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Life is about choices. Resources are finite -- a fact made so very clear in the current constricting economy -- and we all have to make decisions about their best allocation.

Companies that focus on resource allocation will be able to weather the economic downturn. In the past, the focus has been on diversification. The thinking went: if we invest in a number of different businesses, their economic cycles will complement each other, keeping the overall corporate revenue on an even keel. History, however, has not been kind to most of the organizations that have subscribed to this theory.

Today, the companies able to flower through adversity are those that become monomaniacal about their core abilities. They channel all their available resources -- chiefly time, talent and capital -- into the key areas that distinguish them in the marketplace and then underinvest in everything else.

In fact, that's one of the ways consultants here at the Everest Group determine which processes a company considers core. Senior management often views a process it has historically underinvested in as support. For that reason, it's understandable that they balked at investing time, talent and capital in these support areas while husbanding these key resources for their more core functions. The company's executives continually challenge the management of these important, but support, functions to cut costs, then only invest in the process when technology becomes so outmoded or things run down to such a low level that refusing to invest in them impacts the rest of the business.

Clearly, concentrating on core abilities is a wise business move. But ignoring these important support functions can have negative repercussions for the future of the company. Starved for investment, these functions can slowly atrophy until they fall into disrepair, all the while providing degraded service (which is the best they can do.) Eventually, the company has to spend money to fix them. By then, it may be cheaper to scrap everything and start fresh.

Business processes like finance and accounting or human resources (HR) are classic examples of areas that become forgotten stepchildren. However, they remain crucial to the overall health of the enterprise. They will never be able to deliver operational excellence -- high quality service at a reasonable cost -- unless they get constant attention and investment.

Shared Services Organizations Go It Alone

Many companies have attempted to address this issue by creating shared services centers. Companies will amalgamate a specific business process--like human resources (HR) or accounting and finance--in one department that performs that process for all divisions of the company. Companies believe that pulling these support functions from the day-to-day operations of the business will allow it to leverage its economies of scale and best practices. The independence of the shared services center creates the visibility necessary to ensure adequate levels of investment.

Initially, this structure often works quite well. The parent organization is prepared to seed the shared services center with appropriate levels of talent and capital. However, as these organizations mature, they relentlessly compete for investment and talent with the more core components of the business. This competition also raises the performance expectations from the parent organization, which puts the shared services company in an increasingly difficult position. It is not allowed to make a profit but still must generate the needed investment to continue to invest in its infrastructure. The result: they are unable to compete for the necessary investment while facing an ever more hostile user group.

The Everest Group is currently working with a number of shared services organizations that are either attempting to emerge as independent outsourcing providers or trying to find a new home with a larger outsourcing organization where their expertise can make a difference.

Outsourcing is the way to treat every process as a core process. Of course, it's the outsourcing vendor who funds improvements in the outsourced process, allowing the buyer to receive all the business benefits without tying up its own resources. As I discuss in my book, "Turning Lead into Gold: The Demystification of Outsourcing," outsourcing is the only vehicle that allows companies to get better service while disinvesting.

The process you ignored is core to the outsourcing provider you select. They spend lavishly to acquire the necessary tools, techniques and infrastructure because that's how they distinguish themselves in their competitive arenas.

Human capital is another competitive component. Companies have great difficulty in attracting top talent in their non-core areas because they folks want to work where their input is core. Outsourcing suppliers have a recruiting advantage, so they can attract the best talent in the field.

With investment capital and human capital, the outsourcing provider can offer superior service at a lower cost. BPO providers like Exult, PricewaterhouseCoopers and Accenture are good examples of the kind of work product an outsourcing specialist can deliver. And they can sustain this advantage over the long term.

We are currently working with many clients who have habitually underinvested in processes in the business process outsourcing (BPO) area. By outsourcing these functions, we can make a substantial improvement in their quality and the cost.

Lessons from the Outsourcing Primer:

• With limited resources, companies are funneling their human and investment capital into their core processes while ignoring the others.
• Processes atrophy without investment; they become expensive and outdated.
• Outsourcing allows every process to be funded like a core process since outsourcing providers are eager to invest in the processes that distinguish them in the marketplace.
• BPO providers have a recruiting advantage. Companies with the best people can produce the best work product.
• Outsourcing allows companies to receive better services at a lower cost in their underinvested processes.

Publish Date: July 2001

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Copyright © 2001 - Everest Partners, L.P.

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