements. We have truly seen the good, the bad, and the very ugly. In this blog, I want to examine the current state of the outsourcing industry and its implications on business analysts.
A recent survey conducted by the London School of Economics and Political Science Outsourcing Unit on the topic of the current state of outsourcing included responses from more than 1,200 buyers, providers and advisors of outsourcing services representing a large cross section of each spectrum of the outsourcing industry. General takeaways from the study are:
- 59% of organizations with a shared services function are planning to increase outsourcing significantly. A shared services function is viewed as an organizational infrastructure stepping-stone to business process outsourcing.
- Key reasons for outsourcing are
- Cost reduction – 60-76% view as very important, depending on organization size.
- More effective operations – 50-64% view as very important, depending on organization size.
- 46% have found outsourcing very effective in reducing costs.
- 35% have found outsourcing ineffective in innovation.
- 31% have found outsourcing ineffective in proving access to new technology.
- 31% have found outsourcing ineffective in proving access to business process knowledge and experience.
- Demand for outsourcing has reached unprecedented levels. For example, areas that organizations have already outsourced and are likely to increase the breadth of outsourcing are:
- Application Development and Maintenance – 58%.
- IT Infrastructure Outsourcing – 52%.
- Document and printing operations 44%.
- Call Centers – 40%.
- Finance and Accounting -31%.
- Human Resources – 31%.
- The areas of interest for organizations that are looking to outsource for the first time include:
- #1 Procurement and Sourcing.
- #2 Finance and Accounting.
- #3 Analytics and Knowledge Management.
- # 4 Human Resources.
- IT infrastructure and application development and maintenance outsourcing are seen as the core outsourcing areas for many organizations:
- 68% already outsource infrastructure and either plan to outsource or to increase the scope of outsourcing.
- 62% already outsource application development and maintenance outsourcing and either plan to outsource or to increase the scope of outsourcing.
- 63% of medium-sized companies and 44% of large companies say outsourcing has been effective in reducing costs.
- Buyers rate financial stability, track record and change management/governance process delivery, scale, industry specific knowledge and culture as the most critically important skills of outsourcing suppliers.
- Key issues that have prevented or delayed outsourcing decisions are:
- Unconvinced of service providers’ capabilities (39%),
- Unconvinced of long-term business benefits (30%),
- Insufficient short-term cost savings (37%), and
- Fear of disruption limiting (31%) decisions to outsource.
- The role of advisors in working with buyers on outsourcing is increasing.
Impact on Business Analysts
From this information, it is obvious that outsourcing is a key strategy being employed by organizations to reduce costs and remain competitive. Outsourcing is already widely used and the use of outsourcing will continue to rise in the future. However, this trend presents opportunities and challenges for business analysts. Often, business analysis functions are not outsourced and stay within the organization. This is extremely common for BAs that reside in business units. This makes sense, since BAs often play more of a strategic role than an operational role. Let’s examine how a business analyst can be used when an organizations is using or considering using outsourcing.
Defining Outsourcing Requirements
Defining clear requirements and expectations alleviates many problems found in traditional outsourcing arrangements. Requirements for outsourcing need to be defined in a manner similar to defining requirements for an IT service. In doing this, it is important to understand what the buyer expects to achieve from the outsourcing arrangement and what type of arrangement is desired. There are basically three types of outsourcing arrangements:
- Efficiency/Utility (Make it Cheaper) – This type of outsourcing arrangement focuses primarily on cost control and, over time, cost reduction, with the goal of maintaining consistency in the delivery of services.
- Business Enhancement (Make it Better) – This type of outsourcing arrangement is about business productivity. The organization’s performance, as compared with their competitors, will improve, resulting in movement toward defined business goals.
- Transformational (Make me Money) – This type of outsourcing arrangement is characterized by a partnership between the service provider and service recipient that is focused on innovation and new business, changing the very basis on which an organization competes.
The Business Analyst should work with the business partner to determine which arrangement they are you looking for and help the business clearly understand and delineate the associated expectations.
Outsourcing and Innovation
Outsourcing is often not viewed by buyers as a source of innovation. That is, it is not seen as an agent of change, innovation, transformation, or as access to new technology, but is more often viewed as we can manage “your mess for less.” This is unfortunate as buyers neglect the value of transformation and don’t appreciate how it can contribute to innovation and generate real business benefits. In addition, most providers do not sell transformation as a pre-requisite for innovation and further cost savings. Companies looking to outsource should look for a transformation and innovation vision from their supplier. The business analyst can play a big role in getting this view across and stressing the importance of transformation in addition to immediate cost savings.
Transition and Transformation
Transition is the entire process for transferring operational responsibility to the outsourcing supplier. Transition moves the purchasing organization from its current mode of internal operation to an integrated managed mode of operation. Transition includes the takeover of the “as-is” business and operating environment as well as contractual requirements necessary to facilitate the transfer.
Transformation is the implementation of completed integrated solution within a specified time, that lead to entirely integrated operation, service enhancements and/or quality, productivity, technology improvements and cost savings/reductions. An approach to transformation is important for successful outsourcing. Transformation is the basis for greater cost savings and innovation. Outsourcing without transformation is a risk as what is outsourced can stagnate over time. The business analysts should play a major role in transition and transformation activities.
Notice from the information above that application development and maintenance is the number one area for outsourcing. Good requirements are more essential for outsourced arrangements than they are for internal projects, because outsourced resources often do not have the free and open access to key stakeholders that internal employees do and they are often geographically located in a different place. Defining high quality requirements will significantly improve the outsourcing relationship and help the organizations achieve more value.
Problems with Outsourcing
Many organizations take a “fire and forget” approach to outsourcing. Problems with outsourcing are as much the fault of the organization that outsourced as they are of the supplier. Organizations that outsource need to define an operating model and be engaged with the outsourcing relationship. You can outsource anything except the management of the outsourcing relationship. Business analysts can play a big role in obtaining value from an outsourced arrangement.
Recognizing the importance of effective documentation and communication of requirements to the outsourcing process, Enfocus Solutions Inc. has developed a tool and supporting materials that help businesses spur innovation, improve productivity, and cut costs by capturing, managing, and leveraging the systems requirements of their people, processes, and technology. A secure software as a service, the Enfocus Requirements Suite™ features user persona examples, best practice requirements, and requirements management training. Moreover, it is the only service available that lets stakeholders directly contribute to and collaborate the requirements knowledgebase, using their own words. The materials collected in this manner provide the foundation for outsourcing contracts.