Outsourcing: cash, growth and hedge-trimming

Spending the day with Accenture at their annual analyst presentation, it helped put a lot of our current predicament into perspective.

We can debate, for hours, the finer points of whether outsourcing is currently helping the wounded US economy, but what is abundantly clear, as Accenture’s CEO Bill Green points out, is the need for the US economy to be competitive globally – and to be competitive as a nation, we need our businesses to be competitive.

We also had the pleasure of listening to one of outsourcing’s legendary figures, Kevin Campbell, who runs Accenture’s $10bn outsourcing business. For those of you who don’t know Kevin, he was a pivotal figure behind the industry growth of HR outsourcing at Exult, before moving over to Accenture in 2005 post Hewitt’s acquisition. He is one of the industry’s most straight-talking and colorful characters, with a seemingly infinite supply of energy (evidenced by the 4.00AM emails he shoots off periodically).

Kevin makes some great points that outsourcing can – and is – providing many enterprises today with many more business benefits than simply slashing administrative costs. However, you need to engage a service partner which can deliver

a lot more to your business than a short-term cost-reduction.

He sums up the core benefits of outsourcing in three key areas:

1) Freeing-up cash-flow.  A good F&A provider can add discipline to your collections and speed up your cash-flow, eliminate bad debt and free up a more timely cash-supply. On the flip side, quality procurement processes help you keep the cash you currently have.

2) Enabling growth.  The need to enter new global markets quickly has never been as pressing as it is in today markets. Having a ready support infrastructure that can support foreign payrolls, accounting procedures, local regulations etc. can save your company months of painful work to set up shop in new markets. Moreover, service partners can also help you grow your business globally; Accenture uses the example of how they helped Unilever hire 10,000 sales staff in China, which has already contributed to 400% growth in same-store sales in the region.

3) Cost-cutting.  A good outsourcing partner should be able to help you sustain cost-savings over a long period, not simply at the onset of an engagement, through ongoing quality and process improvements. Kevin points out, “Costs are like hedges – they keep growing back after you trim them”

My take? it’s all about outsourcing smartly these days, and not simply acting in desperation. Too many clients I speak to are locked into outsourcing contracts that are miserable experiences they can’t escape for years. And many companies today simply don’t have these years to sort out their global delivery issues.

In many situations, clients have jumped at the lowest cost option, and now live to regret their decision - we all know some in this predicament. It’s not a good time to go to your board and ask for another $20m dollars to bring a new provider into the mix, or rip up your current contract. Outsourcing clients have to think more smartly and strategically about how to create an outsourcing experience than can help drive new growth, can deliver business value to the top-line, and not just take out short-term costs from the bottom. If clients can engage outsourcing to become more competitive, it creates an entirely different paradigm than simply “shipping jobs offshore”.

Comments

[David Simpson]

The difference today is that more vendors offer significant cost-savings and scale and many buyers are wising up to this. However, we still see a lot of dead-end contracts getting signed by CFOs / CIOs who only care about the short-term and are not looking 2-3 years' out. Buyers need to take a longer-term approach to outsourcing, and hopefully this downturn is forcing many to think about stabililty and longevity and less about their next career opportunity.

David