Outsource and Survive

With such turmoil in the world economies and with daily news around the world talking abut the credit crunch, mortgage crisis, food shortages and inflation rising, I thought it would be good to share with you an interview between Suresh Yannamani and Outsourcing Institute entitled OUTSOURCE AND SURVIVE which is in line with a number of presentations that I have made over the last 3 years and what I personally feel is even more pertinent for SMB’s in today's environment.

We are entering a new stage in business process outsourcing (BPO) automation. The drivers of this next stage are not technological changes per se, but changes in competition and how businesses operate and execute their strategies. The internet may be the agent of change, but the engine of change is the need to cut costs and improve core business processes in increasingly competitive global markets. As we look to the future, there are four distinct outsourcing drivers to consider.

Globalization
The first of these is globalization. To remain competitive and to spur top-line growth, large companies are increasingly seeking to enter foreign markets. To effectively serve local markets, businesses face increasing pressure to work with ever increasing numbers of home-grown producers, suppliers, government agencies and supply chain partners.

For low-cost producers to exist in the global economy, they must rely on outsourcing. Look no further than the steel industry. In the 1960s, the USA was home to the dominant steel companies. As steel became cheaper to produce in Korea and Taiwan, US steel jobs went from 600,000 in 1960 to 230,000 in 1999, although even with the reduced workforce, US steel companies make roughly the same amount of steel.

Internet Infrastructure
The second major driver is the internet. The global sourcing model is further evidence of the fundamental transition from an industrial economy to an information economy.
The Internet also enables very sophisticated remote monitoring in offshore locations, as a result of new CRM technology. Technology as a whole is enabling outsourcing to be successful, and with that success, quality and added value are getting better.

The BPO trend will require a major infrastructure build-out that includes broadband connectivity, databases, hosting, security tools, application integration tools, web-enabled ERP applications, application integration modules, supply chain management, content management, dynamic pricing suites, payment and settlement -- the list goes on. The pundits who are predicting the demise of the IT industry might be surprised by the growth in infrastructure spending.

Core and non-core
Another driver is the distinction being made between core and non-core processes. Companies today are taking a close look at their business process and determining what processes are core and non-core to their business, and realizing that most non-core processes are good candidates for outsourcing.

Initially low-skilled jobs in manufacturing, call centers and computer coding were shifted abroad. But as more companies expand their offerings into outsourcing, new functions – such as human resources and knowledge skills in areas such as technology -- are also being outsourced. As the globalized labor market continues to grow, more high-skilled jobs, in areas such as accounting and engineering, will probably move to low-cost areas of the globe.

Offshoring outsourcing
The final driver is offshoring. In the 1970s, many Western companies began manufacturing products in offshore locations such as Japan, Korea, Thailand and Taiwan. Despite the relatively high cost of transporting the goods by sea and air, it was cheaper to manufacture these goods in the Far East (and in Mexico after the NAFTA treaty) than to keep manufacturing in the US or Europe.

Most companies are now accustomed to manufacturing offshore. And what took place in manufacturing is now occurring in backroom processing and services. With the advent of reliable, cheap global communications and the internet, and with the abundance of skilled labor forces in many developing countries, offshore service centers have become both feasible and a reality.

The main driver of outsourcing has always been cost savings. Since cost is such a priority, it makes sense that one of the biggest trends in outsourcing is offshoring. Countries such as India have a large, highly educated, English-speaking resource pool from which to draw. By outsourcing functions such as call centers or accounting, operational expenses can be reduced by at least 50 per cent.

The bottom line
With outsourcing's next wave gathering momentum, businesses that don't find a way to surf this wave will forfeit significant competitive advantage. Yet, as with all management tools, BPO will continue to reflect the ability of forward-thinking managers to anticipate and adapt to change and to use outsourcing effectively within an overall framework of continuous improvement.

5 Biggest Failures in Outsourcing Contracts

Outsourcing is recognized worldwide as a key business strategy. However, a lot of companies are still hesitant to join the bandwagon. It is thus not uncommon to hear the sentiment that "as many as half of outsourcing deals fail".

Let us look at some facts. A study by KPMG conducted early this year shows “ 89 percent of respondents expect to maintain or increase current sourcing levels while only 14 percent claim to have had a significant misalignment of financial and commercial expectations between provider and client.” These would show that the majority still see the great value of outsourcing as a business strategy.


What would be beneficial for us is to learn from where others have failed. It is a source of wisdom that would otherwise come at a great cost. Simply avoiding a strategy that had a red mark seems contradictory to the entrepreneurial nature of today's business world.

Here are the five top reasons why an outsourcing contract fails.

Client's Lack of Company Vision.

Before you even think of outsourcing, you should have a clear idea on what your core functions are and what your business is all about. No one knows your business better than you. If you can not determine your company's main focus, what more can you expect from an outsourcing provider? A simple but very insightful advise from any outsourcing insider: “You can outsource anything that is immaterial to your focal point.”. Outsourcing success will naturally follow.

Lack of a Formal Strategic Measurement Framework.

According to a recent study, almost half of the companies who entered into an outsourcing contract are clueless whether their endeavor was successful or not. Why? They did not bother to establish a measurement framework to test it. They fare no better than someone attributing his business success to a solar eclipse. Having a measurement framework from day one would allow you to know the exact impact of the outsourcing contract, address any potential issues, and enhance your outsourcing potentials.

Lack of Vendor Management.

A common misconception about outsourcing is that you will simply be getting someone else to do your job while reducing your costs at the same time. This mindset leads to an outsourcing nightmare. Layers of misunderstanding are rooted from passively waiting for the results. Outsourcing is a partnership between your company and your outsourcing vendor. This means that you need to manage the relationship if it has any chance to flourish. Again, you know your business best. Help your partner help you.


Heavy SLA.

At the end of the day, the bottom line of outsourcing is results. You reduce costs, you increase your productivity, you enhance the quality of your product or service. Service Level Agreements or Requirements (SLA or SLR) ensures that you and your provider are on the same page about the success of your business. Sometimes, the bottom line is lost and both parties are stuck at the SLA, trying to make the most out of the deal. This commonly leads to SLA's that are ridiculously improbable that they look like a prelude to disaster.

People.

Outsourcing is primarily about people. You don't normally outsource something that you can already automate. Finding the right people is almost an imperative for success. It is therefore not a surprise that it tops the list of difficulties encountered in outsourcing. Dealing with your outsourced team and the outsourcing provider dictates your day to day operations. Finding the right cultural fit, compatible language, and hiring qualified people, should be given due consideration to ensure a smooth relationship. Conflicting values and language barrier easily spells doom for any outsourcing contract.