Outsourcing: Challenging opportunity
Many authors have been writing articles and books about globalization – how it impacts countries, corporations and individuals. One of these books has been written by Thomas Friedman: “The World Is Flat: A Brief History of the Twenty-First Century”. In the book, the author draws a picture of the world which has fundamentally changed over the past 10-20 years.
IT and telecommunications industries have played a fundamental role in this change process. This change impacts also mobile network operators themselves as corporations. Operators are in the process of changing their own role from being a vertical player (doing everything in-house) to being a company which focuses only on truly differentiating parts of value chain; and at the same time outsourcing elements which are not crucial for them.
There is one fundamental question operators need to ask themselves – where does my outsourcing partner truly add value?
Will my outsourcing partner be able to do things more efficiently (scale benefits)? Or will the partner be able to reconfigure the outsourced work packages and do these differently – in a smarter way? Or will this just enable me to focus as a mobile network operator in truly differentiating aspects of my business?
When an outsourcing partner manages operationally some parts of the operator’s network, this can be a very smooth process but in many cases operators have faced one of the following challenges:
1) Operator falls into double cost trap
Operator has outsourced a certain part of their value chain but at the same time they have kept a too large in-house team (largely doing the same as their outsourcing partner). Once the operator notices this, it is forced to re-think the approach – either by going back to square one by in-sourcing or by right sizing its own organization to avoid overlaps.
2) Operator is not able to control their partner(s)
Competencies required to manage an outsourcing partner are very different from doing the activity yourself. In some instances KPI and SLA agreements are not defined correctly. In some other cases vendor simply does not perform according to the agreement.
The problematic has been covered in detail in Omnitele market commentary dated on 13.7.2011: “Vendor Management in an environment of shifting Network Outsourcing Models.” Typically operators do use vendor independent companies to assess performance of their outsourcing partner.
3) Operator has second thoughts about the outsourcing
Operator might have faced challenges and is seriously considering to in-source part of the value chain which was initially outsourced. Maybe the strategy was not in the first place sound and the operator wants to regain more control of the activity – at the end of the day, what was truly differentiating?
This can be a very tricky exercise especially if some time has passed and the operator does not anymore have enough competent in-house resources to take up these activities and when vendor has created a ‘black box’ around the outsourced activity.
This in-sourcing will require serious effort from the operator’s side. Some are resorting to external help on this.
Operators (like any other corporations) are faced by a question of outsourcing. This is a strategic decision which should be considered from multiple angles. Once this decision has been made it needs to be executed all the way to achieve full benefits. Proper oversight mechanisms need to be installed to monitor performance of the outsourcing partner.
In those cases when an operator was to regain control through in-sourcing – usually external assistance is needed.
I will leave you with a quote from Singapore’s first Prime Minister – Lee Kuan Yew: “If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.”