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BUSINESS OUTSOURCING

Ȗ Scott Tibbles is the entrepre-neur behind SmartCam Direct which sells dashboard cameras for cars. These are the ideal gizmos to record journeys for security and insurance purposes

When Scott founded the firm in 2011 he managed everything himself, including the packag-ing and mailing of the cameras. Big mistake.

“It was an extremely time-consuming part of the process,” he says. “Looking back, I spent an awful lot of time in queues at the Post Office. And it was very frustrating because there were far more valuable ways to use my time.”

So Scott outsourced. He hired P2P e-Logistics to take care of warehousing, distribution, invoic-ing and account management. “The whole thing requires mini-mal effort on my part,” he says.

Since the arrangement sales are up 64 per cent, and Scott is free to focus entirely on the important bits of his business, marketing and product testing.

The story is a great advert for outsourcing. In truth there is an abundance of inspiring stories in this sector. It’s an industry with a spring in its step. The UK out-sourcing market is already worth £207 billion or 8 per cent of gross domestic product, according to Oxford Economics. That’s 10 per cent of the nation’s workforce.

As the industry matures the

examples of outstanding out-sourcing grow more impressive. Take Nisa, the convenience retail chain. It has 4,000 stores with sales in excess of £1.5 bil-lion. It moves 108 million cases a year. Yet the entire Nisa logis-tics department consists of just two people. Two! The operation has been completely outsourced to DHL.

One half of the two-man team is Jon Stowe, Nisa’s distribution director. He says there is a long list of reasons why Nisa out-sources rather than managing everything in-house. “For start-ers, it would not give us value for money to do so,” he insists.

But there is also an environ-mental benefit. “DHL has a recycling division, Envirosolu-tions, which recycles plastic and cardboard for us. That is part of their service.”

Nisa benefits from liaising with DHL’s other customers, through vehicle sharing, for example. An arrangement with JD Wether-spoon in rural Scotland means Nisa’s vehicles carry both firms’ goods, generating revenue for Nisa. Deliveries in the South East are shared with BP garages.

Mr Stowe emphasises the other services DHL bundles in with its service, such as benchmarking, helping Nisa hit carbon-reduc-tion goals, and consulting on Nisa’s operational efficiency. “It is a really deep partnership,” he

says. “You really can’t think of it as merely us accessing a service.”

Stories like this ought to add some much-needed lustre to out-sourcing’s image. Repeated stud-ies suggest there is a wariness surrounding outsourcing, in both the minds of the general public and in senior professionals.

A National Outsourcing Asso-ciation (NOA) poll suggests 80 per cent of the public “do not think outsourcing is beneficial to UK plc”. A poll by SKS and Loughbor-ough University found 70 per cent of chief finance officers in small and medium-sized firms thought that offshoring or outsourcing financial work to another country was not acceptable.

The NOA’s response has been to launch an Outsourcing Works campaign, which uses real-world case studies to prove the repeated success of outsourcing. There are few common themes.

Capital costs are slashed. When Dariush Zand set up mobile net-work Ovivo he outsourced the contact centre operation because he simply lacked the money to build and run his own centre.

Access to expertise becomes simple. Flooring firm Har-vey Maria outsources its IT operation to NetSuite. Founder Mark Findlay relies on Net-Suite to install and maintain his accounting, billing, customer relationship management and e-commerce functions, special-isms he would have struggled to manage himself.

Outsourcing offers flexibility in terms of capacity. Travel opera-tor Thomas Cook uses Accenture

to handle its accounts and back-office processes, knowing that Accenture has vast resources at its disposal to handle any volume or work.

Also outsourcing can be greener. When the National Trust handed over its data centre operation to IT services pro-vider Adapt, it measured a fall in power consumption of 70 per cent attributable to Adapt’s use of server virtualisation and supe-rior physical infrastructure. And since Adapt uses biomass power, generated by woodchip and fibre fuel, there is a further saving in carbon emissions.

In addition outsourcing saves money; sometimes, a huge sum

of money. London Underground outsourced its disputes resolu-tion to specialist agency CMP Resolutions. With 12,000 staff working under difficult condi-tions, London Underground was dogged by a painfully high dispute rate. CMP Resolutions introduced new processes, pro-vided superior mediation and handled paperwork far quicker than London Underground could manage internally.

There has been a reduction of 75 per cent in bullying and harassment cases, and Alexan-dra Bode-Tunji, senior business partner at London Underground, estimates a saving of £3 million over a four-year period.

These are the stories the indus-try needs to shout about. Out-sourcing has its doubters. Stories such as these ought to ensure outsourcing gets the recognition and support it deserves.

Case studies reveal positive success stories which belie outsourcing’s negative public image, as Charles Orton-Jones reports

OVERVIEW

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MORE THAN MERELY ACCESSING A SERVICE

Stories such as these ought to ensure outsourcing gets the recognition and support it deserves

Outsourcing at home and abroad can help

grow business as well as cut costs

DiStributeD in

DiStributeD At

PubliSherRebecca Trenner

eDitorCharles Orton-Jones

DeSignThe Surgery

MAnAging eDitorPeter Archer

rebeCCA brACeFreelance financial journalist and former editor of Treasury Today, she contributes to a number of national and trade publications.

rebeCCA burn-CAllAnDerBusiness journalist and web editor at Management Today, she was deputy editor at Smarta and online editor at Think Publishing.

ChArleS orton-JoneSFormer Professional Publishers Association Business Journalist of the Year, he was editor-at-large of LondonlovesBusiness.com and editor of EuroBusiness magazine.

SAllY PerCYFreelance business and financial journalist, she is editor of The Treasurer, the official magazine of the Association of Corporate Treasurers.

iWonA toKC-WilDeFreelance business journalist, she contributes regularly to various national media and trade press, covering economic trends, professional practices and other business issues.

elliot WilSonBusiness journalist, he divides his time covering Russia, China and India for publications including The Economist, The Spectator, Euromoney and Barrons.

Contributors

ProDuCtion MAnAgerNatalia Rosek

eDitoriAl DireCtorDan Matthews

Share and discuss online at theraconteur.co.uk

SuPPorteD bY

© Siri Stafford

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04

Savings of more than 20 per cent, over the in-house model, are routinely achieved

Expertise, convenience and capacity are all reasons for outsourcing, but Charles Orton-Jones looks at another, perhaps more significant, driver – cost

IT’S THE ECONOMY, DUMMY… SAVING CASH IS A MATTER OF FACT

Ȗ How much does a business really save by outsourcing? Let’s start with one of the most commonly out-sourced services – data inputting.

Checkatrade.com hosts profiles of companies in the building trade, so customers can avoid cowboy builders. With 9,200 members, Checkatrade has 100 staff and a turnover of more than £6.8 million, so it needs a lot of data inputting.

Founder Kevin Byrne has out-sourced the work to Serbia. And how much does he save? Mr Byrne reckons it would cost £19,000 per employee in the UK and salaries in Serbia are cheaper, so there’s a 5 per cent saving straight off the bat. But employing staff in the UK comes with a string of other costs. Mr Byrne lists sick pay (£395), holiday pay (£1,462), national insurance contributions (£2,090), office space (£1,250), bonuses and incentives (£2,000) – none of which he pays because he has outsourced the work. This is a saving of £8,147 per worker or more than 40 per cent off.

Another meat-and-potatoes segment of outsourcing is data hosting. When Slough Borough Council was forced to move out of its elegant, but ancient, town hall building to make room for a school, IT boss Simon Pallett was forced to choose whether to keep his data centre in-house or to outsource. He decided to outsource, giving the £30,000-a-month contract to

managed hosting specialist Savvis.“The costs of building our own

data centre were so colossal the council couldn’t even meet the capital requirement,” he recalls. There were other savings too. “Running a server room means big air conditioning costs. In our old town hall building, where we’d previously had our servers, the cooling was a nightmare. Sometimes we’d be called up in the middle of the night because a server had overheated, and someone had to get out of bed and go to the town hall to switch it off. Outsourcing removes all of that.

“Staff costs are lowered because our IT team can concentrate on doing their jobs instead of main-taining the servers. The electricity costs are lower too.”

Can he quantify the total saving? “Actually, although we know we’ve saved money, it is hard to provide an exact figure because we previ-ously couldn’t quantify our costs. Different parts of the system were paid for by different departments, so there was no overall cost fig-ure. Now, because we have one partner, Savvis, we can record and control exactly what we are spending. And there are no more midnight call-outs.”

