Tag Archives: outsourcing

Navigating The Next Normal With Outsourced Service Providers

What are the decisions to make when planning for the next normal in outsourced services?


As we slowly and cautiously, masks on and two meters apart, think about emerging from the COVID-19 crisis, there is quite a bit of uncertainty about what the world will look like when we step back outside. Knowing there is no cure or vaccine on the near horizon means workplaces will be different. The economic impact of the virus has changed the corporate landscape. What we thought was temporary just may be permanent.

For procurement teams managing outsourced services categories, there are more questions than answers. While we grapple with this uncertainty in our own companies and careers, we must also set expectations with suppliers. It’s a double challenge.

Early in the crisis, the focus in services was enabling a transition to work from home. While that may have been a small speedbump for office roles in developed countries like the US and Australia, certain offshore locations faced additional challenges. Offshore service centres scrambled to enable workers who used fixed desktop computers and worked in clean room environments to ensure data security. MSA waivers were given to service providers, and large firms compromised a bit on standards as we rushed into what appeared to be a short-term fix.

For the most part, providers managed to keep the virtual lights on; while reports varied, most services were stabilised within two weeks. Providers of voice services struggled a bit more, but end-consumers also adapted and accepted an online solution as a sufficient substitute for a call. We dug in and started to think about the next stage – what if the virus infected so many people that a significant percentage of workers were out sick or caring for loved ones? We talked about talent resiliency and resource continuity planning. Save for a few heavily impacted areas (New York City, Mumbai), the lockdown worked, the curve was flattened, and there has been no significant productivity drop (yet). In fact, some buyers and suppliers are claiming productivity is up in this new work from home world, and that’s changing how we view the future.

So, what’s next? At Everest Group we see two paths in play: a scramble to reduce costs and prop up financials in light of the recessionary environment, and a reset to what we call the “next normal” in outsourcing and offshoring. Where your company and your procurement team fall on these paths will vary quite a bit by industry, corporate strategy, and even timing.

The coronacrisis is changing outsourcing and offshoring very quickly


Shoring up cost structures

While some industries were hit exceptionally hard by the crisis (retail, travel, energy), some seem to be weathering the storm with a more limited impact (banking, food and beverage, life sciences), and others are thriving (high tech, home media). Regardless, the drop in consumer spending and high unemployment will have a ripple effect across all markets.

Smart CEOs and their boards have started to buckle down. In a late April 2020 survey, 71% of companies were looking at operational costs, while 62% were addressing external spend. Since then I’ve had contacts in procurement say “I thought our costs were competitive, but my leadership wants more.” Outsourced services spend tends to be a significant cost, so expect to hear that knock on your door if you haven’t already.

Where to start with cost cutting? We shared tips to optimise and modernise delivery in our “5 Cost Levers To Pull Right Now With Your Outsourced Services” webcast on Procurious. That advice still stands, and you can hear more directly from our pricing assurance practice leader in this new session on “Outsourcing Pricing: Key Opportunities to Improve Costs Now”. As we said in both sessions, this is not a time for hard line, tactical negotiation. It’s a time to look at modernising your model and making structural changes that benefit both buyer and service provider. Regardless of where you are in the term of your contract, it’s a time to arm yourself with knowledge of the market and have a serious conversation with providers about how to take costs out of the system.

What are you doing to prepare for the “next normal” (or to return to some sort of business as usual)?

Everest Group 2020

Planning for the next normal

The other path is nearly universal to all organisations: navigating next steps as we struggle to emerge from the crisis. While these decisions stand on their own, they are also deeply intertwined with cost takeout initiatives. Through many conversations with service providers and buyers we have outlined six key areas of focus. No one knows all the answers to these questions yet, but for each component there are targeted questions to ask within your organisation and to your service providers.

Sourcing strategy and provider portfolio

  • Do we need to prune our portfolio to strengthen the core?
  • Shall we consolidate providers or diversify our portfolio?
  • Which activities should be brought in-house?
  • Which new activities could be outsourced?
  • Are there changes in the scope of our agreements we should consider?

Solution design

  • Should we shift more work onshore or offshore?
  • Where are we too geographically concentrated?
  • Which countries would diversify our portfolio?
  • Where do we need multi-location mitigation plans?
  • How will office space restructuring affect service centre output?
  • Will remote work be allowed or encouraged by providers?
  • What new skills are required? Where is retraining needed?

Pricing and cost

  • How should we change our pricing model?
  • Are we paying the right rates?
  • Are we getting enough value?
  • Where can innovation reduce operational costs?

