7 Best Practices for Global Services Sourcing

You may remember that my last two columns ended with a call for participation in a survey aimed at assessing the "capabilities of client sourcing organizations", with the promise to share the results with you. The survey was launched as part of the Offshoring Research Network (ORN) activities. Originated at Duke University, the ORN has tracked the evolution of global sourcing practices since 2005, first focussing on the US before expanding to Europe and beyond. The latest client sourcing capabilities survey received answers from 105 companies in the US, and 50 companies in Europe. The most represented sectors include financial services and insurance, information technology, industrial companies, and consumer goods and services. Together, these companies represent 1,162 global sourcing initiatives across 12 service functional areas. Results show that with the exception of IT and software development, the captive model is still dominant over the outsourcing model. Source: ORN client capabilities survey (2012-2013) The most important benefits that surveyed companies achieve as a result of these sourcing initiatives are efficiency gains, effectiveness gains through better focus on core competencies and increased flexibility, and improvements in service quality. But breakthrough process improvements are yet to come. Realized benefits from global services sourcing (% respondents) Better focus on core competencies Increased productivity / efficiency Improved organizational flexibility Improved service quality Better access to qualified personnel Breakthrough process improvement(s) 64% 62% 60% 60% 52% 27% Source: ORN client capabilities survey (2012-2013) With this survey we were also interested in better understanding what companies that derive the greatest benefits from global sourcing do differently from others. For that, we identified the best performers in our sample and compared their practices to those of other respondents. Based on the findings, we were able to identify seven dimensions of operational effectiveness for global services sourcing. Dimensions of effectiveness Best performers Average performers Under performers Corporate-wide strategy 61% 25% 18% Clear measurable objectives 73% 35% 23% Centre of excellence 70% 63% 41% Effortless identification of cost of sourcing operation 21% 19% 5% Defined process for allocating savings 41% 19% 9% Formal management and monitoring program 70% 35% 33% Defined process to implement service delivery structure 61% 35% 23% Source: ORN client capabilities survey (2012-2013) According to this study, best performers have implemented a corporate strategy to guide global sourcing decisions and implementation across functional areas. The strategy typically includes clear and measurable objectives that companies can track over time. Many companies, and especially best performers, also have a centralized department that gathers expertise and facilitates sourcing across the organization. Such centres of excellence can, for instance, provide support in the areas of strategic planning (including risk assessment), optimization of the global delivery structure across countries and sourcing models, and selecting and managing providers. If they are not leveraging a centre of excellence, best performers implement formal processes to implement an effective service delivery structure and monitor key suppliers at functional levels. Best practice companies are also slightly better at identifying cost of sourcing operations and allocating savings. Now the question is how well companies score on these dimensions of effectiveness. We find that a majority of respondents have already implemented a centre of excellence. A majority have also defined clear and measurable objectives, and have a formal process for monitoring key suppliers. Finally, a significant portion has implemented a corporate-wide sourcing strategy and follows a defined process for implementing a global service delivery structure. Conversely, very few companies have an easy way to identify the cost of a sourcing operation and compare it to existing cost. Interestingly, this is the only area where European companies score better than their North American counterparts. We also find that most companies still do not have a defined process to think through the allocation of savings. These last two points constitute areas of improvement that client companies may want to work on in the future. Dimensions of effectiveness Total US Europe Corporate-wide strategy 42% 49% 31% Clear measurable objectives 53% 56% 44% Centre of excellence 63% 72% 46% Effortless identification of cost of sourcing operation 18% 10% 36% Formal process for allocating savings 28% 34% 20% Formal management and monitoring program 53% 59% 42% Defined process to implement service delivery structure 46% 53% 33% Source: ORN client capabilities survey (2012-2013) Clearly, the study has not allowed us to identify all factors that make best performers more effective than other companies. But, taking actions along the seven dimensions we have identified should help client companies raise their sourcing capabilities. After this, companies should also pay attention to the "human side" of sourcing and invest the necessary effort in developing and maintaining a positive relationship with their sourcing partners. We will come back to this issue in a future column. [inlinead]

7 Best Practices for Global Services Sourcing

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