Back in February, I wrote about how many companies achieve cost savings but not broader business benefits with their outsourcing initiatives. I cited a Deloitte report that highlighted five areas upon which companies should focus to get the maximum business benefit from outsourcing: strategy definition, creation of a business case, vendor selection, contract negotiation and ongoing performance management.
I recently encountered a couple of outsourcing case studies that outline how two companies were able to address some -- if not all -- of these areas.
Chemical company Ciba is enjoying annual savings of $15 million after contracting with multiple suppliers to handle non-core business activities like IT infrastructure and telecommunications, according to a ComputerWeekly.com article. That amount is about 20 percent of the costs of the outsourced services.
Ciba moved 120 employees to service providers, leaving 16 employees in-house who spend about half their time managing the provider relationships. This was Ciba's first effort at outsourcing, which may explain why it took two years, longer than the company had hoped, to fully transfer activities to suppliers.
Among the Ciba CIO's recommendations: Use a sourcing adviser. Be thorough when conducting due diligence. Employ providers that do not use a lot of subcontractors, and make sure you are informed if and when they do.
Engaging an expert procurement team helped UKvisas, a government agency responsible for the introduction of biometric fingerprinting for all overseas visa applicants to the UK, get biometric hardware and software to embassies and consulates in less than three years, reports Times Online. Not only that, but the project came in at 40 million (U.S. $78.5 million), less than the 70 million (U.S. $137.4 million) budgeted for the effort.
Mark Sidwell, the agency's leader advises folks pursuing large-scale outsourcing initiatives to get "the best people possible" to manage the project, even if they come from outside the organization. He also stresses the importance of understanding the processes involved before turning them over to an outside party. Sidwell says:
Make sure you understand all the business processes -- work though the detail. We made sure we understood the minutiae of the technology we were buying.
The Times Online article includes some other valuable bits of advice. Among them:
- Don't just let one department write outsourcing specifications. Garner feedback from all units that will be affected by a project.
- Get support for the initiative at the board level.
- Employ project managers with communications and relationship skills, as well as broad knowledge across multiple functions.