Wednesday, December 3, 2014

3 Dirty Words You Should No Longer Use About Outsourcing

Outsourcing and Shared Services operations are shifting towards “As-a-Service” models of delivery. As this happens, three words have become inappropriate, although they previously enjoyed proud status in the vernacular of the industry:

1)     Labor – the industry formerly prided itself on the ability to hire, train, deploy, and develop vast armies of practitioners, but the “human capital” component of the services proposition is fading fast.  Sure, there remains a need for smart and committed people behind the curtains of the industry, but the metrics of value no longer pivot around headcount, “fresher” hires, retention rates, and the like. 

2)     Transactional – this term commonly referred to the processing of standardized, volume-based units of work.  Today, it connotes lower-order, analytic-light, rote tasks. Industry players today focus on continuously learning from the processing of work, and improving as a result of self-monitored, self-measured analytics.

3)     Legacy – a particular favorite of mine, this term framed the scope of many outsourcing arrangements: the provider maintained the legacy environment in a more cost-effective manner.  Today, legacies are being retired in favor of more contemporary alternatives. Companies are expressing their spend in terms of “legacy maintenance” versus “operational transformation”… and holding themselves to challenges of rapid reduction in the legacy side of the ledger.

I believe it was Phil Fersht, President and CEO of HfS Research, who brought up these terms at a recent conference his firm organizes, HfS Blueprint Sessions. This is a fascinating event that brings together enterprise buy-side operations leaders with prominent thinkers and operators from the service provider and advisory world.

During the event, I tried to count the number of times the word “automation” was used, but quickly got overwhelmed. You would have thought this was a manufacturing robotics event, not a conference around the use of third-party service models for back-office support. 

The outsourcing industry and its cousin, the Shared Services industry, are embracing automation and robotics as an alternative to labor-based solutions. The service models of the future include a high degree of intelligence and embedded data-driven analytics.

Gone are the days of impressing the market on the basis of numbers of employees and the ability to mobilize those armies. Similarly, gone is the celebration of repetitive tasks defined through how things worked in yesteryear. More than ever, technology’s role in reinventing business processes, and continuous monitoring/improvement, is profound and this will become the standard by which the players will be measured. You aren’t a winner unless you are enabling the “new world” of business operations, and cleaning up your language.
Peter Allen is a Boston-based Managing Director at Alvarez & Marsal.

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