Transformational Outsourcing in IT Companies - Report Example

Summary

Outsourcing has become a hot topic among business leaders in the global business community. In IT, outsourcing is putting into use the external providers’ services to deliver business processes and infrastructure solutions that will result in business outcomes. Transformational outsourcing is a program to transform the way a business works, enabled by outsourcing to achieve a rapid, sustainable, step-change improvement in enterprise-level performance. For a company to redirect its focus to revenue-driven processes, it should allow outsourcing to substitute behind-the-scenes administrative functions by opening its doors for top-level professionals.

Introduction

Outsourcing is one management tool that has gained relevance among managers in addressing today’s business dynamics. Executives use this tool as an instrument to do away with unimportant activities and cut in costs out of non-core activities. But, many of them have moved to a more sophisticated approach to engage in collaborative relations with outsourcing business partners for enterprise transformation and engineer support processes. In this report, I discuss transformational outsourcing, its importance, the pros and cons of adopting this approach, and why the efforts to outsource may fail to achieve organizational goals.

Methodology

Information in this report was gathered from various sources from the internet and Canvas. Data from multiple publications also proved valuable to this report. The example used in the report is an illustration to suit the situation. This report is not as comprehensive but provides an overview of the main topic.

Scope of the report

Wherever the term ‘outsourcing’ is used, it means resources or humans. The business under consideration here is an IT company. The report focuses on the concept: transformational outsourcing and different aspects of it.

Findings

For CEOs of IT companies looking to use this approach, they must start by building a strong strategic agenda. By sharing the risks and gains with an outsource business, they create a competitive weapon as they transform roadblock business processes. This will enable them to benefit in the price share, market position, and return on capital.

For example, Mark S. Cereals, the second-largest cereals retailer in Italy, found out that its position in the market was slipping according to its performance. Costs were noted to be rising than revenues, and profits were off the line with the industry leaders. Over the last two years, profits had fallen by 40%, with a significant decline in market capitalization and price share. The hastened slide was the major threat from competitors. As an aggressive action to the slide, he appoints John Major as the CEO and gives him authority for radical change. Within a few months, John had entered into a partnership with a large consulting firm to take up as the company’s prime advisor for Mark S. Cereals to regain its position by helping the company to implement strategic repositioning as well as transformation management program.

This partnership helped the company save on future costs and is called innovative financial structuring, which also included a transformation of IT capabilities. As Mark S. transferred its employees to its partner firm, it gave authority to the firm to run its IT network and systems.

What makes Transformational outsourcing unique?

Rapid results are achieved when applying the transformational outsourcing approach in business because it integrates five essential components;

• Bold strategic agenda- transformational outsourcing means fast results. Implementing the strategy at an accelerated pace as designated and maintaining the CEO’s vision, this approach helps a company keep an edge of its agenda.
• C-level leadership- the new CEO appointed by Mark. S Cereals delegating the governance processes to a lower level in the organization kept the business processes running, and the transformation stopped.
• Innovative deal structure- the financial structure of a transformational deal should fund all the necessary investment and motivate its business partners by distributing risks and promising rewards.
• Transformation of critical processes by collaborative outsourcing- many companies differentiate on core and non-core processes to decide on what to outsource. In a dynamic business environment, a company should hand over its critical operations to a specialist if, after all, they want rapid transformation. Outsourcing would help in driving change that the company could not do on their own.
• Enterprise outcomes- transformational outsourcing is a high stake for success in business as it aims in outcomes shareholders and competitors.

Importance of transformational outsourcing to an IT company

Through Business Transformational Outsourcing, an IT company is able to respond to the trends and help in the innovation of the existing product, service, or process and keep an eye on the costs.

Although the outsourced firm may take up some of the company’s processes, the company in question retains significant control over the services provided by the outsourced firm.

Staying competitive in the market would only mean an improvement of revenue, reduction in costs, and reduced risks as a result of entering into the partnership.

Among the many benefits of transformational outsourcing, an opportunity to invest, value addition, and exploration of the full potential of the outsourced process make the major benefits of the approach.

Experienced partners help in making a smooth transition with minimal risks involved. For instance, a shift of fixed costs to variable costs reduces the exposure of risks resulting in investing in inefficient assets.

Why a company may not achieve its organizational goals even after outsourcing

Outsourcing as a way of responding to a slide in the business process does not guarantee that a company will achieve its goals. Companies consider failure when the costs are greater than the benefits generated.

Many IT companies fear change, especially in job loss, as they attempt to get into partnerships. In the end, they make a poor choice of outsourcing partners. Establishing strategic supplier alliances and adopting the philosophy that the firm is a partner with the supplier may help alleviate this problem.

Another reason why a company may fail to achieve its organizational goals is the lack of comprehensive plans that outline detailed expectations, requirements, and expected benefits of outsourcing.

Third, the company's liabilities exposure caused by inadequate control systems over the delivery of certain services and other hidden costs are risks that may deter the company from achieving its goals.

Organizations outsourcing should monitor the contractors’ or partners’ activities continuously and establish constant communication between them.

Fourth, many companies tend to have expectations of how they want things to happen but without strategies. Achieving organizational goals without a strategy is almost impossible.

Lastly, the client's retained team may lack the required skills an IT company may have anticipated. They may slow down the achievement of results as now they are given new roles in which they are not skilled.

Pros of IT Outsourcing

• Employment of staff in the new entity avoids staff reduction.
• Task supervision is made more accessible.
• Outsourcing gives a precise in the strategic planning for the parent company.
• Outsourcing has a significant effect on the pricing of services offered.
• Outsourcing helps maintain the market image
• And acquisition and additional income to the parent company as a result of new customers.

Cons of IT Outsourcing

• Outsourcing is a threat to the dominance of senior management's individual goals of the parent company.
• The creation of a subsidiary is costly.
• Through the partnership, the new entity achieves full responsibility for the economic performance of the company.
• Outsourcing may lead to limitations in making choices, among other similar service providers, with significantly lower pricing.

Conclusions

This report has presented transformational outsourcing as an essential tool as well as a stepping stone for companies. The paper has explained what transformational outsourcing is as well as its role in transforming company business processes. Although transformational outsourcing has been deemed as an effective tool, it has its own shortcomings, which have been listed in the paper. At some point, we all agree that a company can recover from strategic competition or even failure on its own. Still, it is also vital to note that two hands are better than one, and so outsourcing is a good strategy.

Recommendations

If IT companies want to have the transformational outsourcing approach to work, they should have contract negotiations that entail the right conversations with the partners. Establishing personal relationships should be just more than a social connection, but real bonds showed for them to work shoulder to shoulder in transforming the company. A strategic governance approach will also be effective in establishing a joint chart as transformation plays out. Lastly, the company management and the partners should track performance that is, establishing credibility through performance.