Getting to the Core

What does your company actually do? It may seem like a silly question, but it is one that lies at the heart of many current discussions about outsourcing. Many experts suggest that the key to successful outsourcing lies in differentiating a company's "core" operations from those that could be easily contracted out to a third party with little or no strategic impact.

In a study recently published in Canada by International Data Corporation (IDC), 48 per cent of respondents from companies with annual revenues in excess of C$1bn say they use outsourcing as a means of freeing up staff from operational activities, allowing these people to focus on core business activities.

"Companies demand much more than cost reductions when utilising and considering the use of outsourcing services," IDC concludes in the recent study, which was sponsored by the consulting firm Accenture. "Outsourcing is viewed as an enabler, allowing a company to focus in-house business resources and management on core functional areas."

Jason Bremner, senior analyst of outsourcing services at IDC Canada, suggests that outsourcing should have broad appeal. "While every organisation has unique needs, there is undeniable evidence that outsourcing allows executives to focus on the core business while resolving skills shortages or resource problems, reducing costs, and fundamentally transforming how an organisation thinks, acts and operates," he says.

Blake Hanna, a partner in Accenture's Financial Services operating group and one of those who worked on the outsourcing study, says that the main issue in many outsourcing projects is defining which services are really core to the business. Some, he says, might be "shared core" services, which could be jointly run with an outsourcing organisation. Others are entirely "non-core" and easily identified as an outsourcing opportunity.

"The parking lot, cafeteria and so on are not core, but there is a shared core space," he says. "When banks and insurance companies merge or acquire one another, both have a huge need to contact customers or members. And often in these merged entities, they have large groups in the contact centre or call centre space. They would tell you it is a core function - and their business processes are enabled by emerging technology. They use insight-driven marketing, CRM and so on. They have a rich technology component to them."

Hanna says that companies often end up looking at outsourcing as a result of trying to re-engineer their operations, but argues that they should start even further back if they want to get a good picture of where they have been - and where they might go in the future. "People talk about re-engineering, but in many cases their businesses were never engineered the first time," he says. "That's where we start to get into re-engineering - it's where the definition of what can be outsourced starts to come up. A customer call centre, for example, may look to augment its existing capabilities in-house in order to acquire new components of business. What they start to get out of that discussion is 'here's something real and tangible' and here's how business benefits are going to be derived."

He stresses that every outsourcing solution is different. "It's tempting to think there is a universal tool or one-size-fits-all solution," adds Hanna. "Part of our work is determining the right business model for a business and looking at what the organisation needs to retain control of.... Customers set a strategy, tell us the levels of service they want, and within those constraints, describe what they want us to help them achieve."

Hanna says that planning an outsourcing strategy requires them not only to assess a client's business, but also to educate their clients. "It is a process of understanding," he explains. "Executives are increasingly looking at outsourcing as a way of driving change. It is about understanding and working with an executive team, and establishing the avenues, channels and tools to introduce that change."

Technology companies too are helping companies identify core and non-core operations, thus broadening their services and supporting the move into outsourcing. At the recent Vision 2003 conference in Las Vegas, Gary Bloom, chief executive of Veritas, suggested that "utility computing", the concept of offering computing services on a metered basis, will play a growing role in helping companies think about outsourcing their IT operations. This includes the management of storage systems, a sector that Veritas dominates.

Bloom says that outsourcing companies are becoming important channels to market for his company's services - which now include the ability to enable utility computing. "For companies like IBM Global Services and EDS, when they go in to outsource an opportunity, they find all the same challenges - they have to come in and rationalise that complex environment," says Bloom. "We are a key enabler for them to solve the customer's problems and make sure they don't run up their costs in doing so."

He says that one of the secrets of carrying out this work lies in ensuring that companies have done the work of identifying their non-core operations - and are willing to outsource them - can have some way to measure performance. This is particularly true in outsourced IT operations, where there should be no excuse for not having an empirical measurement of performance. Indeed, Bloom suggests that as companies get comfortable with the notion of utility computing, they will expect levels of service equal to that of other utilities, such as heat, electricity and water services.

"If you want to deliver a consistent set of services, you had better be able to measure results and show how you are doing against an SLA [Service Level Agreement]," he says. "And cost visibility is provided by reporting back charges [for use of computing services], so you can use it to show how much capacity a part of the company is using."