Outsourcing helps tech company focus on its core

The Situation

TechCo* had experienced massive revenue and share loss during the previous three years, though the company had conserved cash through significant cost reductions. Management developed an ambitious strategy to transform the company by refocusing the organization on core competencies.

TechCo asked the Bain team to provide solutions to the following questions:

• What should be considered for outsourcing?
• What's best end-game option (best-in-breed vs. one-stop)?
• How do we rush through Request-for-Proposal (RFP) and negotiations without leaving money on the table?

Time was of the essence: the company needed to sign a contract in less than six months. However, there were a number of complications:

• The company was completely vertically integrated for core products
• An "I don't trust foreigners" mentality prevailed
• 70 percent of the executive team was new to the job
• Many in the company were skeptical of outsourcing due to past failures
• The client was in the midst of a transformation of its business model 
• Other activities were being outsourced simultaneously

Our Approach

The Bain team evaluated the outsourcing potential along TechCo's value chain:

• Operations (engineering, procurement, manufacturing)
• Customer service and support (CS&S)
• Warranty and repair
• Support functions such as finance and accounting (F&A), HR and IT

Bain suggested a systematic approach to evaluating the sourcing potential for the various divisions:

Our Recommendations

Following the analysis, Bain prioritized the sourcing potential of individual processes and managed implementation activities:

1. Vendor identification and selection
   • Launch request for information (RFI) and thorough RFP process
   • Select potential suppliers
2. Deal and contract negotiation
   • Carry out due diligence
   • Build base case model, normalize bids and ensure price flexibility
   • Start deal promptly to stay within requested six-month timeframe
3. Transition and migration
   • Maintain focus on day-to-day responsibilities
   • Align organization with outsourcing effort
4. A few basic takeaways proved to be essential:
   • Ground sourcing in company strategy
   • Determining relative performance
   • Assessing external market opportunities
   • Investing in a robust, multi-sourced RFP process
   • Addressing implementation issues early

The Results

In a six-month, high-paced engagement Bain created significant value for TechCo, totaling approximately 75 times Bain's fees:

• Approximately $65 million in cash ITO-related cost savings
• Approximately $20 million one-time asset impairment write-off
• Approximately $20 million in cash cost savings from BPO, including outsourced finance (approximately 50 percent of finance functions) and human resources (approximately 85 percent of HR functions)
• Service levels at or better than current levels, including continuous improvement efforts