Actually Use the Assets You Have

Transformational outsourcing establishes new operating assets for a company—not ideas for assets or theories about how they might work, but working organs. Effective companies fully incorporate these into the way they do business in order to get value out of them. This sounds obvious, but stop for a minute and reflect on all the management initiatives like Total Quality, Six Sigma, and ERP (enterprise resource planning systems) that were implemented but failed to deliver the value your company anticipated. The gap between what you expect and what you get does not usually come from a failure to implement a tool; it comes from a failure to use it. Why? Using a new tangible or intangible asset—a capability, relationship, or physical asset, for example—means changing the way the organization works to take advantage of it. That means taking new assets for a road test, pushing their limits, analyzing the results, and trying again.^[1] In this process, both the new asset and the organization adjust to each other. And this process relies on close interaction between the outsourcing partners.

For example, in 1999, Magyar Oil and Gas Company (MOL), central Europe’s largest integrated oil and gas company, adopted a strategy of growth through acquisition. At that time, it already controlled more than 120 separate companies, each one operating with relative autonomy. The senior leadership team decided to use outsourcing to dramatically improve the pace, the process, and the results of its acquisition agenda. Initially, it outsourced nonindustry-specific transaction-processing activities in finance. This included accounting, taxation (other than excise tax), treasury back office, management reporting, and external reporting, along with the information-technology systems and infrastructure to support these processes. Since then, it has also moved the energy trading back office under the outsourcing agreement. After three years, the company has streamlined its focus, integrated control of operations, reduced finance and accounting costs by 40 percent, and developed a capability for change.

Michel-Marc Delcommune, the CFO and executive director of MOL, explains that the company’s strategy depends on his ability to get financial control of new acquisitions quickly and effectively. Outsourcing has accomplished that. He especially values the separation between the responsibility for achieving performance and the responsibility for measuring that performance. He points out, ‘‘In the post-Enron era, it’s valuable to have the back office reporting centrally so you can make sure it is operating with the highest ethics. The head of trading didn’t like this decision, but no one can oppose it today.’’

This is one way MOL makes use of its outsourced functions to achieve managerial ends. Delcommune describes others. He says some people in the company could have created a shared-service center and could have achieved some of the cost reductions and organizational consolidations that outsourcing brought. He argues, however, that an in-house team would have implemented a center ‘‘in a frozen envelopment.’’ In other words, the process would have been stuck in 1999. He asserts, ‘‘Because our company is growing, we have asked [our provider] to change the organization seven times in three years, and they have done it. We don’t even ask them if they can; we know they will.’’ In short, MOL uses its outsourced shared-service center as a lead player in the organizational changes it needs to drive growth.^[2] Finally, Delcommune argues that the entrepreneurial sparks have started to fly in the company as a result of the outsourcing. ‘‘Seeing the deal in action has opened managers’ eyes to all sorts of possibilities. It’s made them more commercially aware,’’ he says.^[3]

This is a powerful force that outsourcing offers by its very nature. Workers are no longer buried in a back-office cost center that is disconnected from the performance of the enterprise. They have moved to the face of the organization. They deal directly with the customer, and that makes all the difference. Take your own pulse on this question. Whose request is more likely to motivate your best effort—your boss’s or your customer’s?

Managers are often surprised by what they can do with a new asset. Recent research shows that as executives gain more experience with outsourcing, they raise their aspirations about the ways they can use it to create value.^[4] In a recent study on global government outsourcing, we found that organizations that target higher-value objectives are actually more likely to be satisfied with the outcomes than those that aim only for cost cutting.^[5] These progressive executives learn that they can achieve their managerial objectives, and that the impact exceeds their expectations. Ian Ailles, the group finance director at Thomas Cook, describes this experience enthusiastically: ‘‘Cosourcing makes visible the cost and implications of decisions.’’ He asserts that employees become accustomed to working around the process glitches internal operations often have. But when a company hands the same operation off to a third party, it can no longer ignore the inefficiencies. And you get benefits—even new insights—by repairing these process problems. Ailles found that welding the cracks in the pipe led his company to make different decisions about what they offered to customers. They could see how much it cost to offer each type of service, and they began to trim the unprofitable services from their line. Managers could begin to understand the implications of their actions and what decisions cost. Ailles continues: ‘‘I knew we would get this benefit from cosourcing, but I had no idea how powerful it would be.’’

NS&I gives us another example of how an organization can use its new capability to prosper—and what it takes to do so. Before outsourcing, NS&I had introduced three new products in eight years. It intended to use transformational outsourcing to dramatically improve the company’s record on product innovation. As the timeline in Exhibit 1.9 in Chapter 1 shows, Newport Systems actually completed the technical work for NS&I’s first new product on its watch in the same month as it took over the operations—only four months after signing the contract. In the next seven months, it launched two additional new products and five new product variations. These accomplishments do not happen automatically. NS&I’s product designers and Newport Systems’s product developers pooled their expertise and their effort to drive this result. The capability they created together was—in every sense of the word—a joint asset. And these accomplishments showed that they actively used it to drive NS&I’s performance.

^[1]See Marcy Tyre and Wanda Orlikowski, ‘‘Windows of Opportunity: Temporal Patterns of Technological Adaptation in Organizations,’’ Organizational Science 5, No. 1 (February 1994), pp. 98–118. Dorothy Leonard also talks extensively about the mutual adjustment between an organization and its new technologies in Wellsprings of Knowledge: Building and Sustaining the Sources of Innovation (Cambridge, MA: Harvard Business School Press, May 1998).

^[2]Personal interview with Michel-Marc Delcommune, February 2003, and public presentation by Antoine Parmentier, MOL Accounting and Tax Director, September 6, 2002, at the European Outsourcing Summit. See www.malekigroup.com.

^[3]CFO Europe, ‘‘Finance’s Finest,’’ April 2002, www.cfoeurope.com.

^[4]Unpublished Accenture survey, January 2003.

^[5]Jane Linder and Thomas Healy, ‘‘Outsourcing in Government: Pathways to Value,’’ Accenture Government Executive Series research report, May 2003.