But what about outsourcing something really tricky? Notting-ham University is as awkward as they come from an IT perspective.

There are 7,000 staff and 34,000 students, all of whom need access to printers. Until recently the solution was a mess. Each staff member had their own printer on their desk. Every make and design, from inkjet to laser, colour to black and white, large to small, ancient to modern, was present on campus.

Head of procurement Jim Reed had the job of cutting costs, and his solution was to remove every single printer and replace them with large multi-functional print-ers provided by Xerox. “We have a £9.2-million contract with Xerox over five years. The business case says we’ll save at least 20 per cent by outsourcing, maybe as much as 25 per cent,” he says.

Mr Reed rattles out the savings: “The new printers are industrial units, so the ink is cheaper. They have better power management, as they power down when not in use cutting electricity costs by 30 per cent. The default is printing to black and white on double sides, saving ink costs and paper costs.”

Importantly the new system is

more convenient too. “The Xerox system means you can print to any printer from any device. You can be on the bus, send a job, then arrive later at the printer, swipe your card and collect the job. This has been a really popular improvement,” he says.

The National Health Service is one of the most contentious areas of outsourcing. Activists argue that the NHS is being privatised by stealth as outsourcers take over more and more functions.

Those in favour can point to examples, such as Mid Essex Hos-pital Services NHS Trust, which last year employed supply chain management consultant Inverto to find savings. The goal was to save £3 million out of £32 million expenditure. So far £1.1 million has been saved, with £2.3 million projected this year.

How? One trick was to get sup-pliers more involved in the sales process. This led to traditional tympanic thermometers being replaced with infra-red devices, saving £50,000, and the introduc-tion of easy-to-clean mattresses, a 67 per cent cost saving.

Crucially, Inverto did the oppo-

site to what is sometimes alleged by critics of NHS outsourcing – they put clinical staff at the heart of procurement. In orthopaedic, a £3-million department, the procurement team included a consultant, lead nurse, theatre ordering technician and procure-ment consultants, who reported at weekly meetings to the clinical director, chief operating officer and chief financial officer.

Bill Martin, the consultant orthopaedic surgeon involved, says: “An initial worry that finan-cial pressures would lead us towards accepting sub-standard implants or major inventory changes has not been borne out. It was reassuring to be involved in the process as a surgeon.”

These are just a few case studies, but two lessons stand out. First, that calculating savings needs to take into account a long list of items, including often-forgotten issues such as electricity and the amount of time senior manage-ment spend dealing with relevant issues. And second, that savings of more than 20 per cent, over the in-house model, are routinely achieved on a continuing basis.

Collectively this evidence sug-gests that on cost alone, without even factoring in the no less relevant triumvirate of expertise, convenience and capacity, the case for outsourcing can be powerful.

COST

Knowing the correct business protocol

Page 10

MILES

COST

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05theraconteur.co.uk twitter.com/raconteurmedia 5

COMMERCIAL FEATURE

Innovation is a two-way street in a BPM relationship In a Q&A, Keshav R. Murugesh, group chief executive of WNS Global Services, discusses innovation in a business process management (BPM) context

Every client talks about “innova-tion” as the key area of focus in an outsourcing engagement. However, very few say they actually see it in their relationship with the provider. Why is innovation so difficult?

The conventional definition of inno-vation may not fit into a BPM con-text. If buyers are looking for “dis-ruptive” innovation, it may not happen at a regular interval like in the case of Google or Apple. This is not to say that disruptive innovation

is impossible in a BPM context, but it will be far and few in between.

Innovation in a BPM environment is more a two-way street, actually. If the engagement model is around partnership, then innovation is more likely to happen. Providers and cli-ents have to engage in a relationship that has matured far beyond the “vendor-buyer” construct. There are also innovations that may seem very risky at the start of a relation-ship, more so when non-linear models are proposed. The engage-ment maturity guides the innovation in a BPM context.

I would equate innovation in a BPM context as viewing the hour-hand of a clock; it does not move if you keep looking at it. It’s only after a point of time that you see it has moved.

How do you define innovation?

I see it in a few forms in our industry: a completely new disruptive business

idea; completely new high-impact business outcome, possibly creating a new revenue stream for the client; a dramatic idea that changes the way our client engages or interacts with its end-customer; or even an idea that can change the steer of the client’s organisation internally. All these, for me, are innovations.

What do buyers do to help or hin-der the changes you want to make that lead to innovation?

Innovation should be an “aspiration” for both sides. The provider and cli-ent must partner with each other to create something truly worthy of recounting or partaking in the out-come. It definitely cannot be what I call the “tick-the-box” approach. It cannot be led by service-level agreements (SLAs) where a pro-vider is under pressure to show innovation because it is part of a quarterly review. Hence, the earlier

points I made around sharing a rela-tionship of equals and partnering is far more conducive to the buyer-provider construct.

Clients can help innovations by asking questions that can spur it. For instance, what more can I drive into my process to make the out-come more dramatic? What kind of analytics can change the way I work in one of my processes? How will I be able to generate a completely new revenue stream with my exist-ing sales and marketing force?

How do you go about the process? Any benchmarks?

Reducing headcount on a par-ticular project would prima facie seem like a great way to improve efficiency and reduce cost on the project. But that may not always be an incentive for the provider and its staff to innovate. Instead gain-sharing, productivity and out-

come-based benchmarks are bet-ter methods to innovate.

Providers should nurture a cli-mate of innovation and motivate the staff by including contractual incentives. Providers should also work towards creating leaders that motivate the staff and inspire them to work towards measurable inno-vation-centric projects.

Providers and clients have to engage in a relationship that has matured far beyond the ‘vendor-buyer’ construct

Inspired to outsource? In need of reviewing your existing rela-tionships? Whether you are new to outsourcing or a veteran in need of some focused analysis, a conference in London next month could help businesses from all sectors.

The Gartner Outsourcing & Strategic Partnerships Summit promises to deliver practical guidance and strategic advice on outsourcing and IT services. The September 9-10 confer-ence focuses on rethinking sourcing strategies and devel-oping best practices.

“The truth is that almost all firms will need to consider the issues on the summit’s agenda,” says Gartner. “Dis-ruptive forces – social, mobile, information and cloud – have created a new imperative for organisations’ sourcing strate-gies to evolve.

“What does that mean for you – assessing new products and services, selecting new vendors, adapting evolving delivery options and new pricing models, addressing a host of geographic

opportunities, and optimising the vendor ecosystem?

“Attending this conference will help you to make informed sourcing decisions based on the latest industry thought-leader-ship and best practices.”

The agenda is designed for key sourcing roles:Track A – Chief information officers and senior leaders: Growing and succeeding in a digital worldTrack B – Sourcing and contract managers: Selecting, evaluating and contracting for optimal dealsTrack C – IT vendor manag-ers: Optimise your IT vendor ecosystemTrack D: Activating the next generation enterprise with cloud and industrialised servicesTrack E: Workshops, roundta-bles and networking.

To viEw ThE full AGEnDA AnD rEGiSTEr, viSiT GArTnEr.Com/Eu/ ouTSourCinG

outSourCing AnD StrAtegiC PArtnerShiPS

SUMMIT

£ £5msavings from London Fire Brigade’s ten-year contract with Capita to run its 999 service

Source: Financial Times

$ $50kpaid by US computer programmer Andrew Valentine, who earned $250,000, to secretly outsource his own job to China

Source: The Telegraph

of firms using outsourcing cite cost as the number-one reason

Source: IBM

27%

10.7%projected salary increases in India for 2013Source: Aon

50%of councils outsource rubbish collection to cut costsSource: Local Government Association

71%of chief information officers are frustrated by hidden costs of mainframe computer outsourcingSource: Compuware Corporation


COMMERCIAL FEATURE

Innovation is a two-way street in a BPM relationship In a Q&A, Keshav R. Murugesh, group chief executive of WNS Global Services, discusses innovation in a business process management (BPM) context

Every client talks about “innova-tion” as the key area of focus in an outsourcing engagement. However, very few say they actually see it in their relationship with the provider. Why is innovation so difficult?

The conventional definition of inno-vation may not fit into a BPM con-text. If buyers are looking for “dis-ruptive” innovation, it may not happen at a regular interval like in the case of Google or Apple. This is not to say that disruptive innovation

is impossible in a BPM context, but it will be far and few in between.

