Outsource Magazine

The financial and business upheavals of the past few years have led to sweeping change in corporate governance, swathes of new regulations and a re-balancing of responsibilities among senior management. Probably the best examples are the greater prominence CFOs have had versus CEOs as the focus among businesses has been on cost-cutting and survival; and the rise in importance of Chief Risk Officers in the financial services sector and the call for them to be used more widely in the corporate sector to control risk/profitability. This has caused some commentators to consider whether companies need to go a step further and appoint an outsourcing czar on the board?

The call to consider such appointments reflects the importance that outsourcing has. Outsourcing is now not some mere cost-cutting tool but a powerful weapon that is often core to a company’s operations and one of the central elements of its business infrastructure. It is a strategic function that, increasingly, business analysts are suggesting should be represented at board level.

To gain the most from outsourcing initiatives, companies need to have a clear strategic goal in terms of what they are hoping it will deliver, whether it is significant cost savings, enhanced service offer or an extra agility when it comes to responding to rapidly-changing business conditions.

This need to change course has been greater over the past few years partly as the result of a requirement for companies to become more efficient and partly as the economic and business environment has been in such a flux, organisations are constantly being restructured, re-engineered and re-modelled to respond to the very dramatic changes in market conditions.

Currently the day-to-day responsibility for outsourcing often sits at a level below the board, with operational, project or even facilities chiefs, depending on the nature of the organisation. Typically too, the reporting line through the board is via the CFO, which some analysts suggest is not ideal.

Controlling costs is certainly one potential gain from outsourcing and the CFO naturally usually heads up efforts in these areas. But outsourcing does involve many other factors and dimensions, and cost-cutting may only be one benefit of a particular outsourcing initiative or may not be considered at all as there is another rationale behind the decision.

Against this backdrop, having the CFO being ultimately responsible for outsourcing does not seem as obvious and the appointment of a senior manager with a more rounded view of the business with an ability to think creatively to drive outsourcing within a firm at board level appears more credible.

Backers of the need for boards to appoint a senior figure responsible for outsourcing to the board argue that it would bring the function into the heart of the company, where it should sit in a modern business.

Today, when businesses consider operational changes, whether that is a switch in services, moves into new markets, or the launch of a new suite of products, often allied to this shift in thinking or strategy there is an outsourcing consideration that can increase effectiveness. 

Companies often open offices in new countries or geographic areas with a minimum of staff, with as many of the supports services as possible outsourced. Similarly, new products are developed or sold, often with the lead company only employing a core team, with outsourced third-party design firms and commission-based sales teams bolstering the offer.

Few would argue that outsourcing as a function is more mature, fundamentally embedded in most companies’ infrastructure and correctly executed can be a significant factor in the success of a business. Whether an outsourcing czar needs to sit on the board to help deliver the considerable benefits that outsourcing can bring is still a topic for debate. Whatever the right answer is, the very fact that outsourcing is being discussed in these terms shows how integral it is to business success today.