Insourcing/Outsourcing: Is technology changing the paradigm?
In a fast-changing business world, the terms “agility” and “flexibility” are somehow absolutely necessary for organisations to compete, especially large-scale organisations operating across the world.
Agile is not only a methodology or a philosophy, but concretely also means a thorough rethinking of the operating model, making operations processes smarter and leaner, optimising the organisational structure through the allocation of resources to core activities and outsourcing lower value-adding ones.
Until a few years ago, the imperative for organisations was outsourcing on various levels: near-shoring, off-shoring, etc. depending on the geography.
Among the possible strategies, outsourcing of some activities was an option assessed taking into consideration the following drivers:
- Costs - primary aim is cost reduction;
- Setup - setup time and ease of knowledge/skills transfer and scaled according to overall difficulty (geography, etc.);
- Flexibility - intended as flexibility of the local labour market and local works council activities;
- Monitoring capability - the organisation’s ease and capacity of monitoring the possible outsourcer.
A particular emphasis was obviously put on the cost component, especially on a company’s personnel costs, with the rise of certain areas such as Central and Eastern Europe (Poland, Czech Republic, etc.), India and the Far East (Thailand, etc.).
The benefits of outsourcing are, however, now less obvious than in the past for three main reasons:
- The operating model can be adjusted, reducing costs, also through smart process automation and artificial intelligence;
- The capacity to effectively monitor the outsourcer defining a robust set of KPIs, along with the solidity of the partner, has shown some signs of impracticability;
- The real and concrete possibility provided by the outsourcer of activating business continuity plans and disaster recovery programmes in case of unpredictable incidents, as also required by EU regulations, is limited.
In this context, some organisations, to mitigate operational risk and drive efficiency gains, are also adopting a lighter form of outsourcing that is outcome based and foresees the delivery of services on the same platform in use by the client (called Managed Business Services or Business Process Outsourcing).
All these things are now leading organisations to undertake a comprehensive review of the paradigm, breaking with the natural correlation between flexibility and outsourcing. Outsourcing is now seen as a possible component of a larger jigsaw that might also include the possibility of insourcing part of the business, taking into consideration the risks and the possibility of reducing the marginal impact of costs through the adoption of smart process automation.
Something that in the past would have never been said on any Boards or by any C-suite executives is now a concrete option to improve the operating model, but it requires strict collaboration between the business and two key areas: HR and IT. Indeed, these last two functions represent the key enablers for rolling out the model in a mid-term perspective.
This new approach to transforming the operating model requires:
- A solid IT team as a business strategic partner on initiatives where technology acts as enabler, able to find a way to structurally transform IT legacy and core systems, while injecting differentiating digital solutions and being able to deploy a modular application landscape, based on architectures able to exploit data gathered from both internal and external sources;
- A fully on-board HR team to assess actual expertise vs. future needs and to roll-out a disciplined programme to continuously acquire and develop new skills to boost execution.
New technologies are undoubtedly changing what was absolutely unpredictable and taboo over the last two decades: re-insource part of the production chain. A new route that can only be pursued by investing in the IT platform and continuously acquiring and developing new skills.
Diego Biasini has been at Generali Investments Holding since 2019, the Service Company part of the Investments, Asset & Wealth Management Business Unit of Generali Group and pivotal to the multi-boutique strategy. Previously he was the Head of Business Transformation in Generali Investments after a decade primarily spent in the asset management industry as Project Manager in a variety of projects with a clear focus on the review of the target operating model of the Operations and Front Office areas.