For certain key non-core functions such as IT and finance there are, in theory, considerable competitive advantages to be obtained from their transfer to external specialists. However, many organizations have found, to their considerable cost, that outsourcing is fraught with difficulties.
Experienced observers of outsourcing arrangements will have little trouble accepting the following as factual.
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Separate joint venture companies set up by client and service provider would appear to get around the problem of resources being spread too thinly. There are many such joint ventures operating in this way. Typically, they are formed on the basis of the client having some special position in the marketplace and the provider creating software solutions to exploit that position. On this basis, the client’s IT department and other related areas will probably be transferred to the new company, together with other services such as marketing. The service provider may also transfer marketing skills alongside software specialists, etc. Therefore most of these joint ventures depend on getting the marketing right equally as much as on the quality of the new systems development. Almost all these arrangements build in the possibility of the new company acting as an outsourcing service provider for other clients in due course. But clearly, the marketing element of this type of joint venture is always going to make comparison with conventional outsourcing arrangements very difficult.
Conventional outsourcing is subject to a range of problems, most of which boil down to the question of getting the desired share of the skills available. The outsourcing service provider might be a Mecca for the very best technical skills, but if your organization is just the latest of hundreds or thousands of clients, how can you ensure the very best service? Creating a value added, risk/reward sharing partnership will help in this respect but how effective will this be if the last half dozen or so deals entered into by the service provider were done on a risk/reward sharing basis?
Taking advantage of the service provider’s own shared service centre may be beneficial to some if the client is using the same systems as the provider. For others it may be beneficial to involve the provider in some way in the client’s own shared service centre.
For most client organizations, however, the best solution to the problem of getting the required share of skills and attention would be to own some of the service provider’s equity. For the client to obtain the desired benefits, the specialist service provider must be motivated to make continuous improvements to the service during the life of the contract. Recent experience has demonstrated that by far and away the best way for the client to achieve this is to take some measure of equity in the provider to ensure that it is always going to be a favoured customer.
for most client organizations, however, the best solution to the problem of getting the required share of skills and attention would be to own some of the service provider’s equity