Whether or not to outsource vital business processes can be a difficult decision, given the risks associated with handing over vital customer data, in-house customer service systems or human resources information.

Many companies believe that outsourcing can fix many of their problems, because they no longer have to deal with menial tasks such as payroll processing, customer service and IT helpdesk support. Others believe that outsourcing is a step too far — as many UK financial institutions discovered in recent years after outsourcing call centres, only to face complaints from customers.

Outsourcing can be fraught with difficulty, as the recent dispute between BSkyB and IT services contractor EDS shows. However, there are examples of companies that have contracted out vital processes, reduced costs and become more efficient and profitable as a result.

Much can be learned from looking at how different companies have achieved results from outsourcing, no matter what industry they are from. Airlines, the world’s biggest IT companies, clothing manufacturers, banks, pharmaceutical distributors and retailers all have a lot in common when it comes to business process outsourcing (BPO).

This article gives an overview of lessons learned from some world-class US companies, some pitfalls to avoid and how best to approach the task of passing on your company’s less important work to a third-party provider.

Taking lessons

To get an understanding of how to outsource successfully, it is a good idea to look at how other companies have done it in the past. It is good practice to talk to the management teams that led the process to learn how they did it and understand what mistakes they made.

A recent visit to some of the US’s leading companies with a group of UK executives revealed some of those companies’ best ideas and lessons learned. The group from the UK wanted to understand more about the ways in which successful US companies are meeting the challenges of becoming increasingly competitive, while at the same time lowering their costs across a whole range of activities.

Most of the companies visited had IT systems in place for integrating the strategic planning, performance and management systems. They had detailed annual business planning cycles for turning ideas into action. All their good ideas, creative initiatives and marketing strategies had to be put into their strategic planning systems. If they could not measure it, it would not be managed.

“Creativity is lost if you don’t manage it,” says Stuart Scott, CIO of Microsoft. “You can have all of the creative ideas in the world, but if you don’t have a process of managing them and keeping track of them, then they disappear.”

Microsoft is a company on a mission to reduce costs and outsource unnecessary tasks. Each year, it is reducing IT costs and the savings then go into new systems. Microsoft expects to halve business complexity over the next three years by standardising and simplifying its business processes, and by consolidating and eliminating redundant systems, applications and tools.

Operational efficiency

Good processes are the first building blocks in efficiency and outsourcing, and banks are a useful source of informative examples. One company employs 125 people in operational efficiency. The organisation’s mission is “to foster simplicity by guiding colleagues to drive improvements in productivity, customer satisfaction, innovation and growth each and every day”. In effect, it is to ensure that all processes — from making sure the queues in branches are not too long to how cheque processing is dealt with — are done as efficiently as possible. The key initiatives are to simplify the business model, use process optimisation and have a productivity mindset. The company’s logic behind outsourcing is “if it can be digitised, it can be outsourced”.

Passion from the top

It is critical that sponsorship of new ideas or processes comes from the very top in all cases. The strongest companies have clear plans, a process of review and follow-up action. These are issues that the CEO and top-level executives have to be passionate about, and the initiative has to originate from the very top.

The phrase that Peter Rose, CEO of Expeditors International, uses is “passionate lunatics”. He believes very firmly that process, and sponsoring ideas, comes from the top down.

Another sector that has achieved a tremendous amount through process efficiency and BPO is the pharmaceutical distribution industry. One US company doubled its turnover without adding extra staff to the payroll, through a mix of outsourcing, shared service centres (SSCs) and operational efficiency.

One tip gleaned from these companies is never attempt to outsource broken systems; it does not work. Companies that tried have learned the hard way that a process that is not right should not leave the parent company. It has to be fixed in-house first.

Another lesson is the danger of outsourcing customer-facing services abroad. Many UK companies suffered a customer backlash when calls were routed to locations in India. Many of them have reverted to SSCs in the UK. And our trip to the US revealed that many companies there were using SSCs in cheaper locations within the US to consolidate tasks, resulting in cheaper costs per transaction, lower capital costs and more satisfied customers.

Philip McNamara is founder of Inspire Nation, an international best practice consultancy & advisory firm.

IN FOCUS

PRACTICAL TIPS ON OUTSOURCING

• When it comes to deciding what to let go, do not outsource too much. If you outsource thinking, it’s not effective. You should not try to automate everything. There is a time and place for human interaction.

• If it is a very complex task, get a local team to do it – do not spend millions of pounds building a system to deal with it. If it is simpler, build something to do that particular task.

• Start new process integration now to start saving in five years’ time.

• If you can digitise it, you can outsource it.

• Make sure that support for outsourcing comes from the top down, and that it is driven by a need to become more cost and process efficient. Otherwise, people will not follow suit and make the necessary changes.

• Some things cannot be done by an outside company. Areas such as talent acquisition, creativity and innovation should not be outsourced.

• Fix the process at home first, then decide to outsource. There is no point in outsourcing a bad process.

• Keep one or two key experts who know your systems well. If you come up with problems, they will be able to deal with issues as they arise, and work with the outsourcing company to fix the problem.

• Use shared service centres at home – especially if they are customer facing. Customers want to hear familiar accents on the end of the phone.

• To ensure that new systems are deployed effectively across an enterprise, one way to guarantee switchover is to turn off the old systems and support. This is one lesson that Oracle has used.