Innovation in a BPM environment is more a two-way street, actually. If the engagement model is around partnership, then innovation is more likely to happen. Providers and cli-ents have to engage in a relationship that has matured far beyond the “vendor-buyer” construct. There are also innovations that may seem very risky at the start of a relation-ship, more so when non-linear models are proposed. The engage-ment maturity guides the innovation in a BPM context.

I would equate innovation in a BPM context as viewing the hour-hand of a clock; it does not move if you keep looking at it. It’s only after a point of time that you see it has moved.

How do you define innovation?

I see it in a few forms in our industry: a completely new disruptive business

idea; completely new high-impact business outcome, possibly creating a new revenue stream for the client; a dramatic idea that changes the way our client engages or interacts with its end-customer; or even an idea that can change the steer of the client’s organisation internally. All these, for me, are innovations.

What do buyers do to help or hin-der the changes you want to make that lead to innovation?

Innovation should be an “aspiration” for both sides. The provider and cli-ent must partner with each other to create something truly worthy of recounting or partaking in the out-come. It definitely cannot be what I call the “tick-the-box” approach. It cannot be led by service-level agreements (SLAs) where a pro-vider is under pressure to show innovation because it is part of a quarterly review. Hence, the earlier

points I made around sharing a rela-tionship of equals and partnering is far more conducive to the buyer-provider construct.

Clients can help innovations by asking questions that can spur it. For instance, what more can I drive into my process to make the out-come more dramatic? What kind of analytics can change the way I work in one of my processes? How will I be able to generate a completely new revenue stream with my exist-ing sales and marketing force?

How do you go about the process? Any benchmarks?

Reducing headcount on a par-ticular project would prima facie seem like a great way to improve efficiency and reduce cost on the project. But that may not always be an incentive for the provider and its staff to innovate. Instead gain-sharing, productivity and out-

come-based benchmarks are bet-ter methods to innovate.

Providers should nurture a cli-mate of innovation and motivate the staff by including contractual incentives. Providers should also work towards creating leaders that motivate the staff and inspire them to work towards measurable inno-vation-centric projects.

Providers and clients have to engage in a relationship that has matured far beyond the ‘vendor-buyer’ construct

theraconteur.co.uk twitter.com/raconteurmedia06


For most people, outsourcing is so synonymous with “cutting costs” and “maximising efficiencies” that it is barely thought to have any other influence on organisations outside these narrow boundaries. In fact, research from the National Outsourcing Association found that almost two-thirds (65 per cent) of the general public associate out-sourcing with cost-cutting.

This is not an accurate reflection of the way modern businesses use outsourcing. From global giants to aspirational start-ups, organisa-tions consciously choose outsourc-ing as a means of enabling growth, whether that’s increasing reve-nue, extending the customer base, entering a new market or growing market share.

An independent study demon-strates how far outsourcing has come to enable growth among UK businesses. Conducted by Cole-man Parkes Research, on behalf of arvato, with 100 senior business process outsourcing (BPO) clients across the public and private sec-tors, the research found that “growth and expansion” was one of the main drivers to outsource in 66 per cent of cases. Only 43 per cent of those sur-veyed named cost-cutting as one of the reasons for outsourcing. 1

“As an outsourcer focused on enabling our clients’ success, we see first-hand how outsourcing can support growth strategies,” explains Matthias Mierisch, chair-man and chief executive of arvato UK & Ireland. “The experience, insight, skills and processes that an outsourcing partner brings into the organisation can accelerate growth plans rapidly within tight budgets. What’s needed is a part-nership approach, collaborating with clients to understand the rea-


COMMERCIAL FEATURE

sons for growth, the ultimate long-term aims of the business and how we can help achieve them.”

Unlocking the growth potential

Research commissioned by the Business Services Association revealed that the outsourcing industry accounts for around £113 billion of economic output in the UK, the equivalent of 8.5 per cent of gross value added (GVA), and employs around 10 per cent of all UK workforce jobs. 2

With the UK’s BPO market out-growing the wider economy by an estimated 6.3 per cent in 2013,3

unlocking growth through out-sourcing could not only benefit an organisation, but UK plc as a whole.

So what is the key to making growth-oriented BPO programmes a success?

Industry experts and outsourc-ing clients identify three con-siderations that organisations must take on board to design and implement growth-orientated BPO programmes.

Firstly, organisations need to determine what type of growth they want to achieve and how out-sourcing can best support their objectives. “If you’re looking to expand your customer base, then outsourcing your customer ser-vice can deliver instant scale and flexibility to cope with increased customer demand while ensur-ing a high-quality service,” says Mr Mierisch. “Getting new prod-ucts into the marketplace quickly requires a streamlined and flex-ible supply chain infrastructure which outsourcers can implement rapidly. Entering new territories can be bolstered by your BPO part-ner’s multi-lingual contact centres,

established IT processes or cross-border payment platforms.”

Secondly, growth has to be an explicit objective of the outsourcing partnership from the outset, built into a flexible contract.

Punit Bathia, finance and account-ing BPO leader at Deloitte, explains: “If the pricing model is all about unit cost, then you won’t get the support you need for growth. By the same token, trying to make contracts so watertight that they legislate for every possible scenario will stifle the part-nership’s flexibility and, as a conse-quence, its ability to help you grow.”

Lastly, organisations should look for a like-minded partner who shares their vision for growth.

“The outsourcing relationship should include alignment, such that it is in the interest of both your sup-plier and yourself to enable growth,” says Martyn Hart, chairman of the National Outsourcing Association. “When the relationship manage-ment is really working, and the supplier and customer are working together as one team towards one

Outsourcing: the growth enabler?Business outsourcing is typically viewed as a cost-saving exercise, though many organisations are using it to support growth plans

vision, this creates a real opportu-nity to drive innovation and a desire to deliver exceptional results.”

There is no “one-size-fits-all” solu-tion to enabling growth through out-sourcing. Each organisation, rela-tionship and agreement is different. But if the vision is clear and if the partnership is working together in the same direction, then outsourc-ing can be the enabler of choice for all aspects of organisational growth.

As Richard Taylor, head of sup-ply chain at Toshiba UK, explains, a well-run relationship is key to pro-viding businesses with the head-space they need to concentrate on growth. “When an outsourcing partnership is functioning well, it enables you to focus on the bigger picture, safe in the knowledge that your day-to-day operations will be taken care of,” he says.

Open Outsourcing: enabling growth

In the second issue of Open Out-sourcing, due to be published this

The experience, insight, skills and processes that an outsourcing partner brings into the organisation can accelerate growth plans rapidly within tight budgets

summer, arvato will examine how outsourcing has successfully enabled different organisations across the UK to pursue their growth strategies.

A series of collaborative reports designed to get to the heart of some of the most complex issues in the industry, Open Outsourcing aims to demystify outsourcing. Rather than focusing on the theoretical or futuris-tic, the reports take a real-world per-spective on successful relationships by hearing directly and honestly from the people involved.

To find out more about Open Outsourcing and register for your free copy of the forthcoming report, please visit: www.arvato.co.uk/open-outsourcing-thetimes

References1 Coleman Parkes Research: survey conducted with 100 senior BPO clients, on behalf of arvato, September-October 20122 Oxford Economics, November 20123 Nelson Hall, 2013

7%

0.7%

7% forecast growth in UK BPO

market in 2013, compared to 0.7% overall economic

growth

Source: Nelson Hall 2013

of all UK workforce jobs come from

outsourcing

of UK economic output contributed by outsourcing, the

equivalent of 8.5 per cent of gross value

added

10%

Source: Oxford Economics 2012

Source: Coleman Parkes Research 2012

of clients outsource to cut costs

43%

of clients say “growth and expansion” is a main driver behind their outsourcing

decision

66%


£113bn


£

For most people, outsourcing is so synonymous with “cutting costs” and “maximising efficiencies” that it is barely thought to have any other influence on organisations outside these narrow boundaries. In fact, research from the National Outsourcing Association found that almost two-thirds (65 per cent) of the general public associate out-sourcing with cost-cutting.

This is not an accurate reflection of the way modern businesses use outsourcing. From global giants to aspirational start-ups, organisa-tions consciously choose outsourc-ing as a means of enabling growth, whether that’s increasing reve-nue, extending the customer base, entering a new market or growing market share.

