As attitudes to outsourcing become more focused,
there is a realization that without much-needed
transformation activities, many of the benefits of
outsourcing cannot be realized. Another interesting
aspect is that organizations are becoming increasingly
aware of the need to have in-house resources with
a new skill set, which can optimally manage the
outsourcing services. The market is also seeing an
increase in the use of external resources for support
and advice in decision-making about outsourcing.
6.1 Most services outsourced on an as-is basis, but this is changing
An essential factor of outsourcing services to an
external provider is the transition phase. The largest
group of our respondents indicated a preference
to outsource most of their services as-is, without
any transformation activities prior to or after the
outsourcing transition. This mainly concerns first
generation contracts (first-time outsourcing). Second
generation contracts (from one outsource provider to
another) include more transformation activities.
Interestingly, not transforming at all conflicts with the
main outsourcing objectives of respondents, i.e., cost
savings and efficiency improvements. Outsourcing
could stimulate an improved focus on core business,
but by not transforming, any improvements in
efficiency and costs are practically impossible.
Some companies first lift and transform functions to a
shared services center (SSC), after which the service
can be outsourced as one harmonized function,
including more chance of a fluent transition. In this
case, the organization optimizes the function itself
before outsourcing it to an external service provider.
As organizations move to a more mature outsourcing
stage, there will be more focus on transforming
functions before moving services to providers, after
which further transformation during the contract
lifetime will take place.
Figure 30: Transition approach across all countries
The much-needed rise of transforming functions
Transition and the retained organization
6.2 Service quality and rates the main focus of
client and provider discussions
During the transition of activities, multiple discussions
exist between service providers and their clients.
Figure 31 shows the most common, with quality of
service listed as most discussed. Essential for both the
client and service provider is to make solid agreements
on the transition service level agreement (SLA), since
this is often forgotten. Obviously, the rates for services
are part of the discussion as well, but interestingly, at
a number of outsourcing initiatives, this is still an item
of discussion during transition phase. Rate discussions
would be expected to be finalized and documented in,
for example, a rate card, once the contract is finalized to
avoid such discussions later on in the transition.
First transform,
then outsource 22%
Combination 25%
First outsource,
then transform 20%
Transition of services as-is
(no transformation) 33%
0% 10% 20% 30% 40%
Quality of service 43%
Rates for service 35%
Responsibilities of
each party 25%
Planning 24%
Budget during transition 23%
Level of standardization or
customization of services 22%
Change in resources or team 20%
Additional change requests 17%
0% 10% 20% 30% 40% 50%
Figure 31: Discussion elements during contract
life cycle
30
The reasons for discussion during transition of services
appear to be the same across countries, with only
some country-specific deviations. The most interesting
gap is between Sweden and Finland; Sweden
marginally discusses the responsibilities of each party
during transition, where Finland seems to be very
critical along most of the axes. Apparently, in Sweden,
generally, the roles and responsibilities are clearly
agreed upon, limiting the reasons for discussing these
during the contract life cycle.
Only a very few respondents report having no
discussions at all during transition.
Figure 32: Reasons for discussion in the
transition phase
6.3 Retained organizations employing new
resources with different skill sets
Transitioning to the service provider is an important
factor in the success of the outsourced service.
Both the retained organization and the transition
methodology define the chances of success.
When asking organizations how they structure
their retained organization, most reply that this is
a combination of specialists and experts already
employed by the company working in the outsourced
function, and newly attracted resources with a
specialized skill set. Organizations seem to realize that
successful management of the service provider requires
a combination of additional skills and knowledge of the
organization and the outsourced service.
Figure 33: Structure of retained organization
When looking at the size of the retained organization
compared with the outsourced service, there is no
“one size fits all,” with variances from between 0% and
5% to more than 50% of the outsourced service.
Remarkable is that more than 40% of the organizations
indicate that their retained organization is rather
large, i.e., more than 20% larger than the outsourced
function measured in FTEs. For such large retained
organizations, it becomes very difficult to realize
the most important objective for outsourcing – cost
reduction. The diversity in size of the retained
organizations can be explained by differences in
responsibilities. Retained organizations managing their
outsourced services in detail are in general larger than
retained organizations that have fewer responsibilities.
Figure 34: Size of retained organization as % of
outsourced service
6.4 Use of external support in decision-making
for outsourcing
When asked whether they engage with external
sources, 42% of organizations indicate external
sources are used in the preparation and execution of
outsourcing initiatives. When comparing countries,
Germany and the UK are most mature in using external
support in their outsourcing engagements. The
Nordic countries overall use the least support when
outsourcing business or IT processes. In 75% of cases,
no external support is used.
Figure 35: Use of external support
0% 5% 10% 15% 20% 25% 30% 35% 40%
A combination of both 24%
New resources with a special skill
set were attracted to fulfill
the demand management function
38%
Specialists and experts previously
working in the outsourced function
are fulfiling the demand
management function
38%
0%
10%
20%
30%
40%
50%
60%
Rates for service
Responsibilities
of each party
Planning
Level of standardization or Budget during transition
customization of services
Change in
resources or team
Additional
change requests
No discussion
Norway Finland Other countries
Quality of service
13%
15%
18%
5%
5%
12%
17% 14%
0%–5%
6%–10%
11%–15%
16%–20%
21%–25%
26%–30%
31%–50%
More than 50%
Germany 46%
United Kingdom 50%
Netherlands 46%
Spain 41%
Sweden 39%
Norway 33%
Finland 31%
Denmark 29%
0% 10% 20% 30% 40% 50%
Outsourcing in Europe An in-depth review of drivers, risks and trends in the European outsourcing market 31
Of all respondents using external support for their
outsourcing engagements, most engage them for
their independent view and to gain expertise about
outsourcing initiatives and approaches.
Figure 36: Reason for external support
Transition and the retained organization
Germany 19% 25% 22% 13% 12% 8% 1%
Finland 10% 28% 23% 18% 15% 5% 3%
United Kingdom 24% 19% 16% 21% 15% 4% 1%
Norway 16% 22% 16% 19% 16% 9% 3%
Sweden 20% 23% 14% 23% 11% 9% 0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
An independent view on clients’ outsourcing initiatives Gain expertise and experience on outsourcing approach
Improve quality of the decision-making process Gain expertise and experience in the outsourcing market
Reduce risk
Other namely
Efficiency improvements
Denmark 9% 17% 14% 29% 26% 3% 3%
Netherlands 31% 12% 12% 18% 19% 7% 1%
Spain 20% 21% 11% 23% 14% 11% 0%
46% An independent view on
clients’ outsourcing initiatives
46% Gain expertise and experience
on outsourcing approach
39% Improve quality of the
decision-making process
36% Gain expertise and experience
in the outsourcing market
Reduce risk 30%
Efficiency improvements 16%
Other 2% 56%
44%
Yes No
An interesting difference between countries is
the reason for external support. The Netherlands
focuses mainly on obtaining an independent view on
outsourcing initiatives, whereas Denmark, for example,
mostly wants to improve the quality of the decisionmaking
process. This could be explained by differences
in outsourcing maturity within these countries.
Figure 37: Reason for external support per country
32
What this
means for
businesses
Transformation: building a strong base
There are two elements to transforming. The first is changing the
process at a functional level. This is what organizations tend to
focus on, because it is within the gift of the service provider to help
push.
The second is transforming the operational design, i.e., the
retained organization, and this can’t be influenced by the service
provider. Unless the client brings in specific outside help to do this,
it is difficult for them to get it right. This is because not only does
the organizational design need to change, but the way people work
and the roles and responsibilities that they have in the retained
organization must also change. And people’s capabilities to deliver
must change too.
It can cost less in the long run if you invest in getting processes
right before you outsource them. If a business transitions a service
or function that is soundly run, the provider will be better prepared
to focus on excellence because the organization would already be
there and the inefficiencies already eliminated. The business can
outsource at a lower cost, without paying for expensive remedial
action.
Indeed, a knock-on effect of doing it this way is that the
relationship with the service provider is on a solid footing from the
very beginning. If you transition broken processes, and they’re
transformed by the service provider, what will tend to happen is
that the relationship is rocky right at the beginning as both parties
suffer from operational teething problems at a stage when they
have not had time to forge trusting relationships.
However, some organizations don’t have the capability to change
the services themselves, and are reliant on an external provider to
help them.
Service quality: managing expectations
Unless the parties have an established, trusting partnership,
their relationship will be governed by SLAs. Many clients find that
SLAs are not delivering what they want. This is because, at the
beginning of the relationship, they fail to establish the right SLA.
The service provider maintains that they are delivering to the
SLA that was agreed, but the client feels that this is beside the
point because the SLA was not appropriate in the first place. The
client will aspire to best-in-class service, while the provider may be
taking worst-in-class service from the client’s hands and improving
it. So, an expectation gap about the pace of progress can be built
in from the start. Managing expectations is key.
Figure 32 shows how, in Norway, there is much less discussion
about rates and service quality. So, apparently, clients in
Norway have done a much better job of defining the SLA. This is
perhaps because, right now, the Nordics is a very hot region for
outsourcing. Countries in this region have come to outsourcing
later than others and they have learned much more, very quickly.
They are better informed about how to structure an outsourcing
deal.
Outsourcing in Europe An in-depth review of drivers, risks and trends in the European outsourcing market 33
What this
means for
businesses
Organizations should be aware that while they may be
approaching outsourcing for the first time, the providers will have
been through the negotiation process hundreds of times. They
will be much more experienced at negotiating SLAs – and knowing
how SLAs can work in their favor. So, to redress this imbalance,
organizations must make sure that they are properly advised.
Skill sets: retain your capabilities
Once you outsource a service, you have to build a retained
organization that manages it and ensures that you get the service
you need. It’s important for the business to retain key subject
matter specialists who know the business back to front. They are
the people who will help manage the relationship with the provider.
If outsourcing the function does not work, they offer the capability
to build it up in-house again. Organizations also need people
to manage the contracts. Working with a service provider is a
specialist skill for which companies must provide.
External support: the value of good advice
Figure 35 shows that the more mature outsourcing markets, such
as Germany and the UK, are more likely to use external support
when outsourcing. Of interest are countries, such as Denmark
and Finland, which are showing as less inclined to rely on other
advisors to help. There are a number of reasons why this might
be. The Nordics, as a region, came to the outsourcing market
later than other countries, and this means they’ve had the benefit
of learning from others’ experiences. So, in the Nordics (and this
pattern can be seen in other geographies too) organizations that
have been preparing to outsource have researched the process
and learned to do some of the work themselves.
Meanwhile, some that are onto their second or third generation
contracts have gone through the process before, and are
confident enough to run the selection process themselves, while
seeking advice on other issues. Others, naively, think that they
can undertake the whole task of establishing a relationship with an
outsourcer. Often, they don’t get a good quality of service at the
end of it, because they don’t actually know what they need in the
first place.
Getting an independent view on outsourcing initiatives – and
ensuring that the right balance of processes is outsourced – is
critical. An expert advisor will look at an organization’s risk
appetite and assess what services, in reality, that organization will
accept being outsourced. The advisor will help present options,
some of which will push boundaries, and help the organization
find the balance of purposeful outsourcing while staying true to
themselves.
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