Outsourcing Strategies for the Entire Enterprise or ‘Stockholders, I Shrunk The Overhead!’
This spring I had lunch with one of our clients, a national retail chain. The chief financial officer, the chief information officer and the executive vice president for human resources (HR) gave me a list of 20 business processes they wanted to shed that weren’t part of their core competency.
They realized they needed a first class HR system to retain the prized employees they had recruited, but they didn’t want to spend scarce capital building that kind of system. In these days of intense competition, they wanted to channel every dime into their core business. The CFO said to me, “I don’t want to spend $10 million building a world-class HR system when I could use that money to renovate and open new stores. I want to grow the business I know.”
In their minds, outsourcing was the best way to grow their revenue. They asked me, “How do we outsource all these processes?”
The HR executive then drew a diagram on a napkin.
Running up the center were the business processes this company needed to keep. Then we ranked the importance of the remaining processes. We performed outsourcing triage, dividing them into three groups according to how easy they would be to outsource.
We viewed each process as occupying one floor of their corporate headquarters. The data center, home of the IT function, was housed in a secure building near the corporate headquarters. Outsourcing IT vacated the space. Outsourcing the real estate and facilities management function, located on floor 1 of the headquarters building, freed up that real estate. Next came the customer relationship management (CRM) functions, followed by HR, and finance and accounting.
IT Department Changes
IT, however, was a river that ran through all the floors. Outsourcing the HR process meant that the people as well as their desktops migrated to the outsourcing supplier. The HR applications moved, too. Ditto for the finance and accounting software. The IT department no longer had to worry about the accounting applications; they are now the supplier’s headache.
Outsourcing an entire enterprise created a new IT department. The only applications left were those directly supporting the company’s stores.
Outsourcing the entire enterprise had another salutary result. The company significantly reduced its real estate requirements. This added more working capital to the retail store chain.
In essence, outsourcing the entire enterprise would shrink the company back to its core, allowing it to compete more effectively in today’s tough environment. Making the company smaller would, in the end, allow it to grow larger.
Outsourcing all non-core business processes is a new way to look at BPO. Until now, most companies outsourced single processes or functions. We’re suggesting that companies now take a macro level look at their total business and make decisions from 5,000 feet up.
A Confluence of Events
Outsourcing the enterprise is an idea whose time has come. IT systems have become sophisticated enough to process all the facets of a business function. The BPO supplier market has matured; now there are suppliers that can handle all the functions of an entire business process using these powerful new IT tools. And outsourcing an entire process produces big savings, thanks to leverage, economies of scale and superior supplier expertise.
Traditional IT outsourcing providers have been among the first to understand the implications of this trend to outsource everything. For example, EDS has entered the BPO marketplace after strategizing that the future growth in the IT area will be channeled through those BPO companies that control the HR, CRM, finance and accounting, or real estate outsourcing.
And the timing is right! At this point in the economic cycle, companies are feeling the pinch as sales numbers fall. They are becoming more careful with the smaller sums they have available. Outsourcing the enterprise makes economic sense.
We are at the beginning of this new cycle of outsourcing the entire enterprise. Here at Everest, we expect this trend to accelerate due to the size of the potential savings it can generate.
Three Things To Consider
How do you outsource an enterprise? Here’s the recipe we developed:
- Pinpoint the processes that are really core to your business. Determine where you need to invest your money. These processes stay inhouse.
- Determine what’s working and what’s broken. Concentrate on the broken processes first. Where can a BPO outsourcing provider bring the most leverage in areas like expert process ownership, capital investment, best practices and scale?
- Understand the impact of the timing of your outsourcing decision. Outsourcing one department will have a direct impact on the next area to be outsourced. For example, less HR means less IT requirements and smaller real estate needs.
Lessons from the Outsourcing Primer:
- Instead of outsourcing a function, companies are considering outsourcing all non-core functions in the enterprise.
- Two trends — increasingly sophisticated IT systems and mature BPO providers — have combined to make this trend possible.
- Outsourcing the entire enterprise produces significant savings by shrinking the needs of the company.
- Outsourcing the entire enterprise helps companies compete in today’s tough commercial environment by channeling scarce capital to the core business.
- Traditional IT providers like EDS are entering the BPO marketplace because they realize future IT growth will be channeled through the BPO outsourcing providers.