An independent study demon-strates how far outsourcing has come to enable growth among UK businesses. Conducted by Cole-man Parkes Research, on behalf of arvato, with 100 senior business process outsourcing (BPO) clients across the public and private sec-tors, the research found that “growth and expansion” was one of the main drivers to outsource in 66 per cent of cases. Only 43 per cent of those sur-veyed named cost-cutting as one of the reasons for outsourcing. 1

“As an outsourcer focused on enabling our clients’ success, we see first-hand how outsourcing can support growth strategies,” explains Matthias Mierisch, chair-man and chief executive of arvato UK & Ireland. “The experience, insight, skills and processes that an outsourcing partner brings into the organisation can accelerate growth plans rapidly within tight budgets. What’s needed is a part-nership approach, collaborating with clients to understand the rea-


COMMERCIAL FEATURE

sons for growth, the ultimate long-term aims of the business and how we can help achieve them.”

Unlocking the growth potential

Research commissioned by the Business Services Association revealed that the outsourcing industry accounts for around £113 billion of economic output in the UK, the equivalent of 8.5 per cent of gross value added (GVA), and employs around 10 per cent of all UK workforce jobs. 2

With the UK’s BPO market out-growing the wider economy by an estimated 6.3 per cent in 2013,3

unlocking growth through out-sourcing could not only benefit an organisation, but UK plc as a whole.

So what is the key to making growth-oriented BPO programmes a success?

Industry experts and outsourc-ing clients identify three con-siderations that organisations must take on board to design and implement growth-orientated BPO programmes.

Firstly, organisations need to determine what type of growth they want to achieve and how out-sourcing can best support their objectives. “If you’re looking to expand your customer base, then outsourcing your customer ser-vice can deliver instant scale and flexibility to cope with increased customer demand while ensur-ing a high-quality service,” says Mr Mierisch. “Getting new prod-ucts into the marketplace quickly requires a streamlined and flex-ible supply chain infrastructure which outsourcers can implement rapidly. Entering new territories can be bolstered by your BPO part-ner’s multi-lingual contact centres,

established IT processes or cross-border payment platforms.”

Secondly, growth has to be an explicit objective of the outsourcing partnership from the outset, built into a flexible contract.

Punit Bathia, finance and account-ing BPO leader at Deloitte, explains: “If the pricing model is all about unit cost, then you won’t get the support you need for growth. By the same token, trying to make contracts so watertight that they legislate for every possible scenario will stifle the part-nership’s flexibility and, as a conse-quence, its ability to help you grow.”

Lastly, organisations should look for a like-minded partner who shares their vision for growth.

“The outsourcing relationship should include alignment, such that it is in the interest of both your sup-plier and yourself to enable growth,” says Martyn Hart, chairman of the National Outsourcing Association. “When the relationship manage-ment is really working, and the supplier and customer are working together as one team towards one

Outsourcing: the growth enabler?Business outsourcing is typically viewed as a cost-saving exercise, though many organisations are using it to support growth plans

vision, this creates a real opportu-nity to drive innovation and a desire to deliver exceptional results.”

There is no “one-size-fits-all” solu-tion to enabling growth through out-sourcing. Each organisation, rela-tionship and agreement is different. But if the vision is clear and if the partnership is working together in the same direction, then outsourc-ing can be the enabler of choice for all aspects of organisational growth.

As Richard Taylor, head of sup-ply chain at Toshiba UK, explains, a well-run relationship is key to pro-viding businesses with the head-space they need to concentrate on growth. “When an outsourcing partnership is functioning well, it enables you to focus on the bigger picture, safe in the knowledge that your day-to-day operations will be taken care of,” he says.

Open Outsourcing: enabling growth

In the second issue of Open Out-sourcing, due to be published this

The experience, insight, skills and processes that an outsourcing partner brings into the organisation can accelerate growth plans rapidly within tight budgets

summer, arvato will examine how outsourcing has successfully enabled different organisations across the UK to pursue their growth strategies.

A series of collaborative reports designed to get to the heart of some of the most complex issues in the industry, Open Outsourcing aims to demystify outsourcing. Rather than focusing on the theoretical or futuris-tic, the reports take a real-world per-spective on successful relationships by hearing directly and honestly from the people involved.

To find out more about Open Outsourcing and register for your free copy of the forthcoming report, please visit: www.arvato.co.uk/open-outsourcing-thetimes

References1 Coleman Parkes Research: survey conducted with 100 senior BPO clients, on behalf of arvato, September-October 20122 Oxford Economics, November 20123 Nelson Hall, 2013

7%

0.7%

7% forecast growth in UK BPO

market in 2013, compared to 0.7% overall economic

growth

Source: Nelson Hall 2013

of all UK workforce jobs come from

outsourcing

of UK economic output contributed by outsourcing, the

equivalent of 8.5 per cent of gross value

added

10%



of clients outsource to cut costs

43%

of clients say “growth and expansion” is a main driver behind their outsourcing

decision

66%


£113bn


£

07


theraconteur.co.uk twitter.com/raconteurmedia

increasingly companies from all industries are realising that the opportunities of social media are just too good to miss

Ȗ Twitter, Facebook, LinkedIn, YouTube, Google+, Yammer... the list goes on. At last count, there were more than 200 mainstream social networks, ranging from microblog-ging to image-sharing and even an online hub for Catholic prayer.

Facebook crossed the billion active user mark last year, while 400 mil-lion tweets are posted across the globe each day. And as the digital landscape becomes increasingly social, businesses across all indus-tries are being forced to evolve.

The outsourcing sector is no exception. Be it a call centre, an out-sourced IT department or a bailiff-on-demand service, the majority of these firms now have a presence on each of the leading social networks. They respond to tweets of behalf of clients, engage their staff through internal networks or have products and services that now include a social dimension.

One outsourcing firm to arise from the primordial soup of digital to become a sentient social animal is Webhelp TSC. Founded in 1995, this contact centre busi-ness traditionally answered calls and emails for its clients. These days, the firm instantly responds to end-user queries on forums, webchats, Twitter, Facebook, YouTube and LinkedIn.

“When we first started offering the social media services, people accused me of ‘eating my own breakfast’,” says Webhelp TSC’s chief executive David Turner. “But in order to stay in business, we had to make sure that we could talk to our clients’ end-users on whatever device and across whatever plat-form they wanted.”

Mr Turner’s call centre staff have now been trained up to be online “gurus”. The company gets under the skin of a new client,

learns all about its products and services, and then hits the web. “It’s not that different to training a call centre agent,” he says. “You just have to understand what the customer wants.”

However, there are plenty of risks inherent for brands operating in this transparently social new world. “If you’re on the phone and you get a brand piece wrong, it’s one-on-one,” says Mr Turner. “If you get it wrong on Twitter, it’s on a public platform. That’s why you have to monitor sen-timent very carefully – respond but never react. There’s a lot of forgive-ness for brands who own up and fix their mistakes.”

Dominic Dryden, a partner at technology law firm Olswang, agrees. “Despite the inherent risks, increasingly companies from all industries are realising that the opportunities of social media are just too good to miss,” he says. “It is therefore crucial that companies identify the risks that are specific to them, set clear guidelines and develop a crisis plan so that they are ready to respond quickly should something go wrong.”

Malcolm Frank, chief strategist at NASDAQ-listed IT outsourcer and consultancy Cognizant, has direct experience of this. “The risks we’ve faced have mainly been cultural ones,” he says. “When we launched our social offering five years ago, a guy in Asia started talk-ing about Osama bin Laden and said, contextually, that he could understand where much of Al-

Qaeda’s anger came from. That did not go down well with our asso-ciates in New York.”

But Mr Frank says social media is still mandatory. “You have to trust people to be grown-ups. Will there be a few people who mess up? Of course, but they are relatively easy

to spot and the risks are actually pretty small,” he says.

One entrepreneur using social media as a damage limitation tool is Jamie Waller, founder of outsourced bailiff service JBW Group. You would think that, as a bailiff firm undertaking contracts for local government, Mr Waller would give public social networks a wide berth. Not so. “If someone complains, we respond within eight minutes,” he says. “We ask them to DM [direct message] us and call them immediately, and then that person ends up saying nice things about us.”

This real-time customer service trail works wonders when Mr Waller comes to bid for new contracts. “It’s evidence of how well we’ll deal with their customers,” he says. Twitter has also proved to be a useful lead-generation tool for the firm. “You can go straight to the senior deci-sion-maker,” Mr Waller explains.

