By Michael Brians
Norelli & Company
Reduced operating costs combined with sustained high quality
is the secret to survival in today’s highly competitive
global economy, and for a growing number of companies, both
large and medium-sized, achieving this goal may mean outsourcing
information technology (IT) and customer service functions
to developing nations, such as India.
Numerous companies in India
have the technical resources, focus on quality and work ethic
to get the job done. While outsourcing offshore has historically
been limited to manufacturing, this situation is changing rapidly
as a result of a commitment by developing nations to invest in
their people’s skills and
to go after work from American companies through excellent representation through
U.S.-based diplomatic corps and marketing organizations.
In addition to the traditional
IT outsourcing arrangements, business process outsourcing (BPO)
is a trend in its early stages and includes such areas as database
marketing, accounting, HR administration, tax processing, desktop publishing
and illustrations, training development, medical transcription services as well
as other functions deemed as “non-core”.
Before your jump on the
next outsourcing boat to Mumbai, however, you need to consider two things – does
outsourcing make sense for your organization and if you do outsource what are
the implications for your company.
Does Outsourcing Make Sense For You?
The first step along the outsourcing path should be close consultation with
your management team. You will need their assistance in identifying areas
that could be outsourced and their support in managing the process. Here
are a few key points to consider:
- Best candidates for outsourcing – The best tasks
for outsourcing are those that are routine and well documented. The term “well
documented” cannot be overemphasized because with your outsource partner
nearly 10 hours away, you must rest assured that they can perform the task
correctly and consistently.
processes – Before making the decision to outsource, you
must consider whether the process you are sending half way round the
world is strategic to your competitive advantage. When you share technology
with an outsource partner, there is no guarantee that your secrets will
be entirely safe. If sharing technology with a competitor would be your
undoing, then the task you have identified may not be a good one for
- Run the numbers – There is no substitute for solid
spreadsheet analysis of costs and benefits. The major pitfalls that most
companies run into are underestimating the costs involved in establishing
and managing an outsourcing partner relationship in India and overestimating
the initial cost savings from reduced labor rates.
- Plan offshore travel – While Indian companies have
excellent representation in the U.S. and can provide much of the information
you need on outsourcing partners, there is no substitute for a trip to India
for a first-hand look at processes, facilities and people. If you are not
willing to make this trip and complete your due diligence, then under no
circumstance should you proceed with outsourcing. There is no substitute
for kicking the tires.
- Short term versus long-term benefits – Short term
versus long-term benefits – Most companies are surprised to learn that
costs saving benefits from outsourcing are not immediate. In fact, you may
not see a positive return until 12 to 18 months into the program. Tempering
upper management’s expectations will go with the territory, so, if
you are not into it for the long-term, outsourcing is probably not the right
strategy for you.
What Are The Implications From Outsourcing?
While you are completing your analysis concerning the outsourcing of
information technology, call center or customer care functions, you
must also consider essential implications of this decision on your
- Impact on people and their jobs – A decision
to outsource work from your company has obvious implications on your
people and their job security. In an ideal world, you would outsource
routine, repetitive tasks and develop your people in the U.S. for higher
skilled, strategic positions. But, in the real world, outsourcing may
lead to layoffs and your management team must develop a separate plan
to deal with the legal, financial and emotional implications within
your organization of people losing their jobs to an outside partner.
- Managing the relationship – If you outsource
work to India, you must set up processes within your organization to
manage the relationship, including quality assurance. Depending on
the work that is outsourced, you may be required to designate a member
or members of your team to oversee these relationships on a full-time
basis, including regular trips to India to review the work and meet
with your partners face-to-face.
- Smaller projects more attractive to smaller companies – The
size of the work that you outsource will depend on detailed cost benefit
analysis. During recent months there appears to be a trend of smaller
companies and smaller projects turning to outsourcing as work has been
harder to come by in a slowed global economy.
While India is on the top of most lists for outsourcing of IT and call centers,
you should also consider Canada as an alternative. Government subsidy programs
along with currency exchange advantages in Canada can provide cost savings
for U.S. companies of 20 to 30 percent, and Canada offers obvious geographic
and cultural advantages.
To outsource or not to outsource? It’s an issue
on a growing number of corporate agendas today. For many companies, there simply
is no choice when all of your major competitors are moving tasks offshore and
eating your lunch with lower costs. But, before you make the leap, do your
research, run the numbers and check them twice. Move forward only when you
have full knowledge of rewards and risks that lurk off of our Atlantic and
Michael Brians is Vice President
with Norelli & Company,
a business strategy development firm based in Charlotte, North Carolina. Brians
has more then 17 years experience in international business operations, including
the creation and management of global outsourcing relationships. He can be
reached at (704) 376-5484 or email@example.com.