Spread Your Wings

All business sectors now accept and understand the benefits that BPO can bring, particularly through cost savings and access to specialised knowledge of specific processes. In particular, industrial companies stand to benefit greatly from outsourcing their processes.

Martin Holt, CFO of Dalkia plc, a provider of technical facilities services, believes that outsourcing presents numerous opportunities for industrial companies. 'The improved cost-service equation is the primary advantage. You get a higher level of service because you have a delivery mechanism whose sole purpose of existence is to support that service. Basically, you get a specialist doing a better job for a lower cost.'

In fact, this is one of the specific benefits to industrial companies. As Holt explains: 'You get access to expertise that you'd otherwise have to pay a lot more for.'

At the same time, BPO can be particularly advantageous for industrial companies. Holt says: 'There are serious cost implications if you have half a day of inoperative plant or equipment or if there are buildings unavailable, for instance.

'Outsourcing mitigates risk because the onus is on the provider to get the problem solved quickly. That means the client can concentrate on running the business strategically and not worry about process. In fact, you can extend that idea to cover any area of your business where you want to reduce risk and uncertainty – transfer the risk to a company that views risk management as its core business.'

However, it is vital to get your outsourcing agreement right to reap the full benefits. This means carefully selecting the correct partner and making sure that the agreement is clearly written out.

KNOW YOUR PARTNER

Before committing to any outsourcing agreement, it is essential to research the company you intend to work with. Holt says: 'There are three overarching principles. Firstly, establish the experience of the partner you're looking to work with. See what their track record of delivery is in the structure of the organisation, if not necessarily the sector.

'Secondly, make sure the objectives and values of the outsourcing organisation and the outsourcer match up. You need a consistent culture where you're both looking for similar outcomes and can work in a similar way.

'Thirdly, ensure you have a clear framework under which the agreement will operate. You need mutual benefits for both sides with clear lines of risk and reward – have incentives and penalties in place so that both sides are encouraged to stick to delivery specifications.'

However, he adds that this framework needs to be flexible and designed positively: 'You don't want to be ripping the contract up every time there's a minor dispute. The easiest way to avoid that is to partner with someone you think has similar values to your own.'

IRONING OUT THE DETAILS

In any outsourcing venture, there is the risk that things do not work out as planned and the anticipated cost savings fail to materialise. This can easily be pre-empted by working out all the details beforehand.

Holt advises companies to work out a 'detailed agreement in writing before either of you does any work. The contracts that work well are those where you've had hard discussions upfront. If you've got a cultural fit, it'll work.'

He says that things can go wrong when there appears to be a value fit between companies, work starts without a sufficiently detailed contract and then one side or the other discovers they're not as aligned as they thought.

In his opinion, it is vital to get the agreement right to begin with: 'If you can't agree on it, the chances are you haven't got the right partner.'

When developing an agreement, both sides need to understand that it is a commercial deal, and must cover details such as how long things will take and how much capital is going to be invested.

Holt says: 'Create a team with equal representation from all parties. That team should see itself as an implementation team, rather than as representatives from the company. If you don't invest upfront in a management framework like that, one party may not benefit and in fact neither may end up benefiting because of the spirit of distrust that can build up if both sides aren't working towards a clear common goal.'

LEVERAGING THE BENEFITS OF ERP

ERP systems can make the outsourcing process much easier, increasing the likelihood of a successful partnership.

Holt says: 'There's lots of opportunity. A system like Oracle, for instance, can lead to amazing benefits that are – once you get to the other side of the project – worth the upheaval. But it's a long, potentially stressful journey and it has to be managed efficiently.'

To get an ERP system to work, most organisations need to reorganize themselves to some extent. In Dalkia plc's case, five individual subsidiaries had to be merged into a single entity. Dalkia plc implemented Oracle's ERP system, but with two overarching principles. 'First, start with the end in mind. Ask yourself whether doing this will prevent you from merging the subsidiaries in the future, or enhance the situation,' says Holt. 'Second, be aware of whether you are amending the software to suit the business. Ideally, in the initial implementation you want to fit the business to the solution.'

For relatively smaller companies, ERP is an excellent solution. However, applying it to very large siloed companies can be more complicated.

Dalkia plc has experience of many types of outsourcing partnerships, and in Holt's opinion, the challenge of applying ERP to organisations such as the NHS and local authorities would be very different.

He says: 'From what I see of the public sector, I think the challenge would be of a different nature. There are likely to be differences in speed and clarity of decision-making.'

'In our own Oracle implementation project, we had a huge post-implementation mapping excercise. We were working on the organisational changes for two and a half years after Oracle was up and running. With the benefit of hindsight, that idea proved to be correct.'

Holt points out that the process may take longer in public companies. 'The decision-making process in the private sector is more straightforward than in the public sector. For example, when Dalkia plc bid for a district heating scheme for a local authority, there were more than 30 stakeholders involved in the tender process that we had to speak to.

'In the private sector you might get a panel-based approach, but there will be one decision-maker. Clients from the private sector will see a good deal and make a decision – if you tick the boxes, they'll place the contract. Whereas for the public sector there are more regulations to consider and consequently there is typically a longer route to signing on the dotted line.'

However, he notes that there are advantages to working with public companies: 'The upside is that the standard contract in the public sector is 25 years compared to private sector clients, which typically don't want to sign deals for longer than 10 years.'

FREE TO DO BUSINESS

Contract management can also bring benefits to take pressure off individual companies’ resources.

Holt says: 'You get reduced administration, as the onus is on the contract manager to get problems such as sickness cover and staff availability ironed out. You get the benefits of expertise – in areas like environmental legislation or health and safety you don't have to employ an expert. You can build it into the contract that the outsourcer will be on top of these issues.'

Logistics benefit too. 'Take Dalkia plc's business – if a client encounters a problem, we can have someone on site very quickly, no matter where they are in the country. That's major project management for a small company, but easy if you contract it out. Meanwhile, you're free to concentrate on doing what you want to do – strengthening the core business.'

The benefits of BPO in general have been proved, and industrial companies in particular, with their huge overheads, would do well to look into outsourcing some of their processes to cut costs and offset risk. Outsourcing also frees a company up to concentrate on its core business, leaving responsibility for the details to someone else.