Why Outsource Work?

In today's globalized and networked economy, outsourcing has never been so easy or made so much business sense. The question is not "Why outsource?" but rather, "Why not?"

25 reasons why outsourcing makes business sense

When you consider the advantages of outsourcing, you'll realize there's a lot to gain by using it as an intrinsic part of your business strategy.

By outsourcing, you can:

1. Reduce overheads, free up resources
2. Avoid capital expenditure
3. Improve efficiency
4. Offload non-core functions
5. Get access to specialized skills
6. Save on manpower and training costs
7. Reduce operating costs
8. Improve speed and service
9. Establish long-term, strategic relationships with world-class service providers to gain a competitive edge/li>
10. Enhance tactical and strategic advantages
11. Focus on strategic thinking, process reengineering and managing trading partner relationships
12. Spread your risks
13. Provide the best quality services, products and people
14. Be reliable and innovative
15. Provide value-added services
16. Increase customer satisfaction
17. Avoid the cost of chasing technology
18. Leverage the provider's extensive investments in technology, methodologies and people
19. Benefit from the provider's expertise in solving problems for a variety of clients with similar requirements.
20. Focus scarce resources on time-critical projects such as application reengineering
21. Obtain needed project management and implementation consulting expertise, along with access to best practices and proven methodologies
22. Reduce the risk of technological obsolescence and increase efficiency by consolidating and centralizing functions
23. Keep pace and minimize the impact of rapid changes in applications and standards
24. Extend the reach to more trading partners quickly and efficiently
25. Reduce the overall IT management burden while retaining control of strategic decision making.

The Outsourcing Institute finds, "Outsourcing is rapidly becoming an accepted management tool for redefining and re energizing the corporation. It challenges today's executives to rethink the traditional, vertically integrated firm in favor of a more flexible organization structured around core competencies and long-term, outside relationships."
 

Note: Numbers don't add to 100% because multiple responses were allowed.
Data: Dataquest survey of 250 IS executives. Source: Information Week

Highlights:

• Global giants such as IBM, Microsoft, Novell, Oracle, AT&T, Fujitsu, Motorola, Digital, Hewlett-Packard Philips, General Electric, IBM, Reebok, Fujitsu, British Aerospace, General Motors and Sears are keeping ahead of their rivals thanks to the competitive advantage conferred on them by some of the best software companies in India. You too can benefit immensely from a successful outsourcing strategy.
   
• Several convergent forces like an exponential increase of technology in the workplace, electronic commerce, enterprise systems and a sharp increase in internet related new entities are resulting in an increased demand for software professionals. The need is further compounded by the lack of trained programmers in the developed countries, especially United States, Western Europe and Japan.
   
• Demand exceeds supply, which has led to increased labor costs, longer product development and even longer time to market. A recent Wall Street Journal article related a greater willingness on the part of CIOs to outsource software work that is not mission critical.

• Reduce your marketing and software delivery costs
   
• Gain access to global buyer base needing software development
   
• Manage your projects online with buyer participation
   
• Neutral marketplace with global choices
   
• Economies of 24 hour X 7 days a week low-cost software development with access to global consulting firms. For instance, Advanced communication technology has allowed global software teams to become commonplace. Some software companies are organizing global software teams to employ the best talent in the world.

Factsheets / Resources

The Five W's of Outsourcing

Who should outsource?

Just about everybody: from entrepreneurs in the SOHO (small office home office) segment to small and medium enterprises (SME), to large businesses and empires with diversified interests and varied business processes. Every business benefits hugely through outsourcing because technology is changing so fast, it has to be leveraged and used to the maximum to deliver competitive advantage to a company.

"I view outsourcing as part of the transformation strategy" Pat Wallington Xerox

Why should I outsource?

Experts believe that outsourcing is essential for companies to prosper throughout the '90s and into the 21st century.

Outsourcing gives you:

• A technical and functional edge on the competition -- without capital investment.
• Faster development and start up
• Lower cost
• Enhanced performance
• A better-managed e-business infrastructure
• Reliability
• Security
• Maximizes uptime
• A more effective operating environment at the backend.

What should I outsource?

We will confine our suggestions to IT and IT-enabled tasks, products and services. But as the world runs on technology, the list is long:

• Web solutions
• Web development
• Web design
• Website security
• Website maintenance
• Web hosting e-commerce: B2B, B2C and C2B
• Transaction management

Business process outsourcing (BPO)

• e-CRM (electronic Customer Relationship Management)
• SCM (Supply Chain Management)
• Back Office
• Payroll
• Billing
• Accounting
• Telemarketing and Call Centers
• Teleservicing and Product Support

When should I outsource?

• When you're losing focus on your core business because you're too busy handling operations
• When you're facing a time, money and human resource crunch
• When you have a mission-critical project that needs all your time and energy, plus specialized skills which aren't readily available
• When you've got to be the first into the market to gain the edge

Where should I outsource?

Try India! Intel, IBM, Cisco, Yahoo, Amazon and Oracle find it works!  

