HROTodayGlobal

Outsourcing Management "political" than "economic" approach to decision making. With no strong financial support for gains from bundling, other client and relationship factors take on much greater weighting in the decision. This is supported by our 20-factor framework detailed below. Of course, if our factor weightings turn out to be correct, client and relationship and political factors will also be key, but this shaping context would be greatly assisted if a way of providing reliable, economically-based reasons for bundling services could be found. Mature organisations will look at bundling if they can get innovation and if they can shift risk to, or share risks with, the vendor. (They see large vendors as more able to absorb such risk over long periods of time.) The message here to a supplier is to offer both. . More mature organisations all emphasise that strong previous relationships make buyers more likely to go for bundled services. This was not a prompted response. . Some organisations we interviewed did bundle as start- ups (e.g., a major Asia-Pacific telecom) or to achieve fast change but were immature in their ability to manage outsourcing and had poor experiences subsequently. One consequence was a move to multi-supplier sourcing in their second- and third-generation outsourcing arrangements. All seemed unlikely to move back to one major supplier, but on the other hand, all worried that, through a combination of poor sourcing strategy and over-reaction, they had commissioned too many suppliers, and were working on consolidation and reduction. This offered some scope for bundling, but recognising that such clients still rated the importance of retaining a semblance of competition between their suppliers. . Bundling occurs often where there is a strong and large- scale change agenda, through peer pressure, or in a belief that, in a recession, with limited resources available, it will provide savings. . A strong insight from talking to clients about how their organisations make decisions is that a bundled service proposition really does need a client board member driving it. The ancillary strong finding was that the relationship factors we identified as key received strong independent endorsement but that relationships needed to be many-to-many between client and supplier with lots of touch points and "glue". . One interesting route to pursue further is the notion of a tipping point where a client is likely to pursue an add-on strategy, gradually bundling services over time. What factors create this tipping point? Our weighted 20-factor framework can be used here to help a client make decisions. Assessing Trade-Offs We noted five common concerns from our interviews: • • • • • Does multi-sourcing or bundling give you more control? How? Is going with one supplier more risky, or less risky? Should we grow into bundled outsourcing or can it be done in one deal? Should we straighten out our technology and processes first, or does bundling obviate this need? Is there really a big difference in the costs of management for bundling versus multi-supplier and silo outsourcing? Does a primary contractor model solve the problem? [22] HRO TODAY GLOBAL | FALL 2011 On control, multi-sourcing may well give practitioners more power and more control over each individual supplier, with less dependence on each. However, increased control comes at a price in terms of increased management cost, time, effort, and measurement. In multi-supplier environments, retained management capability needed to manage outsourcing regularly costs between 4-to-10 per cent of total contract value. As multi-sourcing governance has been moving up the outsourcing agenda in the last three years, we are seeing these costs also rise further. On risk, there is more in depending on one or two suppliers—much depends on their capabilities and their financial strength, for example. However, with multi-sourcing the risks move into other areas, including cracks in service, security issues, hidden costs of continued monitoring and contract renewals, and possible replacement of suppliers. One must also ask how big the risks are with bundling or not bundling relative to the other risks a business will take in its main line of operations. On incremental bundling, we found many organisations taking this route over time, but we also found several organisations gaining from making a major one-off bundling deal, though this was a relative rarity when it came to complex BPO arrangements. Adept management of such arrangements is not yet common. Some organisations have straightened out their own IT and/or business processes first, sometimes through a shared services route, then sought a bundled outsourcing arrangement. This is a more tactical route and mitigates some of the risk of outsourcing inefficient IT and processes, though the risk may well be worth taking, if it saves time and cost, as we saw in some cases. On cost, the gains of bundling two or more business functions, for example IT and HR, or procurement and HR, rather than outsourcing them separately to different suppliers can be on the order of 10-to-15 per cent. This may well be more where a supplier can bring in a more standardised management and measurement process, and can truly implement standardised business processes and IT. A primary contractor model can be a halfway house but it is unlikely to achieve significant cost savings or process standardisation or innovation over a bundled outsourcing arrangement. The primary contractor model also runs its share of risks and has not always had a happy history. When, then, does bundled outsourcing make operational sense? The major advantages experienced with bundling include: • Simplifies and expedites procurement and contracting (sole-source vs. tendering). • Simplifies the governance process. • Reduces duplicate management layers,processes, and costs. • Reduces operating risk by limiting points of failure. • Standardises and simplifies operations. • Can achieve operational synergies across business processes and between a business process and supporting IT. • Mitigates delivery risk through simplified points of contact. • Reduces service provider costs/prices through simplified management and scale economies. • Supports a pre-existing standardising technology and process trajectory. A prime example is with enterprise resource planning (ERP). • Can drive larger holistic back-office change. Insight 4. Insight 5 Insight 6 Insight 7 Insight 8 Insight 9 Control. Risk. Incremental or big bang? idy then outsource? T Cost and operational gains?

• Cover