Archive for ‘Outsourcing’

August 23, 2006

Outsourcing debate – Don’t get sore, get smart…

THE political heat around outsourcing has cooled as the threat it once seemed to pose to western service jobs has diminished. The emphasis now is on improving the process of outsourcing, both at home and offshore. In other words, if you have to do it, try and do it better. This book is a good place to start learning how—especially the penultimate chapter. Called “Five Key Areas to Focus On”, it looks at financial engineering, legal issues, communications, human resources and tax.

If these sound like the sort of areas you would focus on in mergers and acquisitions, don’t be surprised. For Jean-Louis Bravard is a former investment banker who now works for EDS, a leading outsourcing firm, and he brings his banking experience to bear on the subject, arguing that outsourcing should be treated much like M&A, for which it is in many cases a substitute. That means fully involving the company’s top executives in outsourcing decisions, and expecting outsourcing to be subject to the same “degree of public and shareholder scrutiny” as M&A. It also means looking at many of the same things when judging whether a deal will work or not.

By and large, the authors shy away from the political hot potato of offshoring. When they do touch on it, it is to do little more than make the case for using third parties, such as EDS, IBM or Accenture, for all an organisation’s outsourcing requirements. Why tussle with the onshore/offshore decision, they ask, when it can be passed over to experts (such as EDS) to decide for you where to locate your operations?

The authors make an important distinction between offshoring and outsourcing—“most of the processing industry in India still consists of in-house captive operations owned by the businesses that use them”, they say. In other words, they are operations that have been sent offshore, but have not been outsourced to a third party. The authors then leave any further debate about offshoring for elsewhere.

Diana Farrell, director of the McKinsey Global Institute, the consulting firm’s in-house think-tank, was one of the first to take the heat out of the issue. Initially, she pointed out how limited is the data on the phenomenon. In a report last year, the institute said that “the debate about offshoring has been fuelled by anecdote rather than fact.” It then set about gathering data which, in turn, suggested some limits to offshoring.

It estimated, for instance, that only “13% of the potential talent supply in low-wage nations is suitable to work for multinational companies”, and it cited three main reasons for this: the lack of language skills; the limited capacity of the educational systems of the offshoring hosts to impart practical skills; and the lack of cultural fit. Other evidence of limits—this time to the demand for offshoring rather than the supply—comes from a recent survey by Proudfoot, another firm of consultants. It found that over three-quarters of the companies it surveyed had no business functions carried out offshore; just over one-third had no business functions outsourced at all, neither at home nor abroad.

Now Ms Farrell has written an article called “Smarter Offshoring” (published in the June 2006 issue of the Harvard Business Review). Echoing Mr Bravard’s title, it pleads for a more thoughtful approach to offshoring. She argues that “the most popular offshore sites for service functions are overheating.” It is time, she says, for companies to look “beyond these hotspots and to base investment decisions not just on costs but also on talent, markets, strategic aims and appetite for risk.” Much as you would with M&A.

From Economist

February 21, 2006

Outsourcing.. health check..!

I am heading expenses reduction program in leading financial institution. one of very first & easy ‘school-boy’ decision was to outsource/migrate work to India from one of the EU countries… well, you would imagine very simple & easy solution and in just months bottom-line will be impacted ($ save). right??.. answer WRONG… not to my surprise; Data-Protection authority of that specific EU country had rejected the proposal stating India is NOT safe

The recent controversy over British tabloid Sun’s purchase of confidential bank account details of some 2000 Britons from an employee of Gurgaon based BPO company Infinity E-Search has generated a lot of concern in the western countries over the data-protection issue. This comes close on the heels of the arrest of three former employees of Pune’s MphasiS BPO on allegations of siphoning off $350,000 from the Citibank accounts of four New York based account holders has sent shock waves across the Indian BPO industry. Some time ago, an Aligarh resident and employee of a Gurgaon based call centre, Arif Azim, was also taken into custody after he purchased a television set and a cordless phone using credit card data stolen from US customer Barbara Campa’s records. Although such isolated incidents are not specific to India and are not uncommon even in the US, they may just have given the dying US anti-outsourcing lobby a new lease of life.

India’s BPO success story is not entirely a fairy tale. The number of complaints received from the outsourcing western companies is growing especially with regard to the accent of Indian call centre employees, their not-so-humble attitude while dealing with customer queries and a laid-back attitude in solving their problems. The accusation that can have a far reaching impact for the stability and future of Indian BPO industry, however, is that private customer data is not safe in the hands of Indian BPO operators. This is indeed a serious development since the very foundation of the BPO industry is based on customer credibility and faith. If the bond of faith between the outsourcing companies and the service providers dwindles, it could well turn out to be the beginning of the industry’s downfall. China, Philippines and now even Pakistan would be happy enough to grab the BPO opportunity if India falters on this count. Our BPO companies are already feeling heat due to a stiff competition put up by a few aspiring IT powers and a rising attrition rate. We must, therefore, be pro-active in dealing with the new challenge before the data security issue takes a threatening dimension.

Considering the sensitive nature of the data safety issue in the west, however, the companies there leave nothing to chance in ensuring absolute protection of customer data.

In the absence of a solid legal framework, Indian companies take the standards-compliance root to assure their clients, and in turn their customers, that private data is fully safe in their hands. Many Indian companies implement international data protection standards, which ensure use of safe software, techniques such as data encryption, copy protection, intrusion detection systems, firewalls, anti-virus tools, network security, system security systems and monitoring systems and provide a well defined framework of dos and don’ts. Even then accidents do happen every now and then. Take the example of ISO 9000 certified MphasiS itself that has implemented a safety standard called SEI CMMI Level 5, hitherto considered as ‘invincible.’

