Using partners’ economies of scale to boost profits

Robert fedder talks about partnering to improve profit

“…discussions…are pretty much over…what sponsors want now is to just get it done…attention is turning towards getting the right deals for value, performance, flexibility…they want help to do this properly, swiftly, without incurring exorbitant advisers’ fees”

nil plus ultra reports recent strong demand from organisations who seek help to restructure their partnering and sourcing arrangements. The key driver is the pressure on the bottom line in a harsh economic environment; businesses are looking for swift improvements on costs, but are eager to avoid potential drawbacks in any new sourcing arrangements. The goals: competitiveness, more profit and better value for money. Such assistance is now being provided in a range of operational areas, not just the traditional IT and back-office administration processes.

Specifically, sponsors wish to harness the economies of scale that service providers and outsourcers enjoy, whilst ensuring service level and flexibility is maintained or enhanced. With intense pressures on profits on the one side, and a buzz around topics such as “Cloud Computing”, the familiar theme of partnering has come to the fore again.

Robert Fedder, nil plus ultra Co-Founder asks: “What do you really need to do yourself and retain in-house? If it’s a special skill, which others don’t have, and it differentiates the business in a way which truly adds value – keep it, invest in it – treasure it. Objectively, many other functions and processes just aren’t special though – someone else could do them better, more cost-effectively. Such partners will inevitably have economies of scale. You just need to ensure effective partnering and contracting to make sure you get the benefit of these economies of scale, and contract in a way which gets you what you want. This takes commercial nous and business know-how. It’s very topical – we’re seeing a lot of extra cost reduction and profit through better sourcing on back-office and some front-office processes…often boosting profit by 40% through better partnering and supply – quickly”.

Mike Utting, Co-Chair Supply Chain & Commercial Group

Co-Chair of nil plus ultra’s Supply Chain & Commercial Group, Mike Utting, comments: “once the scope was typically IT, since few managers really understood it, and were happy for “outsiders” to provide an outsourced expert service. By the way, we’ve seen this kind of IT partnering rejuvenated with some new twists, branded as “Cloud” service provision. Then it moved to administration processing…but actually, partnering in many other areas, for example, HR, supply chain management or procurement, salesforce extension, telesales, marketing…can all make absolute sense, and is much more widespread”.

It’s all about the right “make or buy decision” coupled with good solid execution of the partnering arrangement. Mike explains: “there is often misplaced preference to “make” (or keep in house) things which are better done elsewhere, or “bought”. Deciding which ones should be kept in house, and which partnered, is actually a relatively straightforward thing to do – especially if you come at it with a performance-oriented and consequential perspective. However, sometimes people feel they can get more control or better quality from an employee – this is usually wrong on many levels . A motivated partner is better than a demotivated member of the payroll. A motivated, correctly contracted partner must get it right – not always so with members of staff. And partners can pool expertise, secure scale for better unit costs and even provide flexible pay as you go rates. Once the boundaries are clear, the right service provider can give better value for money, used on a flexible “as needed” basis…and is much more expert. It’s increasingly rare for managers to cling on to the ego-thing – that they must always have people on their own payroll. Nowadays, they realise there’s just as much prestige, more real control, and certainly more value – with a properly set up partnering arrangement”.

Robert Fedder adds: “Frankly, these days, the discussions about whether such partnering is a good idea in theory are pretty much over. What our client sponsors want now is to just get it done. So their attention is turning towards getting the right deals for value, performance, flexibility and so on. And they want help to do this properly, swiftly, without incurring exorbitant advisers’ fees”.

Mike Utting provides an example: “Take HR, where we’ve found clients outsource this increasingly to us. The cost-benefit is obvious, particularly for SMEs, especially if they are restructuring their workforce given the current economic climate. It can be a complex thing to right-size an organisation, and some HR departments are overstretched. They just can’t handle it without exposing the business to high risk. There are now many nil plus ultra clients who use our HR Services to provide a flexible, pay as you go expert service. Sometimes just as a supplement to the in-house team. This provides experience and expertise which would otherwise be completely beyond reach at twice the price”.

nil plus ultra provides expert capability to design and implement partnering arrangements, and can also provide specific services, on demand.

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Posted on 14 Feb 2012
Posted in NilPlusUltra News

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