Outsourcing has long been regarded as a successful way for organizations to cut costs and focus on their core business while gaining access to world-class capabilities. While these drivers are still valid, and even compelling in many situations, they do not represent the full scope of the advantage to be gained by outsourcing. Enter Business Transformational Outsourcing - an ambitious outsourcing strategy that aims to transform a process or function to achieve, along with improved performance and reduced costs, an enterprise-wide strategic advantage over your competitors.

Traditional Outsourcing

Traditional outsourcing focused primarily on the tactical advantages gained by transferring an existing function or process to a 3rd party provider that leveraged economies of scale, technology, and/or labor arbitrage to reduce the costs of the function or process. The objective was to do the same things a bit better, a bit faster, and a bit cheaper. Further, a well-structured outsourcing deal may have had the additional benefits of "freeing up" the buyer's internal resources and improving service levels due to the provider's management skills and experience. Although these are definite advantages for a company to have, they are inherently tactical in nature and lack the radical moves driven by offshore labor and rethinking the way we accomplish a process. Much like capturing an opponent's pawn without losing a chess piece in turn, traditional outsourcing may serve to further an organization's strategic goals; but the single move itself does little to bring you any closer to checkmate.

In short, the value traditional outsourcing can add is limited by its tactical nature and is no longer enough to create a real competitive advantage.

Business Transformational Outsourcing (BTO)

Business Transformational Outsourcing, on the other hand, is a grand strategy in and of itself. In chess parlance, BTO encompasses everything from your opening gambit to the eventual victory of checkmate.

The objective of BTO is to transform the business on an enterprise-wide basis to achieve a strategic competitive advantage using offshore labor arbitrage and improved processes to give an organization breathing room to think through and execute a real plan to drive the underlying services required to support the business. To be clear, this is not simply process re-engineering, where the value is inevitably capped by the law of diminishing returns. Rather, BTO is a collaborative outsourcing relationship entered into with a 3rd party provider in order to realize measurable, strategic business outcomes (e.g., increased speed to market, a higher market share, increased flexibility to adapt to changing market conditions, etc.) driven and funded by the clear and massive offshore labor arbitrage.

Business Transformational Outsourcing can alter the business paradigm by offering organizations the following advantages:

• The ability to adapt to today's perpetually turbulent business environment
• A streamlined, but simultaneously agile business
• A clear and consistent view of business activities, performance, and the opportunities available
• A practical roadmap to achieve enterprise-wide strategic change
• Attractive commercial arrangements to finance the change
• An accelerated process for achieving organizational transformation
• A degree of flexibility that allows for the evolution and growth of the business.
• Business innovation to deliver strategic advantage

When done right, BTO delivers all of these benefits in addition to the reduced costs and efficient services delivery of traditional outsourcing.

Collaborative Relationships

Innovation and transformation are the "keys to the kingdom", but achieving them requires the buyer and provider to establish a truly aligned relationship. This may sound simple in theory, but it has proven anything but in practice.

Over the years, the dynamics of outsourcing have served to develop "at odds" relationships between the buyer and provider of outsourced services. Many of the foremost providers of BTO have been long-standing providers of traditional outsourcing, and old practices often die hard. Both parties may enter into the relationship with the intention of transforming the business, but if they're not careful all they'll succeed in creating is the standard outsourcing utility relationship. Too often, buyers base their provider selection solely on price and service levels, and the provider is forced to bid the work accordingly. The end result is an outsourcing contract (and relationship) with a utility framework, but the deal is still being discussed as Business Transformational Outsourcing. Such a relationship is frustrating for both the buyer and provider, as expectations are not met despite the contract being honored.

However, with careful planning, commitment from leadership, and the proper guidance a truly aligned relationship is achievable - and the benefits to be reaped are well worth the effort. By reducing internal conflict and allowing communication to flow, the client can reduce costs and streamline service delivery while attaining quick, sustainable benefits from new market opportunities.

BTO Providers

The consensus is still out on the provider community's ability to adequately deliver on the promised results of BTO. The number of firms offering BTO has increased almost exponentially over the last couple years, and it would be foolish to believe these capabilities emerged overnight. Potential buyers will have to navigate through the murky waters of sales pitches and marketing presentations to accurately discern exactly what is being offered and whether the provider is capable of delivering on its promise.

That being said, leading providers such as IBM, Accenture, and Capgemini have been forging ahead in the BTO arena, and honing both their delivery and relationship skills. They are certainly a safer bet than most due to their established outsourcing capabilities and experience in transforming their own businesses as well as others over the years. Additionally, their depth of experience in particular industry verticals places them head and shoulders above the competition when it comes to understanding and innovating a specific business. Even so, experience and talent are but a few pieces to the puzzle; buyers must keep in mind one thing - when it comes to BTO, the relationship is key.

The buyer and provider must form a partnership; such an arrangement is necessary at least in spirit, and depending on the situation sometimes in reality. As such, it is essential that the buyer and provider trust one another explicitly. Ironically, this arrangement runs the risk of becoming complicated by one of its greatest assets. BTO poses an attractive proposition due, in part, to the synergies created when a single firm provides both business consulting and outsourcing services. Combining the two often succeeds in creating a whole that is greater than the sum of its parts. However, buyers must always be cognizant of the inherent conflict of interest posed by such an arrangement; for as we all know "the best intentions often go awry."

When all is said and done, great rewards are there for the taking as long as each party is committed to: distributing the risks, sharing the rewards, and moving forward towards a common goal.

In Closing

Business Transformational Outsourcing, when done right, offers organizations the means of achieving a strategic competitive advantage in their industry at mind-boggling speed and relatively little cost to themselves.

If traditional outsourcing is the equivalent of "bishop takes pawn", then BTO is comparable to the famous "four-move checkmate" in which one player achieves victory over his/her competitor in a rapid succession of four quick moves. The game is over before the competition was aware it had even begun.