Performance management

  • How do we measure productivity in a remote environment?
  • How do our SLAs and metrics need to change?
  • What new relationship management techniques are required?
  • How do we build in incentives for innovation?

Policy and contracting

  • How do we ensure information security and compliance in the new environment?
  • What policies need to change to support this new strategy?
  • What flexibility needs to be built into contracts?
  • How has liability changed for either party?

Risk management

  • How should our business continuity planning change?
  • Which new data sources do we need to improve monitoring and mitigation planning?
  • How can we enable more agile sourcing decisions?

Decisions to make when planning for the next normal in outsourced services


In our recent discussions, the greatest focus has been on planning for solution design, risk, and governance. Of course, the path for each of these areas will dictate cost models and price. A few significant decisions set the foundation for others and seem particularly tricky. The first is partner strategy. Balancing a multi-country strategy to mitigate risk seems to contradict the desire to bring down costs by concentrating work with fewer providers. While this seems counterintuitive, we’re at a point where everything is on the table. It makes sense to reconsider location models while reassessing the partner portfolio.

Even the concept of pushing for cost reductions feels a bit tacky for some vendor management folks, given these are strategic partners and we’re all weathering the same storm together. That’s why we need to think win-win in modernising delivery and reshaping solutions in a way that benefits both parties. Simply asking for line item discounts for crisis-related shortcomings will not get us there. We often talk about “strengthening the core” – that means letting go of lower-performing providers to focus efforts on high value relationships with strong partners. Keep in mind that most of the top 25 service providers are in a relatively good place financially. While they don’t want to give up margin, they do want to do the right thing for their clients, including structural and digital improvements. They can even enable these initiatives both financially and with a different level of expertise. While these may not be the easy, short term cost take-out tactics we might want, they leave us with a stronger and more cost-efficient portfolio longer term.

I wish I could end this blog post with a very simple recommendation for surviving the crisis and thriving in the next normal, but that just isn’t realistic. There is no one right answer. Of course, it depends on your industry, your current portfolio, and many other factors. You can, as a procurement professional, arm yourself with the tools to facilitate the development of a plan with all stakeholders. Start with the checklist above to make sure you don’t miss critical decisions. Dust off your make/buy model, category strategy, and any previous location analyses. Check in on your rates and contract competitiveness, performance data, and risk profiles. Ask your service providers their proposed plans, see how they mesh with your MSA and policies. Your team has decisions to make, your role is to make sure they are fact-based and all possibilities are on the table. If you’re missing parts of this list or need a sounding board, the Everest Group team is available to help.  

Assistance for services buyers

During the COVID-19 crisis we are offering pro bono assistance to services buyers in the procurement community:

  • A locations data check comparing two global locations on key factors such as size of entry level talent pool, market landscape of providers, financial attractiveness, and operating and business environment risk – consider whether geographic diversification is a smart move.
  • A service provider risk profile covering four key parameters (finance, governance, operations, reputation) –  find out if there are underlying concerns with your provider beyond the immediate crisis.
  • Complimentary price checks on up to three standard roles in three different locations – a pulse check to see if your rates are in line or out of line with the market.
  • A conversation with one of our analysts on any global services related topic – ask questions, test your strategy, or get feedback on what others are doing from our senior team.

The Everest Group team is excited to be working with Procurious, and we look forward to helping members create value for their organisations.

Amy Fong

Vice President – Strategic Outsourcing and Vendor Management
Everest Group

Procurement Outsourcing – What To Watch Out For

The advantages of procurement outsourcing have been well-documented, the disadvantages – less so. In this article Elaine Porteous outlines how the trend has evolved and minimising the risks associated.

By Raggedstone/ Shutterstock

The outsourcing of procurement tasks started off a couple of decades ago when companies found ways to process orders and invoices more efficiently. It grew and got labelled as procure-to-pay (P2P) and is still a popular solution for managing volumes of repetitive transactions. Tactical procurement, where low-cost/high volume commodities are being sourced is the next favourite area for outsourcing. Lately, procurement outsourcing has expanded into a wider range of activities, even moving into areas such as strategic category management, supplier selection and contract negotiation. Non-core services are the most likely candidates for outsourcing:  HR services, I.T. support, facilities management and logistics. 

