Make or Buy – Deciding if and When to Outsource

The Hackett Group Managing Director, Advisory, Europe Martijn Geerling talks with Sourcing Transformation Practice Leader, Europe Jill Stabler and GBS Transformation Practice Leader, Europe Hermann Waschefort about factors companies should consider when deciding whether to outsource or internally develop shared services or global business services operations.

Show Notes

Welcome to the Hackett Group’s Business Excelleration Podcast, where – week after week – we hear from experts on how to avoid obstacles, manage detours, and celebrate milestones on the journey to world-class performance. Today’s episode is hosted by Martijn Geerling, Managing Director and Advisory Practice Leader Europe at Hackett. His guests today are Jill Stabler, Sourcing Practice Leader Transformation Europe, and Hermann Waschefort, Practice Leader for Global Business Services at Hackett Global Transformation Services Europe.

As the conversation kicks off, Jill identifies the questions which business function leaders should ask when deciding to insource or outsource. During this process, questions of speed, scale, sustainability and increasing business value vs operational excellence are of equal importance.  Considering every company has their own unique starting point, Hermann elaborates on how these core variables can play out in different starting points. It’s very important to ensure there is a sense of clarity regarding your capabilities and performance and to be honest with yourself and the organization. Then, you can look at your options and determine the outcomes you want to achieve.

Traditionally, outsourcing was driven by labor arbitrage. Jill shares what has changed in the last few years from that traditional model to new, novel digital technologies. Buyers should look beyond labor arbitrage most importantly. Technology evolution has issued major changes towards transformational partnerships compared to earlier commodity type deals. Today’s value proportion is a combination of that traditional arbitrage and technology.

It’s difficult to determine superiority between in and outsourcing as both can offer great value under certain circumstances. Hermann identifies four key elements to understand to make the right decision: risk, capability, aspirations, and desire for transformation speed. Jill agrees with Hermann on this one and summarized the number one most important question as being able to look at yourself where you are today vs. where you want to be.

When discussing the outsourced services model, Jill tends to spend a lot of time with clients focusing on how they bring to life transformation and ambitions both contractually and through relationships. Stepping away from the outsource conventional model, a new kind of service partnership is emerging among clients. BPOs and IPOs are beginning to propose what she refers to as assisted transformation models. The ownership of the service remains captive, but the scenario is focused on defining transformation initiatives, success criteria, commercial effectiveness and experience outcomes and creating the right commercial model together with an outsourcing partner.

Then, Hermann elaborates on risks. Both operational and financial risk needs to be considered. During discussions with clients, he usually inquires about IT and proprietary models. As we emphasized earlier, it is important to analyze all options before making big decisions and critical to understand key strategic needs. In closing, Jill emphasizes the need to make sure you’ve honestly assessed your starting point and consider your options through that lens. In the end, what you really need to do to make a success of either model, or a combination of both, is to manage that capability.

Timestamps:

• 0:40 – Welcome to this episode, hosted by Martijn Geerling.
• 2:24 – Variables for organizations to consider when deciding to in or outsource.
• 6:35 – How do these variables play out in various scenarios?
• 8:14 – What should buyers be looking at when choosing vendors?
• 11:15 – The tradeoffs between in and outsourcing.
• 15:01 – The new models emerging for collaboration.
• 17:36 – Other key things to consider.
• 19:48 – Thank you to Jill and Hermann for joining us today.