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01 July 2004
Offshore service delivery is increasingly popular but brings with it new categories of risk to be managed
As the outsourcing market matures, more companies in more areas of their business are in search not just of cost savings but of greater operational efficiency and even opportunities to create value.
As this process continues, the issue of risk is becoming more important to companies' decisions about what and how they outsource. Offshore service delivery is increasingly popular but brings with it new categories of risk.
"The areas being outsourced are now more integral to the operations of the business," says Jonathan Chevallier, Xansa Market Development Director for Business Process Outsourcing. "They may not be key areas to your competitive advantage, but if they fail, they imperil your brand and your business."
The many dimensions of risk
Xansa has developed a highly sophisticated approach to risk management based on its 40 years of experience of outsourcing. Xansa initially works with clients to establish the scope and potential benefits of outsourcing. The next critical step is to look at the potential risks of the scoped outsource not in the abstract but in how risks relate to the precise vulnerabilities of the client.
"We have a framework and a process which enables us to ask the right questions and discover those issues of greatest risk," says Chevallier.
Xansa groups the risks of outsourcing into seven broad categories or dimensions:
This analysis will produce very different results by industry and client. For example, a company in a highly unionised or regulated environment might have a high score along the stakeholder risk dimension. Another might be more concerned the outsource doesn't constrain its ability to make acquisitions or divestments.
Creating a unique framework
To ensure that companies gain the maximum benefits from outsourcing with the lowest possible risk, Xansa is able to apply a set of "risk levers" which mitigate precisely those risks the client is exposed to.
These might involve changes to the structure of the outsource, for example, the onshore and offshore mix, adopting different governance models or a phased implementation model. Or, they might involve investment in specific areas, such as addressing HR or regulatory concerns, or increasing the integration between in-house and outsourced functions. Through this focused approach, significant reductions in risk can be achieved while retaining the majority of the benefits of the outsource.
"For example, just by slightly changing the outsourcing scope, you can often remove a lot of the risk, which might be linked to just one small process area, while leaving the benefits largely unchanged," says Chevallier.
Risk averse or risk cavalier?
Greater awareness of the many dimensions of risk means that some companies have become very risk averse when it comes to outsourcing. Others are so focused on cost reduction that they have become risk cavalier, being prepared to live with a high level of risk as they feel the benefits of outsourcing will outweigh those risks.
"In that case, there's an even greater need for a responsible approach to risk management," says Chevallier. "They're placing a lot of bets, and are even prepared to accept that some of these risks will crystallise. But they still need to know the risks they are taking will not endanger their business survival."
Xansa's approach means the creation of a unique outsourcing relationship for each client which recognises each organisation's appetite for and exposure to risk, while delivering the maximum benefit.
"At the end of the day, outsourcing may be driven by cost-benefits but it also needs to be grounded in a firm understanding of what makes a business work," says Chevallier. "Increasingly, what will determine the success or failure of an outsourcing deal is how risk is managed and shared."