Create Strategic Flexibility


By combining stakeholder analysis, scenario planning, and business- model design, organizations can give themselves strategic options through outsourcing. These can range from simple break points in the contract to well-defined growth opportunities that they intend to create with their partners.

For example, Thomas Cook characterized its transformation as ‘‘Fixing the old and creating the new.’’ It recognized that its first order of business was to reset its cost structure in order to make operations profitable. As its outsourcing and other initiatives achieved these early milestones, the company would turn more of its attention to growth. To instantiate this agenda in its outsourcing relationship, Thomas Cook took several steps. It created a break point in the contract with its outsourcing provider after three years. At this point, the two organizations could part ways, renegotiate, or simply extend the contract. The company also promised to provide a million-pound ($1.66 million) bonus if its partner could reduce costs below an agreed baseline by that time. These two provisions ensured that the provider worked first on establishing a cost-reducing model that at least broke even by year three. It also made sure the Thomas Cook management stayed closely involved because they might soon get the operation right back.

The year-three break point also provided both parties a tangible hook for talking about successive phases of the model. Although the relation- ship is only in its second year, and both partners are clearly focused on getting systems in place, people transitioned effectively, operations settled down, and costs reduced, they are also starting to discuss future opportunities. These include moving the center to a low-wage-rate country to further improve costs or growing revenue by offering services to other companies. These changes would involve changes to the partnership’s joint business model, and the contractual break point puts this kind of discussion on the table.

For transformational outsourcing to work, executives must manage it expertly—not just as they design the relationship but also as they continue to shape it over time. Most do not use the process I have outlined above to craft a business model and plan with their partner, but they should. To summarize, executives should:

  • Prepare a stakeholder analysis to clarify the important stakeholder groups and their needs. This analysis provides the basis for framing the value propositions that are an essential component of business model design.

  • Design alternative business models based on proposals from outsourcing providers, examples from other companies, and internal innovation.

  • Project partners’ models to ensure that they are commercially viable and sustainable.

  • Use scenario planning to project business and regulatory changes. This should be a normal part of a company’s strategic planning. For transformational outsourcing, you will want to join with one or two top-candi- date partner companies, before finalizing your relationship, to think through the changes that are likely to affect both organizations.

  • Evaluate alternative models and use your view of the future to stress- test their ability to deliver value to both parties over the long term.




Outsourcing for Radical Change(c) A Bold Approach to Enterprise Transformation
Outsourcing for Radical Change: A Bold Approach to Enterprise Transformation
ISBN: 0814472184
EAN: 2147483647
Year: 2006
Pages: 135

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