1 Why do companies invest so much in hiring consultancies, systems integrators and outsourcers?
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How do we define consultants, integrators and outsourcers?
Thereâs a prejudice that says that consultants are expensive, self-serving and tell me something that I already know. So, before we embark on our strategy to work with the top IT services players, itâs worth reminding ourselves why they exist. Clearly, their personnel are, in most cases, well remunerated and therefore costly to hire, so why do all of the worldâs largest companies invest so much in working with them? Iâve broken the answer down into two groups: consultancies (to include project lead systems integrators) and outsourcers. There is a fair bit of overlap between the two, of course. Essentially, it all comes down to cost, acquiring specialist knowledge and allowing the client company to hand over an activity so that they can focus on their core business. However, the differences and nuances between consultancies and outsourcers are manifold, relevant to you and warrant explanation. Remember, the point of this is that you understand what drives your potential partnerâs business; in doing so, you can help them to meet those needs by providing your own products, skills or IP.
It is hard to deny that there is a premium and risk associated with the services paid for from consultants, system integrators and outsourcers. So, why do almost all of the largest companies in the world continue to invest heavily in these types of services? Clearly, all projects and client requirements are different, but the reason to seek help from a third-party company almost always comes down to one or more of the reasons discussed in this chapter.
Why do corporations and public sector bodies use a consulting firm or systems integrator?
Staff augmentation
This is the most simple reason for employing an outside company to work within your business. Yes, there is a premium for the cost of their staff, but that premium is easy to justify if it means that, as a company, you donât incur the substantial costs of staff ramp up and ramp down required to fulfil your businessâs short-term requirements or projects. Leaving aside for now the specialist assistance available 18from a consultancy, the mere provision of highly qualified, well supported personnel to fill a short-term project skills gap is compelling and essential for businesses who want to remain flexible with their fixed costs. Of course, it is not a given that the consultantâs staff will be more expensive than the people in the business â for instance, asking highly paid lawyers to cease earning fees in order to support a project to transform the law firmâs operating model would likely be more expensive than hiring consultants to complete the task.
Access to deep experience, IP and resources
The large consulting firms (both management consulting and technical consulting) are usually long established and highly experienced companies with vast reservoirs of industry knowledge. This experience and knowledge sits in the heads of the personnel staffed to deliver projects, but also in tools, methodologies and spreadsheets kept in the consulting firmâs libraries and intranet. So, the consulting firms have deep levels of data and knowledge, but they also have pools of personnel that can be brought in swiftly and painlessly to help a failing or changing project. A consulting firm or large systems integrator is also much more likely to have access to best practice methodologies and business models through wider experience of delivering projects across other companies.
A deep focus on a problem
The large IT services companies have a project lead approach. This comes with a project plan, service level agreements (SLAs), client reviews, closely monitored deadlines and so on. In short, an externally managed project receives a focus that most internally delivered projects donât by virtue of the fact that the consulting firmâs reputation, client relationship and revenue stream (monthly billing revenues) depends on the consistent and reliable delivery of the project milestones. It should also be said that the work ethic endemic within the large IT service companies is a significant part of the reason that companies hire them: the daily costs for a consultant may be high, but per hour they usually work out as good value given the lengthy days worked during project delivery.
A different perspective is also extremely valuable; often, the staff within a business do not have the time or ability to take a step back and identify the problem with âa fresh pair of eyesâ.
Breaking down political and emotional barriers (aka detached view)
On the face of things, hiring a group of external individuals to execute an important project within, or on behalf of, your company may seem illogical. First, these people are unlikely to have the deep knowledge of your company and business sector; furthermore, they will not fully understand the stakeholder needs in the same way that an internal member of staff does. However, think of it another way: the consultancy is not encumbered by political bias within an organisation and, 19importantly, it has the ability to cut across levels and functions in an organisation in a way that a salaried member of staff with longer-term career goals may feel inhibited in doing. Put another way: the outside contractor will have the ability to hold a mirror to the business with no deeply held bias or prejudice and will help the leadership to make rational, dispassionate decisions. Letâs be honest, there will also be times when it suits the leadership of the client to have an external entity make or recommend a decision that it is tough for them to be seen to make themselves, such as redundancies or board-level compensation. The benefit of a third-party viewpoint can help a great deal in later explanation to customers or shareholders.
Deep technical knowledge
In the case of a management consultancy, deep technical knowledge could mean deep knowledge of an industry sector (gathered and refined over decades of experience in disparate geographical markets), or in the case of systems integrators or technical consultancies in deep product technical knowledge. In the case of the latter, the systems integrator will ordinarily have strong experience and knowledge in its staff that enables it to address a certain implementation or similar technical challenge, but it may also have an extensive portfolio of IP, which could include codes, adaptors or fixes, that can be extremely valuable. Additionally, in the case of the large systems integrators there is also their network of alliances, in the shape of services and products companies with whom they partner and have technical or commercial relationships, that their influence can bring to bear and from which the client can derive significant benefit. In short, you, as an alliance partner, become an important part of the consultantâs or systems integratorâs sales and delivery proposition.
Key learning points: Why do corporations and public sector bodies use a consulting firm or systems integrator?
1. Hiring and firing staff for short-term projects is very expensive and regulated, so utilising ad-hoc personnel for discrete tasks is usually cost effective.
