020 Characteristics of scale up outsourcing - Juan de Vicente

Characteristics of scale up outsourcing

The term outsourcing is so wide that, used without any further specification, would cover so different services that only few of them would have something in common but the obvious fact of having to be delivered from outside the organization. Therefore, before dealing with more exciting aspects, let’s take a break to better understand what we refer to when talking about “scaled up outsourcing”.

By scaled up outsourcing we mean a high complexity outsourcing impacting both, the client renting the services and the provider delivering them. That complexity is determined by three factors of difficulty taking place simultaneously:

• The first complexity factor is fully quantitative and relates to a high volume of transactions (size and complexity are definitively connected). As consequence, some of the most typical functions carried out by companies (IT, accounting, HR, logistics) are excluded from scale when only limited transactions are involved (third bureaus, curriers and similar providers are normally taking these volumes over). Also the pure professional services (lawyers, medicals, engineers) are kept out from this scale as the complexity they are bringing, even though high, is not transactional based.

• The second complexity factor, quantitative and qualitative at the same time, relates to a minimum threshold of people being required to run operations (managing people is one of most complex streams). However, that threshold is not fixed and evolves inversely to the difficulty of the process itself. For instance, a team of 20 or 25 people could be enough to grant scale to a complex operation (like a portfolio funds administration of a major bank) whilst a one easy to perform (like a highly commodity call center) could require even some hundreds to reach similar scale. As a result, those highly transactional processes that are massively supported by technology, but only requiring few people to operate, are also out from scaled up outsourcing (invoice printing, document digitalization, systems monitoring).

• The third complexity factor is qualitative and relates to the need of having available a knowledge that goes well beyond the service committed to externalize. That is extremely important because the scaled up outsourcing requires correctly understanding, interpreting and resolving the integration requirements coming from other areas of the company. And, the other way around, to clearly explain their own integration needs to those other areas and then to double-check and validate proposed solutions in order to ensure the continuity of operations. Nowadays, most of areas are requiring being strongly integrated, but some representative examples could be a logistic operation serving a production line, an accounts receivable supporting a billing process, or a selling process requiring strong customer operation support.

To better illustrate the different complexities provided by each factor, non-compliant examples that, consequently, were automatically excluded from scaled up outsourcing were mentioned above. Compliant examples resulting from suitable combinations of those three factors of complexity would be easier to find in areas such information technology, finance and accounting, human resources, sourcing and procurement, logistic, post-sales, customer care, risk prevention, etc. Some others more industry specific oriented are: mortgages, loans approval or fund administration in the banking industry; contracting, provision or network management on the utility or communication industries; clinic data management, pharmacovigilance or regulatory in the health industry; digital archiving or rights management in the media; fines management or capital projects in the public sector.

It shouldn’t be a surprise the wide range of areas that can be considered within the scaled up outsourcing because, as noted, complexity is what drives, not scope itself. By the way, that complexity can grow up almost without any limit (providing even further scale) as other complex factors are also included, like new countries, additional businesses, process transformation, people transfers, objective based billing, etc.

Just in the opposite side to the scaled up outsourcing, a much more basic outsourcing is located. It is quite commodity and very much output driven, so easy to validate. As consequence, just an active participation and common sense should be enough to manage this category. Between the basic and the scaled up outsourcing, there is a third category, the intermediate outsourcing, to which many of the scaled up outsourcing principles can be applied. It is remarkable the difficulty this intermediate outsourcing category can reach in real life. Some times it is due to the lack of tools and specialized resources to help properly managing the service (unforgivable fact when it is consequence of a more or less consent agreement between parties in order to reduce prices through lowering costs).

Summarizing, in following chapters the high complexity outsourcing will be treated in detail. Most representative cases will be within the scale up outsourcing, but content will be also applicable to many other types of outsourcing included in the intermediate outsourcing category.

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