What Private Equity firms really gain from outsourcing
Article
Rising interest rates and shifting economic headwinds have heaped pressure on businesses owned by private equity firms. In light of this, outsourcing is now firmly on the radar for decision-makers in private equity.
On the surface, outsourcing is about reducing costs. But there’s a bigger picture.
Private equity firms are also trying to implement more optimised and sustainable ways of operating inside their portfolio companies. And outsourcing helps them establish the three key ingredients for this type of transformation.
- Accountability at scale
When businesses outsource essential areas like finance, customer service and back-office functions, the first thing you gain is accountability at every layer of the operation.
The very process of setting up an outsourcing relationship establishes clear performance targets and benchmarks for every function.
These are then codified into SLAs to ensure that both people within the business and those partners supporting it are all accountable to specific metrics that are religiously tracked.
The result is a culture of tightly-defined performance criteria, transparency and clarity of responsibilities, often very different from how internal teams operate.
Crucially, this structure is designed to operate at scale.
So, even global businesses that oversee 10 million transactions a year (and more) can operate with a high degree of accountability to specific performance targets.
- Cohesive optimisation
Outsourcing doesn’t just help businesses reduce costs in the short term. It also helps them establish a holistic approach to optimising performance in the long-term.
In practice, that means that any given challenge isn’t viewed in isolation. Instead, the business can look for solutions in the broader context of its technology, processes and organisational structure.
Take the case of Vodafone UK’s customer service operation. When it needed to reduce the burden on its call centre operations, it turned out that the most efficient way to solve the problem was by making a relatively small change to its IVR system.
Instead of an overwrought, unnecessarily large transformation, the business could make a big difference with a small change.
Outsourcing helps businesses diagnose problems in the appropriate context to identify surprisingly cost-effective solutions that make a big, long-term impact.
Experienced outsourcers combine deep domain expertise with a holistic view of all the people, processes and technologies that make up a business unit.
This leaves the business flexible to solve problems through process excellence, automation or better communication.
- A long-term approach to staffing
Businesses owned by private equity need the ability to scale their operations in a stable way. Outsourcing gives them cost-effective and sustainable options for doing that.
First, because outsourcing – and offshoring in particular – gives businesses access to talented people at optimized rates and at lower-cost locations.
And second, because approaches like impact sourcing help businesses achieve their diversity, DE&I, CSR and ESG goals.
But the real value lies in the longevity of these hires.
Offshoring and impact sourcing don’t just give you access to diverse talent – they give you the stability of a team that’s incentivized to stay.
For instance, a global leader in HR solutions has been able to retain 64% of its staff for more than three years, thanks to offshoring in the Philippines. Similarly, ADEC Innovation’s impact sourcing operation in Kenya has a turnover rate of just 8% annually.
The result is that your processes are stewarded by people who know them so well they become natural centres of excellence.
The result is sustainable growth.
When businesses outsource, they gain more than cost-savings. They become more accountable, they improve in more cohesive ways and they set themselves up for long-term growth.
Similarly, offshoring and impact sourcing initiatives don’t just help businesses meet CSR and ESG requirements. They help businesses perform in more reliable ways with a dedicated workforce.
This is the real value of outsourcing. And it’s why private equity firms are taking note.
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