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Flipping the script on traditional outsourcing and managed services

The Road to Reshaping Business is a series of articles exploring industry trends, strategic imperatives and practical steps for enterprise leaders who are looking to embed continuous advantage into their operations. In this article, we explore the significant shift taking place in the modern outsourcing and managed services market and the changing demands of organisations today.

In the not-so-distant past, an enterprise might expect an overhaul of its tech stack and business processes every 15-20 years. Technology and business generally evolved at a more gradual pace and little other than minor changes and updates would usually be needed during that time.

Now, with the quickening pace of change, a 15-20 year lifespan seems comical. New, disruptive technologies are introduced almost constantly, requiring organisations to continuously innovate.

Organisations operating in today’s environment of rapid change face other significant pressures, including an ever evolving risk landscape and a scarcity of specialist skills. To survive and thrive, they need to be more agile than ever. Innovators are rethinking the type of support they seek from third-parties to keep up. And in today’s business landscape, third-party service providers can play a vital role in providing that agility.

A recent report from Harvard Business Review Analytic Services: ‘Next-Generation Managed Services: Journey from Cost to Value’, explores this fundamental shift taking place in the outsourced and managed services market. Outsourcing models that were traditionally designed to reduce costs around non-core business processes, are evolving into more outcome-orientated and innovation-driven agreements, tackling mission-critical business areas with the aim of driving greater business agility and control. This next-generation managed services model is what Deloitte refers to as Operate services.
 

From narrow and non-strategic to dynamic and mission-critical

Traditional outsourcing initiatives typically focused on very narrow, non-strategic activities and processes. An example is employee payroll processing using 100% offshore service centres with the goal of driving cost reduction and efficiency.

Now it’s time to think much bigger and to consider aspects of your business that are so critical to success that you can’t afford to execute them any less than brilliantly. I like to call this thought process “flipping the script” on the use case. Let’s explore an example:

The first step is identifying what significant business challenges you’d like address. Think big. For example, “how can I maximise business revenue?”

Step two is identifying multiple levers that could contribute to the answer. Levers for maximising business revenue could include:

  • Your methods for capturing revenue.
  • The data sources and analytics you need to help identify potential customers and insights to help customers find the information they need to make a successful transaction.
  • The end-to-end customer journey, user experience and conversion rate from prospect to customer.
  • Your customer retention strategy and key levers to create repeat business.
  • Your security and fraud identification strategy, helping minimise revenue lost through financial crime.

If at any point the problem you are considering seems too narrow, you’re probably only looking at one lever. A good Operate service provider should help you to identify the multiple levers that ladder up to the business outcome you are trying to achieve and have the capabilities to execute and manage those levers for you on an ongoing basis.
 

Identifying the right use cases

According to Deloitte’s 2022 Global Outsourcing Survey, 51% of organisations are using or actively pursuing managed service provider support. And as the HBR report also highlights, there is still a need for traditional managed services and outsourcing models alongside more mission-critical Operate services. In this article we have already explored the steps for building out an example Operate use case. But put very simply, consider the following:

  1. Is the business function or process considered mission-critical?
  2. Is the technology or environment you are working in quickly evolving?
  3. Is there a scarcity of talent or vast upskilling required?

If the answers to these questions are yes, you should consider an Operate conversation.
 

Evaluating service providers
 

Organisations are increasingly entrusting service providers with greater management and operational oversight of their critical business functions and processes. However, organisations can be concerned about these third party’s capacity to continuously deliver. Rightfully so—we’re talking about business areas that are so essential to business continuity that failure simply isn’t an option.

When evaluating Operate service providers, you should seek out those who offer “triple threat” capabilities. The advisory and execution capabilities to help define and transform the solution, but also the multi-disciplinary operational capabilities to manage the ongoing breadth and depth of support your organisation needs to succeed.

Another credential to consider is trust. As a leader, you should look for a service provider who is committed to delivering strategic business outcomes, while you still remain in the “driver’s seat” retaining ownership of the long-term vision and strategy for your business area or function.

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