Next Step: Transformational Outsourcing

According to E&Y, the past ten years have seen explosive growth in the use of outsourcing. Its role has evolved from traditional outsourcing to deliver little more than modest improvements in costs, service levels and support capabilities to something called "transformational outsourcing".

Transformational outsourcing, as E&Y terms it, aims to deliver tangible results that can be measured in improvements to the share price, market position and return on capital—it also involves extra risk.

It is important to note that transformational outsourcing contracts very often still focus on more visible and readily achievable objectives, such as better reporting and management, stricter procedures around the introduction and management of change and performance improvement, as well as cost control.

According to the models currently available in the market, transformational outsourcing can be achieved by combining a number of key service elements. The outsourcing contract will need to be able to deal with all these service elements. So what are they?

-Management information
-Flexibility
-Speed of change
-Economies of scale and supplier partnerships
-Performance improvement
-Risk/reward share

As ever, where extra rewards and benefits can be found, so lurks extra risk. If you are thinking of entering into this type of arrangement, think hard before you simply reach for a well-worn off-the-shelf, outsourcing precedent. It may well need to be extensively re-thought before it can accurately reflect the risk management needs of this new and more ambitious breed of outsourcing relationship.

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