FinancialExecutive,October2002OutsourcingasProductivityToolJeffreyMarshallVAFI:whenyoulookatthebottomlineintermsofwhereoutsourcing'scomeinthelast10years,there'snodoubtthatoutsourcingisdifficultandnoteverysituationissuccessful,orcertainlynot100percentsuccessful.Maybealotofthemaremoderatelysuccessful,maybesomeofthemaren't.COSTSMcCABE:What'smaking[outsourcing]attractivetocompaniesisthatyou'rereducingthecosts,you'retakingtheongoingCapXoutofthebudget,andyou'realsoincreasingtheeffectivenessoftheservicethatyou'reprovidingbacktothecompany…Companiesthattrytodoeverythingforthemselvesjustwon'tbeabletokeepupwiththelatesttechnologies,won'tbeabletoaffordtheCapXtoremaincompetitive,andwillslowlylosegroundtoothercompetitorswhocanaccessthesemorenimblebusinessmodels…VAFI:Aswemoveforward,Idon'tthinkthere'sthatmuchmoretocutintermsofthecoststructureforalotofcompanies.Peoplecontinuetodoit.Ithinktosomedegree,you'restartingtoaffectthelong-termstrategicpositionofcompaniesandtheirabilityoverthelongtermtoactuallygrow.Todate,alotoftheoutsourcingvaluepropositionisfocusedoncost-cutting.Soifyoucanfindtheoutsourcingsolutionthathelpsyoufocusonsomeofthesebalancesheetmetrics,Ithinkyou'vegotapotentialtocreatesomerealvalueforyourcompany…Idon'tthinkcompaniescancutalotmorecostwithoutreallyaffectingtheirlong-termgrowthpotential.Butthere'sstillalottodoonthebalancesheetsideoftheequation.TORRENCE:Ifyourvaluepropositionispurelyacost-cuttingexercise-whetheryoucloseaseven-yearcontractornot-Iguaranteeyouafterthreeyearsofcuttingcosts,you'regoingtorenegotiateyourcontractinyearfour.Therehastobesomethingthatisredeeming.Therehastobesomethingthatissustainablevaluethatcanbeofferedtoyourclientbase,oryou'renotgoingtohavethatclientbase.SHALLECK:Whatusedtobeadecisionabouthowwemanagecostsinourfinancialprocessesandhowwetakecostoutofthebusinessofficeisnowbecomingahigher-levelboardroom,CEOandtopexecutivedecisionaboutwhatactivitiesdoweactuallywanttodoin-house.Andthecriteriaforchoosingthathaschangedfromwhat'sgoingtominimizecoststowhat'sgoingtoprovideadistinctadvantage…Sodon'tthinkofthisasjustacostdecision.Don'teventhinkofthisasjustacostandaserviceeffectivenessdecision.Thinkaboutthisaswhataretheactivitiesthatwe'rereallygoingtoperform,thatwe'regoodat,thataregoingtoleadustoearneconomicreturns…Someorganizationsthatareveryperformance-orientedareontopoftheircosts,usuallystartingwiththeircustomer-facingandexternalbusinesses.Andasyougodownthevaluechainorupthevaluechaintoalloftheinternalprocessesthatarelesscustomer-facing,veryoftenthey'relessawareoftheircosts.Thebiggertroublethatcompanieshaveinbenchmarkingsomeofthesefinancialprocessesisit'shardtofindthemallinthecompany.They'rebeingdoneinlotsofdifferentplacesbylotsofdifferentpeople,manyofwhomarenotpartofthefinanceorganization.BENCHMARKINGROTH:Overthepast10years,fortheaveragecompany,financecostsasapercentageofrevenuehavedroppedroughly52percent,from2.2percentto1.05percent.Theotherthingthat'sintriguingisthatthere'skindofabeliefthattobeworld-classisexpensive.Andwhatwe'vereallyshownthroughourempiricaldataisthattheworld-classcompaniesareactuallycheaper…World-classcompaniesusecentralizationmuchmoreextensively,87percentversus44percentfortheaveragecompany…World-classcompanieshave15percent[oftheworkforceas]managers,whileaveragecompanieshave20percent.Nowonitsface,youwouldn'tsaythat'sasubstantialchange.ButIwouldtellyouthatshowsthatworld-classcompanieshavehigherspansofcontrol-morepeoplereportingtoonepersonandlessofasiloorganization.That'svery,veryimportant…Theworld-classcompaniesdeploy44financeFTs[full-timeemployees]perbillion[dollars]inrevenue,comparedwiththeaveragecompany,whichdeploys103financeFTsperbillioninrevenue.However,Icautionyouthattechnologyalonedoesnotenableworld-classperformance…Theothernegativetotechnologyisthatittendstofocusclientsonspendingmoretimeanalyzingdata.Andwhathappensisthatthecompaniesthatfocusontechnologyasthesilverbulletforfixingsomeoftheirprocesses[findthat]actuallyelongatestheirprocessorcycletime…World-classcompaniesbalanceprocessandtechnology.So,thereisnosilverbullet,andyouneedtoreallybalancethetechnologyandprocessbestpracticestoachieveworld-classperformance.Whatwefindisthattheaveragemanagerismanagingonamonthlybasis141distinctmeasures,whichisclearlyalmostintheunmanageablerangetobeabletodealwith.Wefindworld-classcompaniesfocusingonalimitedsetofmeasures-five,sixkeymeasures-toreallyunderstandwhatdrivesthebusinessandwhatdrivesperformance.
