Bundled Outsourcing

Bundled Outsourcing: Myths and Realities, Tradeoffs and Benefits

Bundled outsourcing can help companies gain benefits beyond cost reduction and drive high performance-but many companies have concerns about this approach. Locus IT outlines few of these major concerns, and the realities that lie behind the myths.

Background

Many companies are fundamentally changing how they use outsourcing. They are looking beyond cost reduction to improve cash management, improve compliance with procurement policies, gain greater agility in responding to changing market conditions, implement simpler and more effective governance and reduce the costs of managing their business relationships.

Analysis

The research by the London School of Economics outlined five concerns about unbundling. Here, Locus IT outlines the realties behind these questions.

Does multisourcing or bundling give a client more control?

Multisourcing may give a client more power over each supplier, but this comes at a price. The hidden costs of management can reach between 4 and 10 percent of contract value. Bundling, on the other hand, can make a client more important to the supplier.

Is going with one supplier more risky or less risky?

Relying on only one or two suppliers may be perceived as more risky, but the capabilities, scale and financial strength of the actual supplier must be taken into account. Multi-sourcing can create risk in other areas such as the gap between suppliers, security, hidden management costs and contract renewals.

Incremental or big-bang implementation?

Most take the incremental route, but some have benefited from the comprehensive organizational change possible with a big bang.

Tidy up then outsource?

Cleaning up legacy technology and business processes can make sense, but may ultimately prove to be wasted expense once the full outsourcing takes place.

Cost and operational gains?

Bundling two or more business processes with one supplier can reduce costs by 10 to 15 percent, and save up to 40 percent of setup costs.

Recommendations

By evaluating opportunities based on function or silo, companies miss out on the potential benefits of being able to "connect the dots" between different business functions; share resources, applications and platforms; and integrate end-to-end processes. However, by taking the bundled approach, companies can:

• Reduce duplicate or redundant management layers, processes and costs.
• Simplify the governance process.
• Reduce operating risk.
• Mitigate delivery risk.
• Standardize operations.

Locus IT also recommends that companies consider their own organizational culture carefully when deciding on the type of outsourcing-and most appropriate partner.

Contact us to find out how bundled outsourcing could help your organization achieve high performance.