NAO: Twenty five years of outsourcing
Where technology - the enabler and money –the motivator meet to drive business improvement
Published 14:18, 06 July 12
The National Outsourcing Association is 25 years old this year - a quarter of a century advocating excellence in outsourcing. That’s a long time. But however long you perceive the length of time you’ve been in the game, unless you arrived in your current role via a time machine, there’s no chance that you are one of the originals - the first known UK outsourcing was done by the Roman Army, who commissioned the services of a Dorset Pottery factory around 100AD.
That’s an early example of public sector contracting, but for now, let’s focus on how outsourcing has evolved in modern times. Fast-forward to the 1980’s, a time of blood-red braces and outsized mobile phones, and the majority of BPO outsourcing was being very simply executed, and relatively low-tech. Nothing more complicated that a tape and a moped would have been required to get an outside company to take care of your payroll.
But it’s not real time - it’s the time it takes the moped to tear across town, the time the outsourcing company takes to print the cheques, and the time Mr Postman takes to deliver them.
Revolutionary at the time, positively pedestrian by today’s standards.
Manufacturing had always made use of outsourcing. Relationships between supply chain partners have long been so closely entwined as to be partners - companies who’s continued prosperity is interdependent on each other is standard practice in the motor industry for example, where parts are often made bespoke for a certain range of car, and so exclusively sold to one manufacturer.
That level of partnership did not really start happening in the outsourcing industry until the late 90’s some say it’s only just happening now.
The liberalisation of the telecom market was the game changer. Until then, monopoly pricing made phone calls and data transmission extremely expensive - I remember working for a company that had stickers on the telephones deterring phone calls inside peak hours. ‘Could your call wait till after one o’clock?’ they said, in response to the Post Office hiking prices to limit demand during peak hours (and thus save expenditure).
The 1991White Paper ‘Competition and Choice:
Telecommunications Policy for the 1990s’ blew the market wide open. The duopoly of BT and Mercury was smashed; competition was now rife, which meant the cost of sending a byte of data along a telephone wire plummeted .real time data transfer was now affordable, and suddenly it was feasible to run one part of your operation at a remote distance from HQ. Competition in the phone/data market heats up even more when the cable companies - having spent years building their infrastructure - enter the fray, forcing BT et al to drop their prices even further.
So now, for many companies, getting some other organisation to take care of certain non-core elements of their business became attractive, for the usual reasons: lower costs, allied to the advantages boost in experience and expertise, and a valuable chance to focus resources on core activities .
The first Business Process Outsourcing (BPO) activities were finance and accounts, but things quickly got more interactive, with the outsourcing of customer-facing functions such as contact centres and real-time order fulfilment.
From the early 1990s, more and more people begin to realise that Outsourcing works, and its popularity increased. Particularly as IT systems became increasingly sophisticated and intrinsically imbedded into the way companies do business. This need for specialism now makes rolling out transformational IT based solutions yourself seem both spendthrift and risky to many CFOs, and so the modern, outsourcing -driven IT industry is born.
Outsourcing found itself in that sweet spot, where technology - the great enabler; money -the great business motivator; and business improvement - the Holy Grail; all meet. Meshing these three concepts together optimally has always been challenging, but for those who get the blend right, outsourcing offers sizable competitive advantages.
Outsourcing works. We know it. You know it. The Romans did it, for us.