Chris Barbin, chief executive of outsourced cloud broker Appirio, believes that platforms like Face-book and Twitter are ideal for customer retention in addition to acquisition and management. “If I look at my top ten CIO [chief information officer] relationships, I interact with four of the ten more on Facebook than I do on any other channel,” he says. “I don’t call or send an email, I send a Facebook message. And when he responds, he’ll have seen my holiday snaps and it’s all very social.”

There’s no doubt that the out-sourcing industry is embracing social en masse, but it’s still a walled garden. Big blue chips will only work with outsourcers with proven form in the social realm. No one wants to risk a brand melt-down in public. As all too many firms have found to their cost, the internet never forgets.

SOCIAL MEDIA

of consumers research products online through social networking sites

Source: Compuware Corporation

60%

mainstream social networks worldwide

200

Source: International Association of Outsourcing Professionals (IAOP)

of the IOAP’s top outsourcing firms have one or more handles on Twitter

20

Source: IAOP

SUCCESSFUL OUTSOURCERS ARE SOCIAL ANIMALS NOW The power of social media is being harnessed by outsourcers to engage with clients and end-users, as Rebecca Burn-Callander reports



08 201 201 theraconteur.co.uk twitter.com/raconteurmediatheraconteur.co.uk twitter.com/raconteurmedia

Beyond price: expect outsourcing to transform your businessIn the early days of customer management outsourcing, cost reduction was the only show in town. The mantra was simple: hand over non-core processes to a specialist provider and leverage their economies of scale to maximise e� ciency. It’s a reasonable approach, says Webhelp TSC’s chief executive David Turner, except that it completely ignores the customer. Here he outlines a more evolved approach to outsourcing; one in which the need for economy is balanced by a revenue-enhancing focus on the customer. Expect outsourcing to deliver benefi ts on both sides of the balance sheet, he advises, and look beyond price for opportunities to transform your business

Through the 1980s and 90s cost reduction was the primary goal of most outsource customer manage-ment relationships. Performance was driven by tough productiv-ity targets and suppliers routinely compromised quality to avoid the fi nancial penalties incurred if they weren’t met. Beyond question, cus-tomers suffered. Clients suffered too, because customer discontent leads rapidly to disaffection and revenue loss.

Today, we live in a more enlight-ened world. Ninety per cent of organisations now see the drive for customer satisfaction as intrinsic to their strategy and 63 per cent view customer experience as a com-mercial differentiator1. Recognis-ing that customer management operations drive the customer experience, they are looking to out-sourced service providers (OSPs) to add value rather than reduce cost. In turn, progressive OSPs are aligning their performance against business outcomes that matter – increased customer satisfaction, loyalty, advocacy and spend.

Of course, OSPs still have the economies of scale that were so attractive in the early days. Which means their clients should expect

them to achieve efficiency in line with value. The common mistake in early outsourcing contracts was to penalise poor productivity without rewarding the creation of business value. It’s time to turn that situation around, so that OSPs are finan-cially motivated to deliver trans-formation around four key factors: cost, revenue, customer experi-ence and advocacy.

We’ll look at each of these four factors in turn, but first let’s con-sider one development that is inev-itably changing the OSP-client relationship: the rise of alternative communication channels.

Channel challenge

For decades OSPs have sold a commodity: banks of people to handle quantities of telephone calls for an agreed price per seat or hour. That was fi ne while the tel-ephone dominated. It works less well in today’s multi-channel envi-ronment. Mature OSPs are posi-tioning themselves to manage mul-tiple interaction channels and to advise clients on the way their cus-tomers might select and use them. With a contracting model based on agent seats alone, this simply

isn’t achievable. When the fi nancial relationship is based on transfor-mational achievements related to cost, revenue, customer experi-ence and advocacy, it certainly is.

Brave outsourcers will l ink their remuneration to the deliv-ery of those benefi ts. The ability to deliver transformational change in a multi-channel environment depends on an understanding of customer behaviour and how it can be influenced. Recent technology advances have made it possible to hear the voice of the customer by capturing data from interactions across all channels but, of itself, data has little value without the ability to interrogate it effectively and turn it to good use. This is an area we have invested in heavily to create one of a set of “SMART” methodologies that underpin our transformational approach.

We have built a team of customer insight specialists who turn data into intelligence, then use it to reduce cost and to build revenue for our clients, and to create a cus-tomer experience that drives advo-cacy. It is my conviction that, in the future, an OSP’s currency of value will be actionable insight rather than agent hours.

Source of cost savings

Cost savings in today’s customer management environments won’t be found by waving the productiv-ity stick, but by managing contact demand across channels. By using analytics to understand why cus-tomers make contact, an OSP can identify those contacts that are avoidable because they are caused by mistakes or broken processes elsewhere in the business, and support customer-focused change by producing irrefutable evidence of the value it will deliver in terms of improved customer experi-ence and reduced business cost. Equally, it is possible to focus on first-contact resolution, identify-ing the broken processes within the customer management opera-tions that prevent customers from getting the right answer fi rst time.

TIP: Challenge your OSP to eradi-cate sources of unnecessary cost within the customer manage-ment operation and to provide insight that will help the rest of the organisation to resolve issues that frustrate customers

Revenue win

Just as analytics and customer journey mapping can identify opportunities to resolve issues, they can also identify sales oppor-tunities and inform an understand-ing of how they are won or lost. Again, this is a multi-channel pro-cess. A customer may research a product on a company’s website, evaluate reviews via social media then phone the contact centre to check information before buying. Across that complex customer journey, barriers to the eventual purchase can be understood and removed, and the right sales prop-ositions – either for fi rst-time pur-chases, cross-sells or upgrades – presented at the right time.

In the voice-channel environ-ment in particular, we have worked intensively to enable agents to interpret buying signals and pre-sent the right cross or upsell prop-osition at the right moment.

TIP: Ask your outsourcer to boost sales performance by remov-ing the barriers to purchase and translating service conversations into sales opportunities

Experience factor

There has been a lot of talk in customer management circles recently about customer experi-ence. But what makes an experi-ence “good”? To my mind, a “good” experience is one that is easy for the customer and profi table for the organisation. To that end we have adopted the “Customer Effort” measure with enthusiasm. Mak-ing it easier for customers to make contact, resolve their issues and complete their purchases can only have two outcomes: it will cost less to serve them and they will be more likely to spend.

TIP: Establish Customer Effort as a key performance measure in your outsourcing relationships – ahead of traditional product-ivity measures

Achieving advocacy

Elevating an “easy” experience into a “delightful” one is the source of customer advocacy – the Holy Grail pursued by every sensible organisation. It requires empa-thetic agents empowered to deliver informed, relevant responses.

Psychological research has repeatedly shown that direct behavioural experiences (contact centre conversations not least) have the greatest impact on peo-ple’s attitudes towards brands. To my mind, it is for this reason that Customer Effort must be supple-mented by “Customer Satisfac-tion” (CSat) and “Net Promoter Scores” (NPS) as key measures within an outsourcing relationship. To capture precisely the impact of the customer interaction on advo-cacy, we have developed “Touch-point NPS”. Contacting customers immediately after an interaction – via any channel – and asking about its impact on their likelihood to recommend the company, gives a true measure of how brand value is being built or destroyed.

TIP: Use Touchpoint NPS to gain a precise measure of your OSP’s contribution to brand value and advocacy

All to be gained

We have talked at length here about evolution towards value-focused customer management outsourc-ing. For several years now, the

Global Contact Centre Benchmark-ing Report has refl ected this evolu-tion, reporting an increased focus on value generation in outsourcing decisions. It is sad then that, in last year’s survey, the number of organ-isations quoting the need to “save money” as their principal motiva-tion to outsource had doubled2. A knee-jerk reaction, perhaps to several years of recession and economic stagnation. If it signals a return to the bad old days of “pro-ductivity at any price”, customers will vote with their feet. As I hope I have convinced you here, there is so much more to be gained than a penny pinched from the cost of call. Expect outsourcing to transform your business and it will transform your cost base, too.

