Companies outsource back-office business processes mainly to boost efficiency and reduce costs. Payroll, HR and accounting processes – the most common to be outsourced – are heavily transactional, and many companies determine that external specialists can execute these far more cost-effectively than they can themselves. It might therefore be expected that providers’ mastery of the relevant technical skills is the critical success factor in any relationship. Insight from Grant Thornton’s International Business Report (IBR) reveals something different, however.
The intangible aspects of these relationships – a partner’s reliability, trust and other 'non-technical' skills – count as much as (or even more than) harder factors, such as their specialist capabilities, in making outsourcing relationships work. Consider, for example, the important step of selecting an outsourcing provider. Given the overriding objective of boosting cost-efficiency, businesses might be expected to focus on provider cost as the main selection criterion. However for business leaders, cost comes second to service reliability. Trust is the other factor in the top three selection criteria.
Of course, businesses need to be sure that providers will deliver on time and to the required level of quality. But it goes further: many companies are dependent on their outsourcing provider to remain compliant with regulatory requirements. The UK government, for example, recently imposed tighter payroll requirements on companies, and the latter frequently pass that burden onto their external provider. Tough new tax reporting rules in Brazil and Argentina are leading foreign and domestic firms there to do the same.
This dependence helps explain why trust is such an important factor. In Asia’s and Latin America’s emerging markets, for example, this trust is usually built through personal interaction, the basis of any good business relationship.
Communication is integral to building high levels of trust. In fact, businesses told us it is the single most important ingredient of a successful outsourcing experience. More important even than the provider’s pedigree, and considerably more than project governance, resource management and scoping of specifications.
Communication between client and provider needs to be good at many levels. Regular status meetings organised by the provider should be a standard feature of any engagement. In some markets, such as in Latin America, clients may prefer these to be frequent and face-to-face. But providers should also recognise when busy clients may prefer to reduce the frequency of meetings. Good communication practice also means being ultra-responsive: three quarters of business leaders say it is important that their lead outsourcing provider be able to meet with them at very short notice – within 24 hours – should an issue arise.
Being proactive is another part of the trust and reliability equation. Companies want their outsourcing providers to be looking for ways to streamline processes. Good providers also listen to clients to improve their service. Ever tougher competition in this digital age means that companies look for every possible means of boosting their cost-efficiency, and they increasingly rely on their suppliers – including their outsourcing providers – to help them design better business processes.
Extending the check-list
The high value businesses place on these non-technical attributes of an outsourcing relationship pose what may be unfamiliar challenges to outsourcing clients and providers alike. Whether outsourcing for the first time or looking for a new provider, companies need to find ways of assessing how providers perform in areas such as reliability and communication. Reviewing provider testimonials and arranging calls with a provider's other clients are a couple of steps that could help. Clients should also develop metrics to capture these areas of performance, against which their provider can be measured.
Providers themselves need to ensure they have the right account managers and staff able to provide the 'human touch'. Finding professionals with the requisite technical skills, the ability to communicate effectively and build personal relationships with clients is no easy task. But it is clearly critically important so outsourcers need to be measuring the performance of their people in these areas and provide on-going training. They can be sure of one thing: the criteria their clients are judging them on are evolving. Those that can adapt may just create a new point of differentiation with their rivals in an increasingly competitive marketplace.