With all of the buzz and razzmatazz around fintech, I have been thinking about innovation quite a bit recently. Another prominent trend amongst many corporates is outsourcing – that is the process of moving some in-house functions to another company that specialises in that particular sector. There are clearly many advantages and disadvantages of outsourcing in todays globalised economy. But is outsourcing killing innovation in your organisation? Let’s evaluate the pros and cons of outsourcing and consider the impact on innovation….
Advantages of outsourcing:
The key driver to outsource is to allow your company to focus on its core business operations. If you’re an internet search company for example, should you be investing time, money and resources in making supplier payments? Or should you be focusing and concentrating on your core business, i.e. internet searches. In turn, the outsourcing company being the expert in that particular field would provide you with the best resources and services so that you shouldn’t have to worry about supplier payments. The outsourced business process is in the hands of experts, who save you time, money, resources, and the associated operational and recruitment costs.
Disadvantages of outsourcing:
As a process is outsourced even though it may not be a core business process, the loss of control over the particular function may result in some negative organisational impacts. Especially if the service provided by the outsourcing partner is not up to scratch and there are concerns around their response times and / or quality of service. In some instances confidential data may have to be shared with your ‘outsourced partner’ and in this case their use, or more specifically misuse, of the data may impact the integrity of your organisation. There are other factor to consider such as hidden costs, various delays and a lack of customer focus by the service provider. But you get the idea…!
Is Outsourcing Killing Innovation?
Keeping the above in mind, I completely take the point that if you’re a internet search engine – you shouldn’t need to worry about supplier payments. There is a but though….
1. Outsourcing becomes the goal, not innovation…
When the handover to an outsourced partner happens, usually it happens in stages – something like:
- A period of knowledge transfer – via documentation and interviews
- Teams from the outsourced company come on to your site and watch and document you doing the process
- Next, you watch the outsource company guys doing the process and support them as required
- Lastly, the process is transferred to the outsourced partner
The focus is on lifting and shifting the existing process, ensuring contracts are agreed and signed, the project is completed in a timely manner….
2. Innovation can disrupt the business…
You often hear and see examples of where a function (such as IT support) is outsourced to an external provider and the disruption the outsourcing process brings about. We’ve all heard, or worse still, experienced extreme examples of where it takes a couple months to make a simple change that would typically be done in a few hours. In this current climate there is a need to get things done quickly. If you don’t keep up, you quickly fall behind…
3. Change can be complex, lets keep things as they are…
In the above process, the outsourced company picks up a part of the process and it is transferred “as is” to the outsourced company. They will often be following scripts and documentation, and if it isn’t on the documentation the guys may not be sure what to do
- Innovation doesn’t have to be the invention of a self driving car, it can and often is comprised of small changes that enables efficiencies in your organisation
- Once the outsourced process has been migrated to the outsourced company it rarely changes. Making changes to an agreed process can often be complex, time consuming and require contract renegotiations – sometimes its easier to keep things the way they are!
4. No time to innovate…
Often you will choose an outsourced partner who is handling processing such as payments for many companies, it is often a 24/7 operation with very little time to deviate from the scripts and documentation that have been prepared for them. To be honest, there is often very little reason for the guys to go above and beyond their daily script. Practically they don’t have time to do so, they need to move on to provide services for the next company
5. People matter…
Within large organisations that are outsourcing different functions, it sends a very stark and clear message to your employees. This may create a sensitive environment that is not conducive to innovation. Next within the outsourcing company, often just as things start to stabilise and work as you would want the ‘good’ guys get moved on to better positions or poached by rival companies. As a result, you have to work with new resource(s) who have to be brought up to speed. And so the cycle continues….
6. Functions X, Y and Z are not our core business, lets outsource them…
You could argue the particular function that is being outsourced doesn’t need to be innovative. That is true to a point. But even a supportive process within your organisation is critical to the overall core business, and failures within supporting functions may spill over and negatively impact the core business. For example, late supplier payments (not necessarily a core business function) can cripple an organisation that is depending on goods or services that must be delivered at a certain date/time. If the problems persist, suppliers may not be willing to deal with the company and the reputational impact could hurt the core business.
- More and more businesses are recognising the value of collaboration and integration, and how efficiencies across the organisation can help achieve better results overall
- In an increasingly integrated business environment, it is crucial to have employees who understand your business and can recognise areas for improvement. Arguably, with more and more functions being outsourced you lose the ability to see the end to end process. As you lose sight of various business operations, you hinder the ability to introduce innovative ways of doing things that have cross organisational benefits
What do you think?
Don’t get me wrong, I recognise the benefits that outsourcing can bring to large organisations who need to absolutely focus on their core business. I must admit I don’t know what the answer is here. Outsourcing has to be done in a sensitive and proportionate manner with a provider who really understands your organisation and the role they play within it. Does such an outsourcing company exist… Really?
I would love to hear your thoughts and experiences of outsourcing and innovation? Particularly in the payments space….