Outsourcing: Irish insights

Paul Toner, who leads KPMG’s Management Consulting Practice, reviews some lessons learned.

The explosion of data centre and IT Infrastructure outsourced services over the last decade combined with increased activity in the market by global providers such as Capita and Accenture and the strong growth of domestic Business Process Outsourcing (BPO) providers such as Abtran, South Western and Fexco are a clear illustrations of the increased strategic adoption of outsourcing by business and government in Ireland.

For many organisations, outsourcing is now part of the standard operating model and the norm for many ‘high admin, low value’ business processes such as payroll, invoicing, collections and printing. These services are now so mature that transition is seamless and customers may not be even be aware that the service operator has changed.

The next step for Ireland will be an increase in the outsourcing of more strategic functions such as customer services, human resources, legal services and other higher value business processes. Among the considerations that will drive this are the prohibitive costs of providing these services internally at the level required to compete effectively and the challenge of maintaining or retaining competence that is not core to the business.

There are already many good examples of this:

• the HSE now has a legal outsourcing framework that governs the outsourcing of legal services that has improved the effectiveness of the service while driving down costs;

• a number of the financial services institutions have outsourced special servicing to third parties who bring more effective technology solutions and skills to support a more effective process offering increased performance at a lower cost;

• numerous utility and public service companies have outsourced selected customer servicing processes to third parties who have ‘best in class’ customer servicing platforms that would be prohibitive in terms of time and cost for those entities to put in place themselves.

For government, an additional option is the significant benefits to be gained from the consolidation of services into a single shared services model. The potential to begin with standard processes such as payroll and HR is clear and the model for implementation is proven.

Leaving aside the not so insignificant challenges the Government faces with transforming the Public Sector, other barriers to increased adoption of value added outsourcing remain.

Some propositions from providers are incomplete with little innovation in the service other than offering to carry out the same function for less.

There is some evidence that opposition to outsourcing or resistance to change by some senior managers is impacting on some organisations completing a comprehensive assessment of what outsourcing might offer them

Outsourcing is still being considered by many organisations as a possible answer to cost reduction without consideration being given to the potential to increase customer servicing or competitiveness.

In KPMG’s view, outsourcing must be considered as an option by all businesses when preparing their strategy and a comprehensive case prepared for either ruling in or out.

Paul Toner can be contacted as follows:

Tel: +353 1 410 1277

Email: paul.toner@kpmg.ie