by CIO Staff

Outsourcing on the Rise in Canada

Jan 09, 20073 mins
Supply Chain Management Software

By Nestor E. Arellano

While an increasing number of Canadian companies are opting for an outsourcing model, a recent study suggests these organizations have varied experiences, depending on what it is they outsource.

For instance, when it comes to business process outsourcing (BPO), companies polled reported a level of satisfaction “slightly under 50 percent,” according to the study report from the Centre for Outsourcing Research and Education (CORE), a Toronto-based nonprofit industry organization. “Some organizations reported significant dissatisfaction with outcomes from their BPO initiatives,” the CORE report said.

With information technology outsourcing (ITO) as well as application development and maintenance (ADM) outsourcing it was quite a different story. The satisfaction rate for these was in the 75 percent to 85 percent range.

“Organizations are satisfied with their IT-related outsourcing initiatives, but are still struggling with BPO,” said John Simke, president, CORE. He attributes the disappointment with BPO to the field’s relative immaturity and complexity.

This is a view shared by Bill Martorelli, principal analyst, Forrester Research Inc., Cambridge, Mass. He says inexperience is the main reason many companies’ have negative experiences with BPO. “ITO has been around for a long time and is well established. BPO is less well understood and has a lot of volatility.”

Martorelli said it was only recently that companies began outsourcing processes such as those involving human resources, finance, accounting, claims and mortgages. As firms and outsourcing service providers gain more experience and develop best practices the problems will be resolved, the Forrester analyst said.

The CORE report also points to a noticeable change in the main drivers of outsourcing. While cost reduction is still important, other factors are also influencing the decision to outsource, the report says. Companies, it notes, are now searching for providers with “world-class capabilities” and “enhanced core process abilities.”

Other results sought include: product or process innovation, service and product quality improvement, cost avoidance and the ability to focus on core business activities.

Increasingly, organizations are also evaluating service providers based on their ability to “partner effectively” rather than their technical competence and ability to deliver service. “Companies realize that in five to 10-year contracts, particularly in BPO, a strong relationship that enhances adaptation to change [is] more important than technical competence,” according to CORE.

Globally, Martorelli noted, organizations are also moving away from huge, singular outsourcing contracts. “Some firms are revisiting their large contracts and breaking them up among smaller providers to minimize risk and obtain flexibility,” said Martorelli.

The CORE survey confirms that this is indeed the case. It says several Canadian organizations polled reported they had numerous outsourcing agreements, “in some cases over 100.”

To maximize outsourcing benefits, CORE suggested companies should clearly define governance requirements and assign senior executives to oversee the management of outsourcing relationships. Organization should also develop best practices for managing and measuring the various stages of a contract’s life cycle.

CORE said some companies are also putting emphasis on the leadership capabilities within the outsourced service provider and incorporating risk-reward provisions in contracts as incentives for better performance.

This article originally appeared in ITWorld Canada.