According to CIPS’ definition of procurement outsourcing, it can also include “the provision of procurement services and processes within an operation which may involve the transfer of people and/or assets to another company.  Procurement service providers (PSPs) may have a full-service offering taking over the entire procurement function of an organisation.  Other smaller PSPs may manage only one element of a procurement function such as spend analysis or contract management.

According to McKinsey, to make strategic procurement outsourcing a success, companies need to take a highly systematic approach with three basic steps:

  1. They outsource strategic buying only in categories where doing so offers clear value.
  2. They have a precise understanding of the sources of that value and how to unlock it.  
  3. They choose outsourcing partners that have the capabilities to address those sources of value, then define and implement agreements that maximise the chance of capturing potential savings

The choice of a PSP depends on its capabilities, the size and complexity of the supply market and the buying organisation’s relative influence in that market; the expertise and availability of resources will affect the decision.   Outsourcing works best when the ability to manage a strategic category in-house is low.

Trends in outsourcing

There is a growing interest within procurement about outsourcing data-heavy activities such as spend analysis, supplier performance management and tender evaluations.  Tracking of realised savings has always been a headache and a topic of disagreement due to varying methods of calculation – by outsourcing this to specialists there is less room for debate. 

Governance, regulation and compliance is an area that is increasingly becoming onerous for companies, especially in the banking and healthcare sectors and is, therefore, a candidate for outsourcing.  

The outsourcing agreement 

When a decision has been made on what can be successfully outsourced a PSP must be selected in line with in-house procurement policy. This should include normal supplier due diligence to establish the company’s capabilities, including reviewing the supplier’s financial statements to ensure that the business is profitable and the supplier is not at risk of failure.  Next, the basis on which the partnership will work must be negotiated and confirmed.  The relationship needs to be formalised in a comprehensive contract with an enforceable service level agreement (SLA) that defines the rules of the game. Key performance indicators (KPIs) need to be clearly defined. These are the metrics used to measure performance and the calculation of bonuses.   

In the SLA, risks can be minimised by defining:  

  • Minimum acceptable service levels with penalties/incentives  
  • What happens when the PSP fails to deliver? Contingency plans
  • Who owns the data?
  • The PSPs responsibility for data security and confidentiality
  • Who owns the work developed during the contract?
  • What happens when there is a change in ownership of the PSP?

Managing the outsource partner

You have a contract in place and an SLA, what next?   The PSP is like all other key suppliers, it needs to be managed through the entire contract period.  Implementation is often the stage at which the outsourcing project fails. Stakeholders, if not consulted, can be obstructive and delay the process.  The manager’s role is to deliver the service to users, monitor the PSP’s performance, ensuring delivery against the pre-set KPIs.

Advantages and disadvantages of outsourcing

The advantages have been well-documented by the PSPs themselves, the disadvantages, less so.  Among the leading full-service PSPs are Accenture, Capgemini, Infosys and IBM.  The advantages are

  • Lower costs due to PSPs’ economies of scale by aggregating customers’ requirements  
  • Outsourcing low value/high volume purchases frees up internal expensive resources
  • Access to global expertise and market knowledge in categories where there is little in-house capacity or experience
  • Time-consuming negotiations and contracting are managed by specialists

Because outsourcing involves handing over direct control to a third-party it comes with challenges.  These may be service delivery issues, a lack of flexibility and unforeseen management crises at the PSP.  Open lines of communication at all levels are vital to the success of the contract.  Whatever the function being outsourced, the aim is to create a long term partnership that is designed to achieve more than just cost-cutting.  

Outsourcing versus Insourcing – Where to Play When the Music Stops

In the fourth article in a series charting the key issues in public sector procurement, we examine the difficulties for organisations in deciding whether or not to outsource key strategic services and what this may mean for procurement.

I’ve been told in the past that procurement is a cyclical beast – the chances are high that a decision made today will be revisited in 5-7 years’ time and reversed, only for it to cycle round again at the next strategic business assessment.

One common example is centralised versus decentralised services and the level of autonomy business units are given. I’ve had the opportunity to witness this cyclical decision making first hand and have to say that, as much as it sounds fantastical, there’s a ring of truth to it.

I wasn’t long into my role with the organisation in question when the procurement department was pulled into a meeting with the Procurement Director. The purpose, ostensibly, of the meeting was to discuss the strategic direction of the department. However, the experienced members of the team knew exactly what was coming and they were proved to be correct.

The decision had already been made to centralise the procurement activities to one site (ours), with the Director justifying the move with talk of cost efficiencies, economies of scale and better governance over processes. This all sounded very sensible to me, a relatively green procurement professional. After all, the organisation as a whole had cost savings targets and to me it didn’t make sense to have everyone doing their own thing when it came to procurement.

