Sourcing Strategy Filters: Ready for Change?

My colleagues and I spend more of our time these days educating senior executives on the art of the possible regarding the service options for their back-office functions. Structural changes are what's wanted, and the subjects of offshoring agendas, shared services, capital-expense efficiency and the like are becoming common conversational fodder for corporate officers and directors.

As you can imagine, opinions vary widely on the appropriate course for any given organization. No one strategy is prominent, obviously, and we've seen companies in very similar situations choose very different directions.

But there are a couple of key factors that animate all these discussions, and I want to share them with you. These are the filters that are most critical to the executives charged with making the essential decisions on sourcing strategies.

Strategic Purpose: There must be a well-articulated reason for change, and the reason has to go to the core strategy of the firm. There's no shortage of people who feel compelled to say NO. True change requires top-down authority to make an affirmative decision.

Review of the Status Quo: How are the services organized and delivered today? What can that structure achieve for itself? Too often, this is an emotional topic that segues into perceptions. It's important to develop an informed and balanced baseline.

Point Solution or Holistic Overhaul: Are we trying to address a relatively small number of functions or overhaul the entire service delivery model? Many organizations end up with a basket of "point solutions" when what they really needed was a new framework for the entire enterprise.

Principles of Shared Services: Can the organization imagine operating with a model of internally shared resources along with an attendant governance structure to effectively manage the supply-and-demand tensions that can arise with shared resources? This is a rather big deal, often quickly touching upon the control and decision authority of executives.

Substance or Form: Is the transformation envisioned one of deep capability and cost improvements, or is it about refining an already well-understood model? This question addresses the trade-offs between risk and reward that are tolerable.

Time Horizon: While almost all such evaluations are motivated by relatively near-term ambitions, how prepared is the organization to phase in incremental improvements? For offshoring endeavors, the record shows that this is a very important question. Lack of thorough preparation can spell disaster, but applying a fair degree of prior experience can be an accelerator.

Viability: Does the organization have the raw capacity to change itself? To determine this, companies really need to know their own limits AND whether leaders will back up the planned changes. It's the "old dog, new trick" adage, and it's best to know the dog.

Compelling Financial Business Case: Is there a financial rationale, typically expressed over a multi-year time horizon, based on reasonable assumptions and the wherewithal to implement it.

Managing for Results: This factor is often least considered but also is often the make-or-break filter. Does the organization have the across-the-firm commitment to empower the new organization to succeed?

Most of you will recognize that these filters apply to a much broader range of organizational change than just outsourcing and offshoring considerations. Sometimes the evaluation concludes in an outsourcing direction – for a single function or a multi-process transaction. Sometimes the destiny is a captive offshore initiative. And sometimes the answer is to implement changes in internal structures, such as shared services.

What's striking to us is how often the outcome is not what was anticipated at the outset of the evaluation. Many organizations believe that their capacity for change is far greater than evidence would suggest.