As the world teeters on the edge of a double-dip recession it shouldn’t come as a surprise that the outsourcing industry is experiencing a lull. However, the economy may not be the only cause of the slow down. In fact, if intentions were the equivalent of closed deals the outsourcing industry would be booming and capacity managers would be running wildly around trying to hire more resources and build out more data centers. Recent studies have shown that close to 75% of the leading global enterprises plan to increase their outsourcing purchases and 60% intend to increase their shared services investments as well. So what is holding them back?
If the surveys of buyer intentions are correct it isn’t the lack of a clear idea of what they need to do to improve the productivity of their businesses that is delaying outsourcing decisions. Instead, organizations are confused as to how to marshal the internal and external resources available to them to make the improvements. For example, there is a strong demand for making global operations far more flexible. With more emphasis being placed on exporting to the developing markets, corporations are dealing with tremendous complexity, such as compliance issues across geographic boundaries. Their current business applications and ERP systems are not standardized enough, across boundaries and across global business functions, to deal with them. They also think there are too many silos, internally, and want more alignment between business functions, as well as across them. Outsourcing and shared services may do a good job of making those silos more efficient, but those benefits are divorced from the rest of the organization.
One of the more interesting potential solutions to the dilemma described above, to keep an eye on, is “Global Business Services Strategy” (GBSS) or “The Global Business Services Strategy Framework” as some have dubbed it. While it is very similar, in many respects, to the Service Strategy component of the Information Technology Infrastructure Library (ITIL), described as the center or core of ITIL, it is being promoted as a new way to manage global sourcing. Instead of a more narrow focus on whether to adopt a shared service or outsourcing strategy GBSS combines both, in addition to third party investments, into one integrated global business services framework. Like ITIL, there is an emphasis on making IT a central part of corporate strategy. However, once corporate objectives are clearly identified it encourages the internal silos to work together, with third parties, shared services and outsourcers, to create breakthrough and strategic capabilities that result in marketplace differentiation and competitive advantage. It demands innovation, in other words, and moves cost reduction away from being the only reason organizations outsource.
Governance is also given special significance in GBSS. That shouldn’t come as a surprise to anyone who has studied the success and failure rates in outsourcing deals as good governance always seems to be a key component of the successful outsourcing deals. Governance is not something consumers of outsourcing services do well. For the most part, they rely on their vendors to teach them what it is and provide whatever few tools there are for doing it, even though governance is really a client-side responsibility. However, as one industry analyst put it to me recently, the dirty little secret about outsourcing is the vendors are only slightly more organized than their customers, because they don’t do governance that well either. For example, service invoicing, a key governance activity, is largely done manually. That may account for why the service invoice error rate has been tagged by many studies to be about 10% on average. That figure includes both over charging as well as revenue leakage on the vendor side. When one considers how large many of these deals are, we are talking serious money.
GBSS governance contains many of the processes traditional governance does. It is about financial and demand management, service portfolio management and business relationship management. However, it advocates that more governance be done on the consumer or client side of the relationship and that career paths be developed in governance. After all, GBSS very likely means one will be dealing with multiple outsourcing and shared service vendors, in addition to third parties, who may be developing key new innovative technology. Governance will be even more complex, in other words, and global in nature, rather than simply a case of governing a single vendor. That is, of course, as long as the organization doesn’t decide to simply outsource the entire portfolio of issues GBSS seeks to address, to a single vendor.