It wasn’t until I sat down with my more experienced (and some might say cynical) colleagues that I fully understood what was going on. This was a strategic decision made by a new Director looking to put their stamp on the department. Not only this, but the department had only gone through an exercise of decentralisation 6 years before, with the move justified by talk of greater efficiency, more autonomy and procurement better able to service the individual site needs.

It became clear during my conversations with other department members that not only did they think this wouldn’t change the way the business worked (wasting time and money in the process), but that it would be reversed by the next Director in a few years’ time. I’d be lying if I said this whole thing didn’t confuse me, but I was to realise that this was more common that you might think as my time in procurement went on.

The Strategic Hokey Cokey

The example above is meant as an illustration of how strategic decisions can be made and justified no matter which side you fall on. It is neither complaint nor criticism, but an observation from someone who, at the time, had next to no experience in procurement. As time went on, I ended up procuring external services as part of a role, as well as managing an in-house manufacturing process for a procurement department.

The decision of whether to outsource strategic services, or keep the work and skills in house, is one that faces many organisations. Taken as part of the decision making cycle, it can begin to feel a bit like the hokey cokey. Insource this, outsource that, in-out, in-out, shake it all about and, frequently, hope for the best when someone comes asking about business costs and value.

But what is the best value approach when it comes to sourcing key strategic services? In the public sector, an argument could be made for outsourcing for budgetary or expertise reasons. However, the counter-argument relates to potential job losses and the erosion of workers’ skills, losing the option to bring them back in-house in the future.

The strategic services most commonly associated with outsourcing would include HR, Marketing, Finance and even Procurement. But in the public sector would there be an appetite for outsourcing procurement? And what could it mean for this and other services in the long run?

On the Way Out?

Fundamentally, it boils down to the question of whether or not the public sector could or should outsource their procurement function, and what the benefits would be were they to choose to do so.

We’ll come back to the first part of that question shortly. Ascertaining the benefits of outsourcing procurement is tricky, as any benefits tend to be subjective and wouldn’t necessarily apply to all organisations. There has been plenty written, too, on both sides of the debate, including a very interesting discussion on Procurious.

From a wealth of articles on the subject, the most commonly mentioned benefits to outsourcing a procurement function include cost reduction (relating to head count, training and access to resources); accessing expertise in a particular area in the market; a way of complementing existing resources; and the access to extensive networks of knowledge through highly-skilled procurement professionals.

However, on the flip side, there are also a number of negatives raised. Organisations can lose control over day-to-day procurement activities, and through this there is increased risk; there is a potential for the quality of the work to adversely effected; and although procurement has been outsourced, there will still be a requirement to purchase these services and manage the subsequent contract, which may not provide all the time-saving benefits first considered.

Instruct the Experts?

There are a number of organisations in the market that offer procurement as an external service – Capita, GEP and Capgemini to name but a few. The similarities between the services? All of these ‘consulting’ organisations highlight cost savings in their literature and focus on areas such as analytics, research and digital procurement (areas where many organisations lack both expertise and time to carry this out) as a core offering.

From this you would think that a consulting-led service would provide a very attractive option for the public sector. After all, it ticks all the right boxes – improved efficiency, reduced costs and expert-led services. Taken from that point of view, why wouldn’t the public sector choose to instruct the experts, use resources elsewhere and watch the savings roll in?

Apart from being a gross over-simplification of the issue, it doesn’t take into account the wider considerations of skills and training. A decision to outsource in the short-term could lead to a skills shortage in the long-term, and the loss of the opportunity to bring these services back in house without having to set up a new function from scratch (with all the associated costs).

For the public sector, there is an additional consideration – perception. Government, Local Government and Local Authorities have to be particularly careful, perhaps more so than private companies, with public perception and what may be printed in the local and national newspapers. A decision like outsourcing a service, which will be paid for with public money, and for which there may be associated job losses, may not meet the relevant criteria even taking cost savings into account.

The reality is that there isn’t really a right answer for this question and no one correct view in the debate. The right decision now may prove to be the wrong one in hindsight, or due to the cyclical nature of procurement and procurement strategy, may be turned a full 180 degrees a few years down the line.

That said, it’s no time for public procurement professionals to rest on their laurels. There’s plenty to learn and plenty to do – it’s just up to us to make ourselves so invaluable an outsourcing decision couldn’t possibly happen.