2. Consultants and integrators have specialist skills and knowledge that a corporation may need for a specific role or project.
3. There are political and practical advantages of dedicating a third party to a specific task or project in order to ensure it gets correct focus.
Why outsource?
Focus on your core business
All companies are resource constrained and during times of expansion or cost-cutting find that key resources and management time are scarce. It makes sense therefore to deploy your most valuable internal resources to revenue generating activities rather than executing or managing mundane or time-consuming 20back-office tasks. A good example would be an oil company wishing to outsource its human resource (HR) function. It stands to reason that the management of the business wants to focus on the locating, extracting, refining, distributing and marketing of oil, so it is more efficient to pass a function such as HR or payroll management to a specialist business. An example in the mid-market might be a firm of lawyers outsourcing the running of their IT systems to a local technical consultancy with defined SLAs in order that the partners of the law firm can concentrate on the core business of serving clients.
Financial benefits through shared services
It makes obvious business sense that if you can share a function with other companies that are using the same resources, then economies of scale will be created. This is very clear in the outsourcing model where outsourcers will leverage the same resources (staff, facilities, internal systems, IT hardware, etc.) to serve many customers. This is similar to the cloud computing argument, wherein multiple customers can leverage the same infrastructure and therefore bring the cost down for all users. The client also has the distinct advantage of moving fixed assets to variable assets, which brings accounting benefits as well as enabling the client to scale at times of high demand. For example, the high demand might be a spike in business that an outsourced call centre (which has the benefit of serving many hundreds of customers with variable needs) could manage much easier than a companyâs own call centre (which is likely to have much more modest failover facilities). On this note, it is also common for companies who outsource a function to divest the assets or resources to the outsourcer, thereby improving the balance sheet and generating cash.
Labour arbitrage
Probably the most significant trend in outsourcing in the last 20 years has been the movement to off-shoring, i.e. outsourcing a function or task to a global location where costs (predominantly staff costs) are significantly less than in the home country, therefore allowing âarbitrageâ of the cost of labour. Arbitrage is defined as the simultaneous purchase and sale of equivalent assets or of the same asset in multiple markets in order to exploit a temporary discrepancy in prices. In plain English this means taking a role that costs $15 an hour to employ in the USA or western Europe and sourcing that work at a lower rate in another location (e.g. India or Mexico). This has become possible in recent years due to exponential global improvements in IT and communications links. The IT services companies have invested billions in developing service centres of excellence across the world, and in many cases partner with local universities and educational institutions in order to further develop the local talent and skills. The powerhouse of off-shoring until now has been India; however, recent years have seen significant shifts to the Phillipines, China, Argentina and, in the case of European companies, to near-shore destinations in eastern Europe such as Slovakia and Hungary. Basically, anywhere where the staff costs are significantly less than the country in which the client is based potentially provides an attractive off-shoring opportunity.
21Access to high quality and flexible capabilities
This is very similar to the âAccess to deep experience, IP and resourcesâ section discussed earlier. When a company selects an outsourcer, they are usually procuring best practice capability and resources that are highly trained and specialised in the particular function for which they are being hired. Also, there is the added benefit (as previously mentioned) that these resources are flexible in that they can increase or decrease in line with demand. When companies donât have to employ expensive specialist resources to maintain a back-office for non-core functions, there is a double benefit at play. Not only are they most likely paying less for their staff when they outsource, they also minimise recruitment, onboarding and training costs, as well as having superior risk management as they share the burden of delivery with their specialist outsource partner.
Round-the-clock service
Many outsourcers have off-shore capability because they operate in multiple time zones. Therefore, they are still open when you are shut, allowing you to provide a service to your own customers during the hours when you were previously unable to do so. By utilising the services of an outsourcer who can operate around the clock in your chosen markets, you are providing a better level of service to clients and prospects in a world where customers increasingly expect a 24Ă7 service. They are equally effective when a company has outsourced a deliverable such as creative or legal services because the task can be continued throughout the dormant hours when the business is closed, such that a workload is completed overnight for delivery the next day.
Outsourcing has its detractors. Outsourcers need to work hard to break down both language and cultural barriers as well as potential political pressure to keep jobs âon-shoreâ. However, the prevailing market trend is in the expansion of outsourcing. According to Deloitteâs 2016 outsourcing survey, the sector is expected to see growth across all functions surveyed, particularly IT, finance and HR.
With customers demanding lower prices and a 24Ă7 service, combined with pressure from shareholders for greater efficiencies and profits, the outsourcing bandwagon is unlikely to slow any time soon. So my point is that it is incumbent on all technology OEMs to have an approach and strategy to work with this model.
Key learning points: why outsource?
1. At its most simple level, outsourcing allows an organisation to concentrate on its core business by passing the day-to-day ânon-coreâ admin or back-office tasks to a third party.
2. The rise in off-shore outsourcing is largely down to the advantages of using lower cost, highly skilled resources for functions that can be undertaken remotely.
3. In these days of 24-hour customer service expectation, outsourcing allows organisations to provide round-the-clock access to specialist and skilled personnel who can service their customers while they sleep.
22The client-side perspective: Paulaâs story
Paula has seen the consulting sector from two angles: as a subcontractor and...