David Turner is chief executive of Webhelp TSC, an outsourced service provider that has trebled its business in fi ve years by focusing on value-based outsourcing and the delivery of customer insight

e: [email protected]: www.webhelptsc.comt: +44 (0)1324 575000

It is my conviction that, in the future, an OSP’s currency of value will be actionable insight rather than agent hours

1, 2 2012 Global Contact Centre Benchmarking Report, Dimension Data

£15m £550k

revenue boost for a top-notch international

offi ce supplies company

increase in customer

satisfaction for a leading

entertainment and communications

business

10%

in revenue enhancement and cost reduction for a powerful mobile

telco brand

Commercial Feature

of organisations now see the drive

for customer satisfaction as

intrinsic to their strategy

90%

GOAL: REDUCE COST

CHANNELS: PHONE

SUCCESS MEASURES:PRODUCTIVITY-DRIVEN SLAs

CONTRACTING MODEL:PER SEAT/AGENT HOUR, PENALTIESFOR PRODUCTIVITY FAILURE

OSP STATUS:SUPPLIER

GOAL: PRODUCTIVITY AND CUSTOMERSATISFACTION

CHANNELS: PHONE (POSSIBLY EMAIL)

SUCCESS MEASURES:PRODUCTIVITY SLAs PLUS RUDIMENTARY CSAT

CONTRACTING MODEL:PER SEAT/AGENT HOUR, PENALTIESFOR PRODUCTIVITY AND CSAT FAILURE

OSP STATUS:PARTNER

CREATION OF BUSINESS VALUE:REDUCE COST WHILE INCREASING: REVENUE, CUSTOMER EXPERIENCE AND ADVOCACY

CHANNELS: INTEGRATED MUTI CHANNEL INCLUDINGSOCIAL MEDIA

SUCCESS MEASURES:- CONTINUOUS IMPROVEMENT IN REVENUE/ COST PERFORMANCE- ENHANCED CUSTOMER EXPERIENCE (CES)- ENHANCED LOYALTY (TNPS, CSAT)

CONTRACTING MODEL:- AGREED PROGRAMME OF TRANSFORMATIONAL CHANGE- REMUNERATION LINKED TO DELIVERY OF AGREED BUSINESS OUTCOMES- SHARED RISK AND REWARD

OSP STATUS:VALUE GENERATOR:- INSIGHT INTO CUSTOMER EXPERIENCES USED TO REDUCE CUSTOMER EFFORT AND ELIMINATE UNNECESSARY CONTACT, THEREBY IMPROVING CUSTOMER SATISFACTION AND ADVOCACY

201 201 theraconteur.co.uk twitter.com/raconteurmediatheraconteur.co.uk twitter.com/raconteurmedia







Channel challenge








Revenue win




Experience factor



Achieving advocacy




All to be gained







£15m £550k






business

10%


telco brand

Commercial Feature




90%

GOAL: REDUCE COST

CHANNELS: PHONE



OSP STATUS:SUPPLIER





OSP STATUS:PARTNER















Channel challenge








Revenue win




Experience factor



Achieving advocacy




All to be gained







£15m £550k






business

10%


telco brand

Commercial Feature




90%

GOAL: REDUCE COST

CHANNELS: PHONE



OSP STATUS:SUPPLIER





OSP STATUS:PARTNER













Channel challenge








Revenue win




Experience factor



Achieving advocacy




All to be gained







£15m £550k






business

10%


telco brand

Commercial Feature




90%

GOAL: REDUCE COST

CHANNELS: PHONE



OSP STATUS:SUPPLIER





OSP STATUS:PARTNER













Channel challenge








Revenue win




Experience factor



Achieving advocacy




All to be gained







£15m £550k






business

10%


telco brand

Commercial Feature




90%

GOAL: REDUCE COST

CHANNELS: PHONE



OSP STATUS:SUPPLIER





OSP STATUS:PARTNER








10

KnoWing the CorreCtbuSineSS ProtoCol

A formal evaluation of cultural fit should be part of the due diligence process, rather than an afterthought

CULTURE

Ȗ When companies decide on their overseas outsourcing strategy and service providers, due diligence and risk assessment are a normal part of the process. However, “soft” issues like culture often get neglected in favour of “hard” organisational, financial and legal risk factors.

“This is despite the fact that major consulting firms have identified cul-tural differences as the biggest rea-son for outsourcing projects to fail,” says Dr Christiane Prange, professor of international strategy at EMLYON Business School in France.

UNESCO defines “culture” as a set of distinctive spiritual, material, intellectual and emotional features of a society. “A kind of mental soft-ware by which people operate,” says Professor Prange.

These features vary widely across the globe. Some cultures are egali-tarian; others are hierarchical. Some perceive time as elastic; oth-ers extol punctuality as the highest virtue. Some “tell it like it is”; oth-ers tend towards diplomacy and avoid confrontation.

Such differences influence every area of cross-border business rela-tionships, systems and processes. Occasionally, something gets lost in translation and both sides laugh at the resulting faux pas over virtual coffee. At other times, cultural mis-alignment means loss of money or even a complete breakdown of the business partnership.

A formal evaluation of cultural fit should be part of the due diligence process, rather than an after-thought. “If you find your values are different the day after you’ve signed a deal, then it’s quite hard to rectify this without a lot of investment and effort,” says Dominic Dryden, head

of sourcing at international law firm Olswang. But give yourself time to get the fit right. “Long-term rela-tionships need to live and breathe,” says Mr Dryden.

Foreign culture is rarely seen as an opportunity for synergy. “But you can use diversity in a very positive way to enhance innovation and crea-tivity,” he insists. “You can also use it to navigate conflict, rather than per-ceive it as a source of conflict itself.”

The responsibility for sorting out cultural alignment does not lie solely with the outsourcer, either. “Both sides need to understand and adapt to the cultural differences,” says Punit Bhatia, management consultant at consultants Deloitte.

They can gain from each other, too. For example, the British way of saying something negative in a positive way can be very useful in meetings the world over. You are unlikely to leave even the most sensitive party feeling dejected when, in response to their pro-posal, you say: “Hmm, that’s an interesting idea...”

How to behave in business can varying from country to country and inadvertently causing offence or lacking local insight can be a costly mistake, writes Iwona Tokc-Wilde

When negotiating in Brazil, expect a great deal of time to be spent reviewing details. Use local lawyers and accountants for negotiations; Brazilians resent an outside legal pres-ence. Also, they negotiate with people not companies, so do not change your negotiating team or you may have to start again.

Have you signed a contract with a Polish partner that has gone wrong? According to the World Bank Doing Business 2013 report, it takes 685 days to enforce a contract in Poland, from filing the lawsuit until the judgment is enforced. Poland ranks 56 out of 185 countries surveyed.

Your Spanish outsourcing partner may have an unusual employ-ment benefits structure. “There is still a tendency to offer sub-sidised housing and consumer goods,” says Rachel Mantell, of consultants Deloitte. Where northern Europeans would find it very odd to buy fridges and dish-washers through their employer, it’s pretty common in Spain.”

3. brAZil 1. PolAnD 2. SPAin

3



11

Chinese guanxi is a connection two people have built over time, through mutual exchange of favours. If you have guanxi with another, you will do almost any-thing for them. “You don’t have to take a bullet for them, but it could be something genuinely inconvenient,” says Andrew Halper, China business consult-ant at lawyers Olswang.

The Russians are proud about being Russian and lack a sense of humour when Mother Russia pops up in a conversation. “If you see a Russian struggling with a pen when signing a contract, don’t joke that Russian pens never work, or they’ll be deeply offended,” says Ignaty Dyakov from consultancy Russia Local.

If you need legal representation in Japan, bear in mind that only bengoshi – Japanese-qualified lawyers – can represent clients in proceedings in Japanese courts or government agen-cies. Foreign lawyers, who are licensed to practise in Japan, can usually only provide legal advice about their home country.

Is your Saudi partner green, yellow or red? In a bid to limit the number of expats working in the Saudi Arabia, the government is now proposing that all private sector companies be colour coded, with green companies employing the highest number of Saudis and red ones having a long way to go to reach their quota.

For Filipinos, status matters. “In an outsourcing centre, the man-ager’s status is often measured by the number of people who work for them,” says Shamus Rae, head of outsourcing at KPMG management consulting. They won’t want to identify new working practices that could reduce the ranks of subordi-nates below them.

6. ChinA 4. ruSSiA 7. JAPAn 5.SAuDi ArAbiA 8. the PhiliPPineS

2

1

4

5

6

7

8



12

Ȗ In the world of outsourcing, terms like “backshoring”, “inshor-ing” and “reshoring” are attracting significant attention. While the words themselves might be lin-guistically awkward, they all mean more or less the same thing: bring-ing processes or services back from an offshore location.

