Trend shows that companies are backing away from enterprise bundles.

by Bob Cecil

Whether you’re buying the James Bond box set of DVDs or the Microsoft Office suite, bundles can be a great way to get multiple products at a better price. And when it comes to outsourcing, bundling several business processes into a single contract with a service provider can also have advantages.

But once you start bundling multiple processes across multiple business functions with just one provider, you enter a whole new realm of complexity, which is challenging on both sides of the table. That’s why organizations are generally moving away from big, full multi-function outsourcing bundles in favor of more focused, closely aligned process bundles with a handful of providers.

When it comes to your organization, consider the benefits and risks of the different kinds of bundles available, and take a pragmatic view on what makes the most sense for your company’s situation.

Bundling Options
At one end of the bundling scale are point solutions by process, in which individual processes or parts of processes are outsourced to multiple providers. This is common in IT, in which areas like applications maintenance, network, and data center operations are frequently outsourced to different providers. On the other end of the scale is the multi-function bundle, in which all—or nearly all—of a company’s general and administrative (G&A) functions are outsourced to a single provider.

In today’s marketplace, most bundles are falling somewhere in the middle.

For example, closely aligned processes such as F&A (e.g., accounts payable, accounts receivable, and general accounting) and Procurement (e.g., strategic sourcing, operations procurement, compliance management, and reporting) along with their underlying enabling technology applications support, are more frequently sourced with a single provider. This creates a synergistic Source-to-Settle, Order-to-Cash, and Record-to-Report process combination. Other processes such as HR (e.g., payroll, benefits and compensation, employee data management) and IT infrastructure management, which are not as tightly aligned, are sourced to other vendors.

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Benefits and Risks
The bundling of multiple processes and functions with a single provider does have its advantages, and can be warranted in some scenarios.
For example, if you’re pursuing a shared services orientation and processes are extremely fragmented across multiple business units, you may need to bundle multiple functions to reach the critical mass required for projected savings. Likewise, if your organization needs a big bang as part of a change
initiative, a multi-function bundle can be a good way to send the signal. A bundle with one provider can also streamline governance and create fewer points of accountability.

Finally, a multi-function bundle may generate greater investment opportunities by the provider. For example, a call center that’s leveraged across HR, Finance, Procurement, and Customer Care can potentially create more value.

While the benefits of multi-function bundles are appealing, be cautious of going too far down that path. In today’s capacity-strained marketplace, providers can become overwhelmed by complex, bundled relationships, especially ones that are global and transformational. And many large service providers, while they may present a unified front, are actually confederacies of different business units, all with different P&Ls, compensation drivers, and performance metrics—not to mention conflicts between business units about which services to invest in.

It’s no wonder that providers are now pricing bundles at a mere savings of 2 percent to 5 percent, compared with savings of 10 percent to 15 percent in the past.

On the client side, meanwhile, the bundling of multiple processes and functions can present significant issues in change management, requiring many business units to move together in the transition, which often affects speed to savings. Multi-function bundles can also increase risk by putting all your eggs in one basket.

If a provider exits the business, becomes difficult to deal with, or doesn’t perform as contracted, it’s easier to make a change if you don’t have all of your G&A functions with that provider. Likewise, a multi-provider strategy gives you more leverage, as it invites healthy competition among service providers for your business.

Final Thoughts
Bundling in outsourcing can be an effective way to access specialized knowledge and technology while lowering labor costs, lightening your employee benefits burden, and mitigating hiring and retention issues.

But that doesn’t mean everything should necessarily be bundled. Take a pragmatic approach to the options and choose the path that makes the most sense and synergy for your organization. FAO