Here’s the McKinsey Quarterly article opener

Is a hidden gem eluding your portfolio evaluation process? Most companies periodically scan their operations to ensure that they are the best owners and in the process identify businesses that can be divested to raise capital for other opportunities. But these companies typically overlook support services, viewing them instead as cost centers—which focus on cost reductions or outsourcing—rather than as business units ripe for divesting.
The distinction is an important one. In many cases, it makes sense to outsource individual service activities, including commoditized corporate functions (such as finance and accounting, HR, and purchasing), IT functions (the help desk, infrastructure operations, applications management), and industry-specific functions (booking and fare management for airlines, payments processing for banks). Yet when a company aggregates support services into a single unit, it may constitute an attractive business that can be sold outright, with a value greater than that of a five- to eight-year contract for continued support services.

The selling company reduces its operating costs, raises capital, and removes assets from its balance sheet.

The purchasing company acquires assets, know-how, and perhaps an attractive geographic footprint, as well as a new support services client. Nonetheless, even executives who understand the idea in theory worry that the practical obstacles to divesting—tight credit and a weak market for assets—outweigh the benefits or that the seller will have to pay more for these services after the divestiture.

Here’s our take on it @zyakaira

A. Commoditized Corporate Functions is a big generalization. Most outsourcing engagements I have seen, do not treat them as commodities, businesses fail when they do

B. IT and Infrastructure support functions suffer an acute shortage of resources in most economies including the outsourcing destinations, but the experts are better equipped at it. Any buyer of the unit, invests in it with full knowledge of the challenges in managing resources in IT more than anything else.

C. Payments Processing and any Document Management functions ( refer IBM BPO services on my profile ) do not appreciate or tolerate laxity and lack of definition/purpose. Both the Airlines and Banking industries know the issues, so does Automotive (try working with the dealers without knowing the business nuances of each sale!) .

D. HRO is not well covered on top..HR functions are critically important as is marketing and marketing research. There are specialized businesses in every corner of the world that know these businesses inside out and make them work for an even profit ( Cash profit, every year)

E. The most important for the purchaser is the ability to integrate your operations in a single unit, and it needs your help to do that. Thus you have to evaluate before you ‘sell’ and in most sales it takes an effort to make it attractive for the buyer.

F. We still feel, it makes sense not to sell if there are touchpoints that need continuous massaging in the larger system. Be careful about what is defined as support

G. IT systems are woefully inadequate sometimes to let you evaluate your performance or even to get the job done. It is not impossible to get that done and yes, it takes time.

H. Knowledge businesses are best done outside the company as they take a cross domain speciality even within the banking and financial services domain that the magician waiting to buy cannot get overnight and there is a premium on knowledge.

I. Don’t try everything at once, but get yourself a team that can attack it. If distributed pieces are involved, consultants can get it done, believe me.

J. Don’t allow cross-talk between vendors to fool you ( Big 4 + some IT guys plus those specialist providers in Nebraska..the list can go on. Sit with your precious jewels, talk to people and evaluate the things you need.

K. The value of the unit(s) goes up astronomically when done right. Get it done.

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