In the past, many companies looking to outsource business processes have aimed to take advantage of lower costs in loca-tions like China and India. But, with wage expectations steadily increasing in these locations, they no longer look as attractive as they once did. The cost benefits com-panies may have enjoyed in the early days of offshoring have been steadily eroded, in some cases to the point where the advantages are now negligible.

While costs may be rising in the best-known offshoring destina-tions, there are plenty of other low-cost locations to choose from. Amanda Flynn, senior manager at Baringa Partners, says that in some cases companies are moving processes within India from big-ger cities to cheaper rural areas. In others, they are moving into less widely known countries, such as Malaysia and the Philippines.

But hopping from country to country in order to keep ahead of growing wages is arguably never going to be a long-term solution. “At some point you are chasing around the world looking for wage arbitrage and that is what has driven people to think about doing it better,” says Matthew Bennett, a partner at law firm Olswang.

Mr Bennett says this realisation has led some companies to move away from focusing on cost alone and that companies are increas-ingly looking at where functions

can be carried out most effectively. “In some industries, such as auto-motive, people are learning that, if you have better educated people and better processes, the overall cost actually means that you can have them in a location that is closer to your customers or closer to your head office,” he says.

While companies have histori-cally based call centres in India, some are now reconsidering this approach. In 2011, for example, Santander moved its Indian call centres back to the UK. Hav-ing outsourced its call centre operations in 2003, the bank was prompted by customer feedback to reverse the move and handle the calls in centres in Glasgow, Leices-ter and Liverpool.

“Since the ‘in-source project’ was completed in July 2011, we have seen an increase in ‘overall satis-faction’ in our call centres, from 58 per cent to 73 per cent or 26 per cent uplift as of Q1 [first quar-ter] this year,” says Colin Webb, Santander’s UK director of retail contact centres. “The ‘in-source project’ has played a key part in this increase in satisfaction.”

More recently, UK-based food manufacturer Symington’s has decided to move noodle manufac-turing from Guangzhou to Leeds, stating that the cost of produc-ing noodles is no longer cheaper in China.

Caldeira, a cushion manufacturer headquartered in the UK, is also in the process of bringing produc-tion back home. In 2003, Caldeira closed its UK factory and set up a Chinese joint venture in order to manufacture its goods. While the model worked well to start with, ris-ing labour costs began to take their toll and salaries for production staff have tripled in local currency terms.

BACKSHORING

MAKing nooDleS iS CheAPer here thAn in ChinAManufacturing and services that were once outsourced have turned full circle, as Rebecca Brace reports

uK-based food manufacturer Symington’s has decided to move noodle manufacturing from guangzhou to leeds, stating that the cost of producing noodles is no longer cheaper in China

of companies have brought production back to the UK

40%

of UK firms have increased their use of local suppliers

Source: EEF

25%

increase in Chinese labour costs in the last year

Source: The Wall Street Journal

20%

of manufacturers in North America plan to bring production home or closer to home

Source: UHY Advisors

21%



13

As a result, in 2011 the company began to move some of its labour back to the UK. “We now produce some cushions more cheaply in the UK than in China,” says Tony Caldeira, the company’s founder and managing director.

The UK is not the only country in which backshoring is becom-ing more common. Caterpillar is moving production of construc-tion equipment from Japan to the United States, while GE moved some of its manufacturing from China to Kentucky in 2010. But what has been driving this shift?

Olswang’s Mr Bennett observes that the backshoring of call centres is being driven by a combination of cost considerations and the emergence of more sophisticated technology, such as the ability to use robotic automation to process emails. The expectation is that with more customers communicating

via email, it will be possible to pro-cess more customer contact auto-matically and therefore without the need for human intervention.

“That means you need to have a smaller call centre and can start to have a really high value contact centre that can be placed anywhere in the world,” he says. “We are see-ing that people are changing the way they run the process and are then deciding where best to locate it. And it might be best to locate it in the UK because that’s where other business functions are and it makes sense to have everybody a lot closer to the core of the business.”

While rising labour costs are a major factor, other drivers are also coming into play. One of these is the issue of quality, says Lee Hopley, chief economist at manufacturers’ association EEF. “If you are a manufacturer and you are doing something that is quality

dependent, you can’t risk having shipments of goods that are not up to spec,” she says.

Ms Hopley adds that natural dis-asters, such as the 2011 Japanese tsunami, have started to raise ques-tion marks about the resilience of value chain infrastructure stretch-ing thousands of miles. “If you are relying on a sole supplier and something goes wrong, it has sig-nificant implications on your abil-ity to get orders out of the door.”

According to Mr Caldeira, there are many other reasons why companies prefer to manufac-ture goods in their home coun-try, including shorter lead times, greater flexibility, better credit terms, and the ability to commu-nicate in the same language and time zone.

While companies may stand to benefit from backshoring, this is not a decision that should

be entered into lightly. Where manufacturing is concerned, Mr Caldeira observes that some skills have been lost in the UK since off-shoring first became popular. As a result, recruiting staff for tasks, such as fabric cutting and operat-ing industrial sewing machines, have proved difficult.

“Reshoring is challenging,” warns Glenn Hickling, communications manager of the National Out-sourcing Association. “The cost and effort of finding the perfect onshore or nearshore supplier is often underestimated, and can pull resources away from other essential projects and activities.”

Mr Hickling adds that companies should “be sure the resource that replaces the offshore activity is going to compete, in terms of effi-ciency and effectiveness, and that you are ready to deliver stronger results on home shores”.

Magmatic, manufacturers of the Trunki ride-on children’s suit-case, initially made its product in China, but in 2012 took the decision to move manufacturing to the UK.

Rob Law, the company’s managing director, says that factors contributing to the deci-sion included the devaluation of sterling against the US dollar. “The cost of shipping was up and down all the time. A couple of years ago, we tried to under-stand what our actual margin was for our products in China and it was almost impossible to pin it down because it kept changing,” he says.

At the same time, the decision was taken to re-engineer the product in order to make it cost-effective for Western production as well as fully recyclable – a process that involved removing all metal components from the design. “This has allowed us to make it very competitively com-pared to China,” Mr Law explains.

The backshoring process has not been without its hiccups. A factory that the company used in the UK did not produce the goods at the expected speed. “We discovered in late-Novem-ber that the factory had had such financial difficulties trying to scale up its organisation that they were days away from going into administration,” he says. “So we ended up buying them out of administration.”

As a result, the company now manufactures plastic goods for other UK companies through the factory. Mr Law says these companies are also looking to onshore more of their product range. “If you want to be in control of your margins and know how much you are paying for goods for a decent period of time, then I would highly recom-mend it,” he concludes.

PACKing uP to CoMe bACK hoMe

Some things, like making noodles, are now done in the UK rather than China

© Georgia Glynn Smith

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Ȗ We often think outsourcing is a new phenomenon. It isn’t. Rulers have been doing it for millennia. Witness the contracting of mer-cenary Saxons in the early-5th century to keep the Picts at bay or the East India Company, a private firm, which ran India on Britain’s behalf, profitably and vicariously, for a century.

Yet it’s only since the late-1980s that the word has come to identify more than a passing political or military phase. For many of us, outsourcing has come to define our very lives.

We may be employed by one of Britain’s outsourcing giants, such as Serco, Capita or Virgin Care. Our banks and utilities deploy them to deal with our telephone calls and emailed queries. Emer-gency calls to your local GP during the witching hours are likely to be routed through a third-party provider. Sixty years ago, all of this was provided by your local county council; now, hardly any of it is.

Yet outsourcing doesn’t just “happen”; it has to be orchestrated, managed, supervised and regu-lated. Nor does this story involve only giant service contractors. This is also a tale about the individu-als behind the scenes, pulling the strings – the people who make our modern world work.

Melvyn Caplan is one of these people. Retired IBM sales direc-tor, he is a Conservative cabinet member of Westminster City Council, responsible for finance and customer services.

Councillor Caplan was first elected in 1990, two years after the council negotiated its first outsourcing contract, involving

the disposal of residential and commercial waste. Even by the standards of its day, this was a landmark deal – a management buyout no less, led by a senior council manager and backed by private money. That contract, now worth £40 million a year, has since passed on to the French services provider Veolia.