It is high time that the government, Nasscom and the industry came together in taking solid, authentic steps to guarantee complete data protection to those it matters most. The sensitive issue cannot be handled by any of them in isolation. If the Indians are still not able to prove our credibility and trustworthiness to the outside world after being in such a dominant position in the BPO space for almost a decade, it would be highly unprofessional, unjustified, unfortunate and disastrous.

November 19, 2004

is Contracting an answer to outsourcing woes..!?

Recently come across interesting topic – is Contracting is really an answer to outsourcing woes..!?

A lack of suitable skills internally and the need to drive costs lower continue to tempt all manner of organizations to seek outside help – whether it’s the best option long term or not. Stewart Baines explains how to make sure these projects work out for the best.

Most IT directors, in the ideal scenario, would prefer to manager everything in-house. In-house programmers, administrators, project managers and strategic directors can ensure more control, better communication and closer ties to business goals than working with an outsourcer.

Even Martin Hart, the chair of the National Outsourcing Association (NOA), admits this: “Our research shows the best way of doing things is probably in-house. But in-house has very high start-up costs and benefits take a long time to come in. Often too long. On the other hand outsourcers have a very quick set up time – they’ve done this stuff before – but you lose a lot of control. They want scale so they want to do the same for you as they’ve done for someone else. They will give you want they think you should have not what you think you should get.”

But sometimes there may be no other way to grow or meet business goals than to look outside the company’s boundaries for help, particularly for smaller organizations.

Dan May, operations director at mid-sized outsourcing firm Ramsac, is adamant that firms, particularly small and mid-sized, are relying too much on in-house skills and that they must look to outside practitioners.

“Most SMEs only have a small in-house IT team or a lone ranger,” he says. “They struggle to keep on top of new technology and developments. You can’t learn the job from a trade magazine. They’ll recommend stuff that they want to play with or feel is within their knowledge. There’s too much complacency from in house IT. How do you know you’re getting value for money?”

May argues that, contrary to accepted wisdom, you get a higher standard of work with more openness from an outside party than you ever could with an internal team. “You get more transparency from an outsourcer. You get regular reporting of response times, resilience, security, data protection and so on; you get a service level agreement (SLA); you get experience. Can you say the same of an in-house team?”

What worries most managers and bosses about outsourcing is the lack of control they fear will ensue. Moving operational costs and capital expenditure off the balance sheet is good but risk rises as more and more complex business processes are left to outsiders whose loyalties lie elsewhere.

But there are ways to improve the chances of having a good outsourcing experience.

According to Martin Hart of the NOA, whether a successful relationship with an outsourcer or consultancy is possible is down to the preparedness of the client. He says: “You always need an intelligent customer within your organization. They have to be honest with the outsourcer about the task in hand and exactly what they expect back from the process, not some idealized goal. I think some companies are just not honest with their supplier. And you’ve got to get the basics right too – agree on handover processes or fault escalation policies. If you don’t there’s no foundation for a successful working process.”

Hart believes many organizations would be best served by hiring a consultant or consultancy to manage the hire of an outsourcer – someone who can help set expectations and knows how to manage a supplier. One of the first steps they should take is to rid the deal of SLAs.

“The SLA is far too geared to the supplier. We recommend a business level agreement (BLA). A lot of the technical details in an SLA are too technical for a client and can’t be translated into useful business intelligence so we advocate addressing that at the start,” says Hart. “There’s a real skill in converting technical data into business requirements. And it needs to be in a way that it can continue to be managed over the life of the deal.”

Roger Rawlinson, head of consultancy at the NCC Group, agrees: “An exit strategy needs to be understood – asset transfer, performance bonds, SLA penalties etc all need to be firmly established at contract. Organizations should not fall into the trap of seeing in-house IT as a problem and then outsourcing the problem without first establishing what IT should be delivering in terms of business outcomes. This challenge can be particularly pronounced in smaller companies where board-level representation of IT is non-existent.”

At the SME level, Ramsac’s Dan May says: “SMEs need much more than outsourcing their IT staff or basic functions. We think they really need strategic IT direction, an outsourced IT director to sit on the board, help guide IT policy and connect it to business goals.”

For the risk-averse, bringing in contractors and managing them in-house is the ideal half-way house between re-skilling their own IT department or opting for the full monty outsource.

Murmurs from the recruitment market indicate contracting is back in vogue. Joe Kelly, managing director of networking solutions at recruitment company Parity, says: “We’ve had a few years where contractors have desperately been looking for permanent work but now many ex-contractors are looking to get back into contracting. Clients are happy because it’s a flexible employment model. In fact, the growth in outsourcing is not reducing the demand for contracting, it’s probably the reverse. Many of the outsourcing companies are taking on contractors; it’s the only way they can get the relevant skills.”

One reason both clients and contractors are having a new love-in: Many outsourcing deals have failed because too much knowledge was retained solely in outsourcing and never communicated clearly to the client. Contractors don’t operate like that.

NOA’s Hart says: “If you move supplier, how does the knowledge of the process get transferred to the new supplier? The likelihood is that it will be lost. This is where contractors come into their own. They’re on the client site, easily assimilated in the processes and culture of the client, and typically offer a skills transfer. They can also be 50 per cent cheaper than a consultancy.”

And there’s the rub. Full-time jobs disappear to contractors, consultants and outsourcers because of skills gap, a lack of experience, cost saving and, often, too tight a deadline to complete projects in-house. Thus in one form or another, getting IT staff off the payroll is an inevitable trend.

%d bloggers like this: