The Dawn of the Chief Outsourcing Officer?
14 June 2006 Rajeev Sawhney
As the scope of outsourcing continues to expand, Rajeev Sawhney, Corporate Vice President of HCL Great Britain investigates. He looks at the question of board-level outsourcing ownership and the possible growth of the Chief Outsourcing Officer.
As the scope of outsourcing continues to grow the ownership and representation of outsourced operations at board level has assumed a greater importance.
This makes good sense not only from a financial perspective, as outsourcing contracts increase in value, but also from an operational view as outsourcing moves up the value chain, taking on ever more important business processes and systems.
Consequently the need for a senior figure that can direct and develop these outsourcing relationships, as well as be responsible for their performance has become a topic of discussion amongst many professional communities.
Research commissioned by HCL Technologies has recently put a figure to this growing concern – over a third (37%) of finance directors and managing directors now feel a board level outsourcing representative is needed.
Historically outsourcing has been a concern of the IT department and has fallen under the remit of an IT manager or director, though within many companies the ultimate board level representation of IT has fallen to the finance director. However this may no longer be the case for a number of reasons.
As outsourcing moves beyond just IT, other senior managers and directors want to be responsible for the outsourcing contracts that impact their departments. Likewise, the growth of procurement professionals suggests that outsourcing may soon fall under the remit of supplier relationship management specialists. Lastly as IT leaders secure a place on the board, outsourcing is often a key driver for the changes they need to implement business improvements.
WHO OWNS OUTSOURCING?
Against this backdrop, independent research commissioned by outsourcing specialist HCL Technologies has shown that the issue of who owns outsourcing threatens to split the board.
Whilst 83% of UK IT directors believe that they should represent outsourcing at a board level, only 1% of finance directors and managing directors think the same.
Instead, the non-IT directors prefer the FD or operations director to head up outsourcing (40% and 25% respectively).
Support amongst technology leaders for the finance director is similarly low with only 2% of IT directors favouring finance directors for outsourcing leadership. Only 8% of IT directors thought outsourcing belonged to the operations director.
In defining the scope of this Chief Outsourcing Officer role, the research found 74% of IT directors are confident outsourcing issues could be escalated to a senior level if needed though almost half (48%) of these IT leaders were unsure of their grasp of outsourcing compliance issues. In addition, strong negotiation skills were recognised as the top requirement for the role (93%) beating technology skills into second place (63%)
OUTSOURCING IS DEAD
Stuart Drew, managing director of the financial services division at HCL Technologies for Europe, explains what this may mean for companies throughout the UK: "It is crucial for the success of an outsourcing agreement that the customer retains the necessary and required level of control. It is possible to classify the type of outsourcing by certain parameters and experience has shown that those outsourcing contracts most likely to succeed are those where the customer retains control and still sees high impact."
Rajeev Sawhney, corporate vice-president for HCL Europe adds 'As Gartner puts it, outsourcing is dead and multi-sourcing is the new way to go, with the implied requirement for companies to manage multiple service providers. This trend will add to the argument supporting a specialist Chief Outsourcing Officer."
"This means there has to be a figure that holds responsibility and authority over the outsourcing issues. However, identifying who this person is clearly a bone of contention."
For many IT directors, outsourcing has been one way of gaining board level recognition for the contribution of their department to business improvements, so it is understandable that they feel outsourcing should remain under their control.
IT leaders with strong business skills have always been in demand and outsourcing has shown many directors that their IT counterparts can cut it in the boardroom.
The fact that half of the IT directors interviewed are unsure of compliance issues and the recognition of the importance of procurement and negotiation skills may sound alarms in the minds of the finance and operations directors. However this is not to say they will immediately want to oversee the entire outsourced portfolio.
However both IT and non-IT directors are united in their belief that an additional, separate Chief Outsourcing Officer or outsourcing director figure would not be a valuable addition to the business. This would suggest that the issue of who owns outsourcing will have to be resolved by companies looking to allocate responsibility to an existing member of the board rather than taking on a specialist.
Again, Stuart Drew explains what this will mean: "It is clear that there is scope for a role of a Chief Outsourcing Officer, but equally clear that this responsibility will fall to an existing member of the board or senior management team. This strongly suggests that we are looking at defining a set of additional responsibilities and the skills required to address that burden.
If procurement and negotiation are top of that skills shopping list but addressing an historically technological issue, it is vital that IT finance directors work together to ensure that businesses can use outsourcing to its full extent, creating the impact that defines a successful outsourcing partnership, whilst retaining control.