He sees public and private-sector outsourcing as two sides of the same coin. “We aren’t really that much different from any other commercial company in terms of how we operate,” he says. Here, he points to John Lewis and Marks & Spencer, both keen outsourcers for decades.

Mr Caplan doesn’t view the pro-cess of outsourcing – heralded by some and hated by others – as an ideological movement. “This isn’t about saying the private sector can do things best.

We aren’t dogmatic. It’s all about delivering the best possible ser-vice to the public. I believe that you do what you do best and you leave things that others do better to them.”

It’s a simple message, but also one that hides a hugely complex

back-story. First, the figures. West-minster is one of Britain’s wealthi-est councils, dragging in more than £1 billion a year in taxes. Yet most of this cash goes in one door and out another: £900 million is channelled straight into the maw of outsourcers, with the rest used to pay the council’s shrinking in-house staff of 2,300.

From this pot, £150 million goes to Capita, which delivers a wide range of tricky technical and human-based services including housing benefits. Serco gets a fur-ther £40 million to deal with park-ing violations, always a controver-sial service for any council and one that, Mr Caplan claims, (perhaps a tad too eagerly), “makes us virtually

no profit”. BT recently secured a chunky contract to run the coun-cil’s back office and accounting; other outsourced services include security and upkeep of schools, and keeping roads free of potholes.

Yet this is just the top-line stuff. You need to drill down to see how handing the running of vital ser-vices to experts tends to benefit everyone. Mr Caplan flags up the example of rubbish collections.

The council’s purview includes some of the world’s richest shop-ping thoroughfares. Eight separate collections are made on Oxford Street every day; the fuel-efficient trucks, with built-in GPS tracking, separate out refuse as they go.

Westminster hosts marathons, rock concerts and public events galore, yet it’s rare to see litter-

strewn streets. And the reason is co-ordination. I mention Bill Bry-son’s 1991 book Neither Here Nor There in which he observes that while “Paris gleams, London is a toilet”. “Arguably,” says Mr Caplan, “I would agree that London is cleaner than Paris these days.”

And therein lies the rub. Out-sourcing may not always be everyone’s cup of tea. When something goes drastically wrong, like G4S’s Olympic-sized security foul-up, outsourcers get it in the neck and rightly so.

However, it’s hard to imagine modern public services, as we know them, being provided by the state alone. Far better, surely, to ring a trained Capita operator

to query a council tax bill than to phone a clock-watching func-tionary in city hall. Thirty years ago, council taxes didn’t exist and rubbish was thrown into trucks, which dumped them directly in landfills, rather than separating and recycling.

If Mr Caplan has one gripe, it’s with the fact that we all suffer from a lack of joined-up government. Councils increasingly work with each other to provide cross-constituency services. Westminster has joined forces with Kensington and Chelsea, and Ham-mersmith and Fulham to offer a sin-gle educational directorate covering all three boroughs.

But communication often breaks down when the needs of local and central government collide. Mr Caplan points to the “frictions”

that exist between the NHS and the need for localised health-care. “This area is crying out for reform,” he believes. “A classic example is the hospital discharge, where someone is let out of hospi-tal, yet there is no one there to help them back to their home.”

So where do we go from here? Could we outsource the council itself – after all, what exactly are administrators for?

“Ah, but why do we have great clean streets,” Mr Caplan replies. “It’s because we specify [to out-sourcers] what we want. Veolia only collects rubbish eight times a day on Oxford Street because we tell them to. The service provider out there is only going to do what we tell them to. And that’s the skill of managing any business. It’s about deciding what you want, making your message clear, then ensuring you get what you ask for. That is why we are here.”

this isn’t about saying the private sector can do things best... it’s all about delivering the best possible service to the public

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Melvyn Caplan is a Westminster City Council cabinet member responsible for outsourcing services

The man responsible for a billion-pound council budget tells Elliot Wilson why £900 million a year is spent on outsourcing

FROM COUNCIL TAX TO RUBBISH, PARKING AND POTHOLES

Rubbish collection is among services outsourced by the City of Westminster

15



Ȗ What can you outsource? Actu-ally, the question should be: what can’t you outsource? The truth is that virtually every business func-tion is outsourced by someone.

The latest industry segments to blossom include customer service, design and production, facilities management, finance and treasury, HR, IT, legal support, marketing, payroll, PR and reputation manage-ment, procurement, secretarial sup-port, security, recruitment, research and development, and training.

For online women’s clothing retailer SoSensational, the new frontier was outsourcing media sales. The fashion website gets a lot of traffic, so it made sense to sell advertising space, but the firm didn’t want to do it in-house.

Founder Jan Shure says: “We did not want the additional overheads, training and recruitment required to create our own media sales team, but also saw that without media sales we would be merely another fashion website among a multitude of ‘portal’ sites relying on affiliate sales.” By outsourcing to Ricochet Media, the website has attracted a dozen big-name advertisers, something it would have found hard to pull off via the traditional approach.

There are several reasons why outsourcing has widened its scope over the past decade. The first is demand from companies that want to become more cost-effective and serve their customers better to overcome the economic slowdown. Secondly, as outsourcing vendors have become more sophisticated, so buyers feel happier about out-sourcing comparatively compli-cated activities.

Statutory change has also had an impact. For example, the Legal Services Act, which came into force last year, allows non-law firms to provide legal services for the first time. This has increased competition in the legal market-place and allows companies to farm out routine legal work to third parties.

Outsourcing has also become more strategic, according to Chris Sellers, executive director, stra-tegic sales, at outsourcing giant Capita. It’s not just about saving money; it’s also about adding value.

“Ten to twelve years ago, there was a more simplistic ‘cost-out’ driver,” he says. “But nowadays it’s about trying to achieve a specific strate-gic objective, which itself might change in three years’ time.”

For example, in the public sec-tor, organisations may be looking to achieve social outcomes, such as feeding healthy food to school-children, while simultaneously managing their costs.

Furthermore, outsourcers are more capable at handling tough assignments. “As the market has matured, outsourcing has moved beyond transactional services to include functions that were previ-ously considered too complex or judgement-based to be handled by a partner,” says Matthias Mierisch, chairman and chief executive of business process outsourcing (BPO) provider arvato UK & Ireland.

“In finance and accounting BPO, for example, activities such as invoice processing have become low-hanging fruit in outsourcing terms. The emerging opportunities are in functions such as financial planning and risk management,” he says.

As with any organisational change, good planning and clear communication are essential to making a success of outsourcing. Otherwise, there is a risk that pro-cesses and service standards will be compromised, and the intended benefits won’t be achieved.

“No matter which function is being outsourced, the challenges always come down to cultural align-ment and trust,” says Mr Mierisch. “If an outsourcing partner is going to be given more autonomy, the cli-ent has to trust that, given the same critical information, their partner will make the same decision they would. That can only happen if there’s a good cultural fit between the businesses.”

In theory, it is possible to out-source nearly every function of

a company and “virtual compa-nies” are already far more wide-spread than most people realise. In the pharmaceutical industry, for example, there are knowledge-based companies that don’t have any physical assets or infrastruc-ture, and employ just a core group of people that might include the chief executive, chief financial officer and a legal counsel, as well as business development and project-management specialists.

Are there limits? Richard Jones, chairman of procurement out-sourcing group Proxima, argues that organisations should keep their brand management and sales functions in-house since those are crucial to strategy.

But he says the increased vir-tualisation of companies and their greater confidence in buying outsourced services is making pro-

curement outsourcing a “hotter and hotter topic”. He also expects to see more recruitment process outsourcing, with companies con-tracting out their recruitment departments. The benefits of this include reduced expenditure on head hunters and job boards, scal-able recruitment teams – compa-nies that hire seasonal workers can scale up or down at will – and all-round better hiring processes.

The advent of robotics has the potential to transform the out-sourcing landscape even further. According to Mr Jones, robots could soon be doing some of the repetitive and rule-driven work that is carried out by finance and payroll functions at present. These robots would be servers that exist in data centres or in the cloud. Just like a human workers, they would have access to corporate systems and be able to receive work instructions by email.

So watch out, the robots are com-ing and they may consign Indian call centres to the history books sooner than you think.

Virtual companies are already a reality thanks to outsourcing, writes Sally Percy, who discovers “robots” are set to become the outsourcers of the future

NEXT GENERATION

Are robotS VirtuAllYthe reAl thing?

the advent of robotics has the potential to transform the outsourcing landscape even further

Raconteur business-outsourcing

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