Originally published in Business World by Kartik Nagarajan, 20 January 2021
Businesses can start unlocking the true value creation potential by viewing the vendor as a partner, where they take an active interest in the relationship.
COVID-19 has created a unique business environment, with businesses shifting to remote working and using digital channels in a noticeably short span of time. In such a time, the flexibility and scalability achieved using outsourcing as a strategy have been aptly demonstrated.
Why should companies consider outsourcing as a strategy?
Fragmented organizational operating models can pose a major threat to the successful implementation of strategic initiatives. A well-executed outsourcing model offers organizations great potential to improve the efficiency and effectiveness of their functions.
In the post-COVID ‘new normal,’ a clear outsourcing strategy presents multiple benefits, including easier integration of acquisitions, faster adaption of new processes and technology, enhanced customer data assessment and usage, and easier diversification into new markets.
Outsourcing is necessary as businesses evolve
Today, due to the pandemic, many organizations have turned to outsourcing as a necessity rather than a strategy. Many are outsourcing their non-core business processes.
However, in a normal scenario, outsourcing is also a top-level decision. It is an important tool that businesses can use to deliver their strategy and enhance operational flexibility. Other benefits include lowering cost, boosting efficiency, expertise, and an on-demand talent pool.
Organizations should look at outsourcing partners to either eliminate, automate, or standardize their business processes as they evolve. It is important to pick an outsourcing partner that is also investing in updating their skill sets through training and technology to make themselves future-ready to cater to these requirements all through the evolution curve.
Futureproofing: keeping the outsourcing strategy relevant and evolving
Businesses can start unlocking the true value creation potential by viewing the vendor as a partner, where they take an active interest in the relationship. Post the pandemic, leaders should re-evaluate the capabilities needed from their service provider. These capabilities could be enhancing business knowledge, the ability to provide substantial cost-saving, integrating process and technology, or bringing in credibility and transparency.
For example, most companies in the post-COVID era are now looking at cost-saving and integrating processes and technology. It is important to be clear on what the value addition is. For some, it could be time arbitrage, where they may not want to continue investing in non-core work. For others, it could be risk arbitrage where they may not want to invest in work that they are not sure what the outcome would turn out to be. This outsourced risk could relate to the Service Level Agreement (SLA), performance, and achieving KPIs, or it could be human resource hiring and retention risks.
In some cases, outsourcing is also a preferred route when companies want to drive change that may be politically sensitive internally.
Companies can benefit significantly from choosing an outsourcing partner that can give constructive suggestions to help them meet their customer needs in new, under-explored ways. Service providers should know their client’s business well and should be willing to invest in the relationship and be willing to go beyond the SLA.
Flexibility, transparency, and ownership are key factors
In the post-COVID era, contracts should offer flexibility to ensure openness. Suppliers have a responsibility to ensure that they establish a partnership model with their clients that encourages clear communication and future-oriented thinking about the business functions.
For example, they could proactively invest in data management and predictive analytics. The relationship between the client and service provider should have a level of transparency to own up mistakes and correct them through dialogue and collaboration. Open communication and mutual trust are important factors in the vendor-partner relationship.
Finding a cultural match is another important factor, and clients may want to consider a good culture training program for the outsourcing partner.
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