Outsourcing Excellence™

When improving processes in an organization, the Theory of Constraints (TOC) emphasizes the importance of including the supply chain and market engagement in the analysis. Operational Excellence is achieved by eliminating constraints throughout the entire process, from procurement to production (operations) to sales. This seems simple, but according to Goldratt (the creator of TOC), “The more complex a system is, the more profound its inherent simplicity.” The execution is complex, not the solution. The same applies to outsourcing; the process is straightforward, but adapting it to a user organization’s processes is complex. Outsourcing is essentially always based on comparative advantages.

Comparative Advantages – Ricardo

One of my mentors said, “Processes that others can do better or cheaper than you should be outsourced.” Why? Because it gives you more time and space to focus on what you are truly good at. This is essentially the theory of David Ricardo on comparative cost differences, or rather comparative advantages. More processes are being outsourced; accounting software is more often offered as a SaaS solution than as a software package.

More Outsourcing

Outsourcing also happens unnoticed; LinkedIn replaces networking events, Evernote replaces the traditional notebook. We are increasingly dependent on these outsourced activities. This also means that assurance about this outsourcing becomes more important, and standards like ISAE 3402 or ISO 27001 exist for this reason. Outsourcing only works if it is optimally organized; better or cheaper. Additionally, alignment with the processes of the user organization is crucial.

Example

On island A, sheep are kept, and on island B, grain is grown. Trade between A and B will result in a higher level of prosperity for both islands than if both islands kept sheep and grew grain.

Relationship with ISAE 3402

An ISAE 3402 certification or implementation project is an opportunity to optimize outsourcing, remove constraints, and view outsourcing within the total business process, from procurement to production to sales. Outsourcing Excellence is derived from Operational Excellence, based on LEAN and TOC. In the change process, three questions are important:

1. What needs to change?
2. What should it change to?
3. How can the change be achieved?

Optimization Process

The optimization process can be broadly divided into the following phases:

1. Identify and analyze the bottleneck that is the main limiting factor for achieving goals (cf. strategic objectives COSO ERM).
2. Exploit the bottleneck and align all business processes (including the processes at the user organization; user control considerations) to fully exploit the bottleneck.
3. Increase the capacity of the bottleneck to enhance throughput. Once the bottleneck is resolved, start again at point
   
   

Example An IT service provider (application management and hosting) struggles with structuring internal processes, maintaining security guidelines, and spends a lot of time on unnecessary incidents. By analyzing these processes, structuring them, and leveraging the natural discipline that arises from monitoring and audit procedures, the organization achieves significant internal improvements. Through ISAE 3402 certification, the organization qualifies for various tender processes, winning two important ones. Due to ISAE 3402, the organization gains new customers and, through process improvements, can deliver 100% service to these important new clients.

Key Points

It is important to realize that:

• Outsourcing is part of processes that occur at the outsourcing party; process improvements can only occur if constraints are analyzed within this context.
• Bottlenecks can only be resolved if all processes, including those at the user organization, are adjusted accordingly. It is important to document this in SLAs or user control considerations.
• ISAE 3402 is an effective tool for reviewing processes, improving discipline, and genuinely enhancing processes; outsourcing excellence.

What next?

At SASconsult, we have developed various tools to ensure organizations not only align their processes with the ISAE 3402 standard but also improve internal processes. This approach serves dual purposes; ISAE 3402 provides more market opportunities (more customers), and these customers receive a better product or service through simultaneous process improvements at the service organization.