Insourcing vs. Outsourcing vs. Hybrid Models – What’s best for you?
By Mark Atterby Senior Staff Writer
As the outsourcing and shared services industries continue to grow and evolve, more hybrid arrangements for outsourcing are emerging, where organisations and their providers can adopt and adapt a variety of models to best address their business needs. The Sauce speaks to Ray Slayford, National Lead Partner of Procurement and Shared Services KPMG – at the 14th Australasian Annual Shared Services & Outsourcing Week in Melbourne, about the evolution of the shared services and outsourcing industries.
In the past, outsourcing and shared services were viewed as two very distinct business practices, where numerous debates existed concerning the merits of one versus the other. KPMG’s Ray Slayford comments, “I think the existence and understanding of shared services (in-sourcing) and the various forms of outsourcing (on-shoring, near-shoring and off-shoring) are becoming far more common. We will see greater emergence of hybrid models which will connect insourcing, outsourcing, offshoring and on-shoring with different providers including the cloud and overseas providers.”
The emergence of various hybrid forms of outsourcing and managed services has been identified in various studies. Recent research by the SSON, published in March 2011, identified three types of hybrid models that exist in the market today:
1. Geographic Hybrid: Involves models where a particular geography may have been outsourced and another intentionally keeps its services within a captive shared service centre (i.e. the Melbourne office of a corporation may have fully outsourced a process while Sydney retains control through the managed service centre. This enables a clear comparison for many processes between what is provided by the captive shared service centre and the outsourcing provider.
2. Scope Hybrid: Hybrid models that are separated by scope with non-core, repeatable, measurable, and predictable activities migrating to an outsourcing provider, and activities that are core to the business or cannot be migrated due to data restrictions or culture remaining in a captive shared service centre.
3. Intermediary Hybrid: Fluid hybrid models where the shared service centre is the intermediary step for processes prior to full outsourcing to the external provider. This allows the internal change management required in pulling activities away from the divisions, departments and subsidiaries to be completed; the activities and procedures stabilised; and the processes understood prior to transferring to the outsourcing provider.
Traditionally, Shared services (In-sourcing as opposed to outsourcing) refered to the provision of a service by one part of an organisation or group where that service had previously been found, to more than one part of the organisation or group. Thus the funding and resourcing of the service is shared and the providing department effectively becomes an internal service provider. The key is the idea of ‘sharing’ within an organisation or group i.e. two government departments may share the same HR, Payroll and finance services and infrastructure.
In the past outsourcing and shared services were seen as being diametrically opposed. But the two have become blurred, particularly as commercial enterprises engaged in shared services. The internal department could evolve into being its own commercial entity (profit centre), where the services it provided could be offered to other businesses and organisations, hence becoming an outsourcing provider.
Though the provision of shared services and outsourcing are very different models, where there are constant debates about the merits of both, there is an increasing view that they can harmoniously co-exist. The development of hybrid models, that combines the benefits of insourcing and outsourcing, allows organisations to maintain control and migrate from one service to the next.
The Australian shared services market is quite mature, where, over the last twenty years, a lot of private organisations as well as the public sector have explored or developed shared services with different degrees of success. Slayford believes that where Australia is lacking maturity to some extent is in the outsourcing phase and the transitioning from shared services to outsourcing within a hybrid model, he states, “What’s less mature compared to Europe and North America is the outsourcing phase, which is growing at a rapid rate with the emergence of China and Asia as outsourcing destinations.”
“Asia has a lot to offer in terms of talent and resources. They have highly skilled workforces. They have highly educated workforces as well as high English speaking populations. They can provide services that are in high demand where we are experiencing shortages in Australia.” Asia is close and offers Australian organisations, with providers in places like China, Vietnam, the Philippines, as well as India; a number of opportunities in developing cost effective solutions based on hybrid managed services and outsourcing models.
The mainstream view is that outsourcing and shared services should not be viewed as being diametrically opposed to each other. Hybrid models are being developed to leverage the benefits inherent in each, offering organisations greater flexibility and options when it comes to more efficiently managing their business processes.