For “middle market” organizations – companies with 2,000 to 15,000 employees and revenues from $20 million to $100 million – business process outsourcing (BPO) can provide a number of benefits. And for many of these organizations, which attribute their success to hard work, fiscal discipline, due diligence and promotion from within, outsourcing is an entirely new opportunity. Managing this transition is essential because many of these organizations operate like a close-knit family: there is a common understanding – even a shared vernacular – about core products and services. And yet, these organizations may not have the infrastructure and processes necessary to support a variety of things, such as: human resources, payroll, tax transactions, recruiting, benefits, training, and time and attendance.
A BPO service provider can oversee these functions, or (at a minimum) augment inexperienced or shorthanded staff. Organizations want these services – they recognize the savings and increased performance that accrue from this arrangement – but believe they do not have the time or budget to sustain these efforts. The issue is not one of importance; it is, instead, a question of achieving these goals without compromising the day-to-day operations of the organizations and its core businesses. Hence the demand for a properly defined outsourcing engagement – something that makes identifying the right partner easy and successful.
Requirements for an Outsourcing Engagement
Bear in mind that the typical middle market organization is not always looking for an outsourcing partner to transform business operations and reconfigure their day-to-day management. The arrangement must emphasize both short- and long-term needs and an optimal way to achieve results. For this relationship to work effectively, the outsourcing partner must also demonstrate the ability to accommodate the rapidly changing business environment, which is a hallmark of the middle market.
Simply stated, these organizations want an inexpensive, adaptable subject matter expert that will help them enhance the bottom line. The support of a middle market third party advisor (MMTPA) may also be crucial to ensure that there is an ideal fit with the outsourcing vendor and the hiring organization. Companies may leverage the experience of these advisors to analyze the skills of an outsourcing vendor in critical areas such as: experience, services, quality, flexibility, partnership and technology.
Economies of Scale, Best Practices, and Finding the Right Solution
Finding the right outsourcing partner is critical. A “one to many” model – which may work for a variety of organizations – is not necessarily the answer for penetrating the ever elusive middle market; in fact, economic pressure – including tighter budgets and shorter timetables – demands more customization, so middle market companies can find an ideal outsourcing partner. In this situation, potential outsourcing partners can enter into the market at a price point that is more palatable to the middle market.
The concept of “best practices” primarily focuses around the implementation of a proven methodology so that the outsourcing organization or vendor has a consistent approach that can be replicated from one industry to another. This high level concept is part of a standardized system – one that works well in some circumstances – but does not necessarily apply to the middle market.
So yes, middle market companies want inexpensive, adaptable subject matter experts who understand the needs of their businesses, and who will help them enhance the bottom line. But those circumstances require customized solutions, which means the one to many model – replete with a set of standardized processes, which work well for some businesses – is not the preferred solution in this case.
It bears repeating that middle market companies have specific needs – they do not require the same services larger businesses use, both as a matter of projects and costs – so these facts will influence the selection of an outsourcing organization. For example: There may be sharing of costs for an offshore financial delivery center, which is something bigger corporations may need, but runs far afield from what a middle market company wants right now. In that scenario, a middle market business may only want to outsource its training administration services, which brings us back to the importance of creating customized solutions for each client.
Without this customization, a standard approach will result in high overhead costs, effectively canceling out (or at least limiting) any savings the middle market client should enjoy. This situation then leads back to adopting the one to many model that may or may not fit the needs of the client, or requires the approval of unplanned change management activities, which can lead to service disruption and additional costs.
Every organization takes a different approach to each process. For example: If a middle market client needs lumberjacks in Alaska, the approach to sourcing lumberjacks deviates greatly from the approach to sourcing accountants in Florida. The implementation of “best practices” on a macro level – which complicates things within the middle market, means embracing a less flexible solution – which can be the critical variable between success and failure. Essentially, middle market clients will be required to use a process (or a hybrid process) that is inefficient and does not support their core business.
The providers that seem to be able to offer outsourcing that is not cost prohibitive, yet flexible enough to meet the requirements of the middle market, are a natural fit for this environment. These companies do not have extreme internal inefficiencies or high overhead. In fact, these smaller organizations are likely middle market companies themselves and understand the need for a long lasting strategic relationship that benefits both parties. Their concept of “best practices” exists, for these companies, on a micro level – they only source those proverbial lumberjacks (in Alaska), as their core business – and will grow with the middle market customer. This strength gives the niche market outsourcer the advantage of greater subject matter expertise and flexibility.
Please note: There is a training outsourcing organization for nearly every project, but for middle market companies the one to many model – which includes standardized processes, that do work for some businesses – does not suffice. After all, outsourcing can be a very complex solution, which is why middle market companies should evaluate their needs, review their goals and have the right partner at their side. At a minimum, the organization must:
- Validate the strategic outsourcing plan.
- Make certain the business case is sound.
- Complete a thorough due diligence effort to fully understand what it is they require from a vendor.
- Source experienced vendors that fit the defined requirements.
- Execute flexible contract terms and practical service level agreements (SLA’s).
- Ensure the internal resources are in place to support the transition effort.
- Employ a comprehensive change management strategy.
- Implement governance that ensures the vendor selected is going to be a true business partner and diligently manage the relationship as such.
While middle market companies may have the in-house knowledge to successfully outsource, it is advisable to leverage and benefit from the expertise of a middle market third party advisor who will ensure that each step in the outsourcing process is successful. When a strategic outsourcing arrangement forms between the client and vendor, a synergetic relationship develops – which benefits everyone.