While the concept of “Outsourcing” for things such as payroll, benefits, and telemarketing has been
around for decades, only recently has it become mainstream for companies like Apple to outsource their entire manufacturing process so they are able to focus on their core capabilities, rather than more difficult and resource-draining things they can leverage to other organizations that can simply do it better and cheaper. Great companies like ADP have unlocked the holy grail of business process outsourcing by being able to deliver products and services that are both better and less expensive than can be done by their clients using their own inadequate resources. ADP has created a great culture through strong leadership and has done it with a laser focus and strong expertise in all things Human Capital Management related that adds tremendous value to their clients.
Outsourcing gets harder to accomplish with other core functions like manufacturing and even harder when there is specialization involved such as outsourcing scientific-based research and development. This week, I had the pleasure of leading a Business Acumen for Outsourcing Professionals program for one of our Pharmaceutical clients who has created a strong capability to outsource anything and everything not related to discovering and then selling some of the most innovative pharmaceutical products on the planet.
During the session, we discovered and learned about the 3 most critical Business Acumen skills needed to effectively outsource in 2018 and beyond. Here are the key learnings for your reading pleasure and Business Acumen skill development:
Strategy Thinking Models and Frameworks
The most important Business Acumen skills that provide the foundation for an outsourcing culture include a deep understanding of strategic thinking models and frameworks. I have found that too many leaders are unaware of their own business strategy and how it should drive business decision-making; especially when it comes to outsourcing. For example, the company whose strategy is to be the everyday low-cost provider of products in their marketplace. When looking for an outsourced manufacturing partner, this company determined that the “winning criteria” would be innovation and customer service, which are exactly the two worst criteria they could have chosen. The right criteria – based on the company’s strategy - was to find a contract manufacturer who could deliver the most reasonable quality products at the lowest possible price so they could pass the low cost on to their customers! I know it sounds so easy, but it’s very hard to do without the right skills.
Measuring the Financial Health of Your Outsourcing Partner Organization
The second most important Business Acumen competency is being able to measure the financial health of your outsourcing partner. Unfortunately, too many outsourcing professionals couldn’t tell you the difference between Changes in Working Capital and Return on Invested Capital; both terms of course can be key indicators of an outsourcing partner’s financial well-being. Choosing an outsourcing partner who is about to go bankrupt is usually a career-ending experience. Immediate and easy things to focus on in terms of the financial health of your outsourcing partner include their total debt, the interest payments on that debt, the net property plant and equipment after depreciation, their accounts payable, and their credit terms. Understanding these elements help you get into the mindset of your vendor and more importantly, can help you influence the relationship and terms developed in negotiations.
Negotiation skills
The third skill is pure negotiation skills, which we at Advantexe call “Strategic Business Negotiations. Engineers, scientists, operations leaders, and project managers are usually pretty good at their jobs, yet terrible at negotiating. Conducting Strategic Business Negotiations is an art that requires both strong Business Acumen and even stronger Negotiation skills. Most poorly trained leaders working with outsourcing partners will not know how to prepare, initiate hold mutually respectful dialogues, or close a deal with a win-win solution. A lack of these skills can cost a company billions of dollars in lost revenues and profit.
In summary, there are many great reasons to outsource. However, going from a great idea to flawless execution requires new Business Acumen skills such as Strategic Thinking, Understanding Financials, and Negotiating.
