Principles and Practices for Orchestrating Digital Value Chains

There are various elements outsourcing can learn from the way mergers and acquisitions are handled. Especially the attention Private Equity (PE) firms pay to the exit when considering the acquisition of a company is something companies outsourcing can learn from. The last couple of years the situation has improved a lot (at least in the Netherlands) and much more attention is being paid to this topic. For those who are less familiar with the subject here the minimum exit to-do list: define the exit requirements the vendor has to comply with, include exit fees in the business case and contract and make sure the vendor delivers an exit plan based on the requirements within 6 months or so. But applying M&A to outsourcing has more to offer, even though quiet some elements are already common practise. The synergies and learning points I found are: Approach of engagement The activities undertaken during both types of engagement show substantial similarities as both incorporate elements l...

The value of outsourcing to an organization has a tangible and intangible component. The tangible dimension is largely monetary of nature and can be expressed in for example return on investment (ROI), Net Present Value (NPV) or Internal Rate of Return (IRR). Examples of potential intangible benefits from outsourcing are improved quality, access to a larger knowledge pool and flexibility of service mix. But even these intangible benefits should result in an improved financial bottom line even though their Euro value might be difficult to predict. The value of the outsourced service portfolio is determined on its discounted future cashflows (see this post ), and value is created only when the return on the capital invested in the portfolio exceeds the risk-adjusted cost of capital. Implemented properly value based management helps to align the overall outsourcing aspirations, analytical techniques and management processes to help the company maximize its value by focusing management dec...