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Outsourcing School—for smarter business

Outsourcing School is a new permanent feature of Nova. We want to help create smarter business and share the knowledge and experience we’ve accumulated over the years. We’ll be describing and explaining the different building-blocks of an outsourcing business in each issue of Nova. In this issue, Jan-Olof Backman explains when to outsource single services, and when you should opt for integrated solutions.

One of the crucial questions services buyers must consider is whether to purchase on an integrated basis, or individually, as single services or services groups. Jan-Olof Backman, who heads up Coor Group Development, has put a lot of thought into this question over the past 12 years, because he was there when Coor started up.

Integrated solutions or single services

“Integrated solutions are best for large-scale operations, especially with large head offices/industrial estates and complex needs, not least from a cost perspective. For this type of service, local synergies between services obviously outweigh the economies of scale you can achieve when slicing up services,” says Jan-Olof Backman.

Integrated solutions reduce sub-optimization between services, while simultaneously increasing flexibility through better control. It’s far easier to adapt services to changes in the customer’s operations if they are managed as an integrated whole than in the single service model. Another benefit is reducing the risk of important issues being lost in the system.

So what are the benefits of single services?

“For services, there are some types of service more suitable as single services. Of the services we deliver, you could mention damage control and some industrial services, whose purchasing logic differs somewhat, But for most FM services, as well as a lot of industrial services, the local synergy effects are significant—assuming the assignments are big enough,” continues Jan-Olof Backman.

The scale of assignments is a topic Jan-Olof keeps returning to. The explanation is that integrated solutions are more complex, need more administration and more specialized management and development. So for a lot of SMEs with small offices/industrial estates, an integrated solution can be hard to justify.

He points out that managing integrated service deliveries successfully is a challenge. Generally, Coor has really satisfied customers, but obviously, deliveries work better on some accounts than others.

Integrated solutions reduce sub-optimization between services, while simultaneously increasing flexibility through better control.

Jan-Olof Backman, Corporate Planning, Coor Service Management

“Sometimes this is down to us, sometimes the customer. Integrated solutions need good management and competent managers with the capacity to drive necessary change, and yes, it has happened that our management hasn’t been quite up to scratch. But sometimes, the customer isn’t ready for a complex integrated solution. To work really well, you need a clear client organization with the right competences—it takes two to tango,” continues Jan-Olof.

The statistics suggest that an integrated approach offers substantial benefits. The share of integrated assignments is outgrowing the overall market for outsourced services.

“I’ve noted the interest in integrated solutions growing every year. For many years, interest has been greatest in the private sector, but in the last few years, some public players have also chosen an integrated approach, and that’s exciting. Examples include the new NKS university hospital, Danmarks Radio and the Danish Police Service,” adds Jan-Olof Backman.

What’s strange is that the Finnish market has been an exception for a long time.  While outsourcing levels have been the highest in the Nordic region, so far, single service outsourcing has been prevalent. Why is that?

“Yes, that’s an interesting question. My personal view is that it’s an effect of the realignment after the fall of the Soviet Union in 1992. At that time, Finnish business found itself in a severe crisis, and because single service outsourcing can be simpler, this proved to be the quick solution. Purchasing behavior has remained unchanged since. But now, we are seeing signs of a new way of thinking, and a growing number of large tenders being based on functional deliveries, compared to previously. Fortum’s current tendering process is a relevant example here,” concludes Jan-Olof Backman.