10 Biggest Concerns of a Customer While Outsourcing

While looking at outsourcing your business processes, there are a host of issues that you need to be aware of about your prospective service provider. The key is to choose a service provider with integrity, honesty, efficiency and great communication skills. Although this seems like a formidable challenge, its pretty easy if you ask the right questions.
This article will give you an idea about the kind of questions you should ask your prospective service provider before outsourcing your work.

1. How reliable is the vendor?
   Ask the vendor for details such as number of years in business, number of employees, financial background and so on. Get a thorough picture of the vendor's history.
    
2. Does the Vendor provide quality products/services?
   Vendors need to provide solid customer references as well as emphasize the processes that are followed within their organization to ensure quality products and services. 
    
3. What is the Life Cycle cost of the Products/Services provided?
   Cost is obviously a key reason to outsource. But while choosing a service provider, make sure you look at hidden costs from maintenance, connectivity/infrastructure, training, transition etc. instead of just the obvious costs such as licensing and consulting costs.
    
4. Will the vendor be able to meet delivery deadlines?
   Make sure vendors promise realistic commitments taking care not to overstretch resources to a point where quality might suffer.
    
5. How safe is my data?
   While addressing these data privacy related concerns, make sure your vendor meets your requirements in critical areas related to infrastructure security (Firewalls, Access Controls, Data Encryption, etc) as well as those that are human resource related (Pre-Recruitment checks, Non-Disclosure agreements, etc.)
    
6. What kind of risk am I taking on with this vendor?
   Ensure that vendors provide evidence of Business Continuity/Disaster Recovery plans and risk mitigation plans. These arrangements go a long way in minimizing business risk.
    
7. What are the effects of the vendor’s employee attrition on me?
   Ensure that vendors have cross-trained employees and have maintained sufficient buffer capacity to take care of such events.
    
8. Will the vendor be fair and transparent in his financial dealings with my organization?
   Vendors need to be fair in matters related to invoicing especially in Time and Material type of contracts. Again, check with previous client references to ensure that the vendor is fair and transparent in his financial dealings.
    
9. Does the vendor comply with statutory laws and regulations?
   If your vendor is not compliant with statutory laws, you stand a chance of being held responsible for violations of laws or regulations carried out by vendors. Increasing public scrutiny has ensured that customers are morally, if not legally, responsible for their vendor’s actions with respect to environmental damage, working conditions, etc. Therefore, make sure that none of the vendor's actions violate established laws.
    
10. Does this vendor’s culture match that of our organization?
    A certain degree of ‘fit’ must exist between the two organizations in terms of work ethics and culture for smooth interaction. The best indication of this is your vendors initial communication with you.
     

Outsourcing ethics can help you increase profitability and reduce risks

Many times, business organizations encounter the dilemma of ethical decision making. "If a CIO says 'I've never faced an ethical issue', they're not living in the real world," says Larry Ponemon, chairman and founder of the Ponemon Institute, a security and privacy research think tank based in Arizona.

Though business relationships are more economic in nature, their moral and ethical dimensions have an equal impact on profitability. When it comes to the ethics of outsourcing, matters become more complicated, as parities involved are continents away. A judicious choice between the right and the wrong person to do business with will determine the future of your outsourcing venture.

Why is it important to do business with organizations that are ethical?

Ethical compliance presents a strong public image and upholds the integrity and character of an organization. Whether personal or professional, not many of us will want to associate with unethical individuals. It makes a lot more sense to do business with ethical organizations as it has a direct influence on the overall functioning of a business.

When things go wrong!

This is the acid test. The way your outsourcing partner reacts during a crisis is the best indicator of whether it is ethical or unethical. When there is mutual trust and responsibility towards each other, a crisis management mechanism will automatically evolve. Ethics creates a space for itself and ensures the smooth running of businesses.

Legal Aspects

Legal perceptions may differ from one nation to the other and ambiguity could arise when a dispute occurs, leaving both parties in a fix. The association becomes easier when the parties have a legal, moral and ethical obligation to comply with the agreement, with due respect to international law.

Information Security

The core concern of outsourcing ethics is confidential information security. Privacy and security fall under the 'no compromise zone'.
Sujoy Chohan, a consultant at IT research specialists, Gartner Company says, "If there is any industry which is investing in security tremendously, it is the offshore industry, whether it is India or elsewhere".

Chief Privacy Officers are highly concerned about proper information security practices. If your outsourcing partner does not have adequate information security measures, it might be wise to stay clear of them.

How does an outsourcer identify organizations which are doing ethical business?

Everyone claims to be ethical. Though a clear definition of the parameters for identifying organizations with ethical conscience will be a difficulty, some factors are vivid.

Vendor Reliability

It is nothing but trust that makes someone want to outsource. Weigh the dependability and reliability of the organizations to which you want to outsource.

A clear definition and practice of the ethical rules and privacy policies of the organization like non-disclosure of trade secrets, secrecy and non-disclosure contracts with staff, third party service providers and visitors is a prerequisite. This will reassure the outsourcer that it is safe to do business with a partner who is miles away.

Employee Credibility

Information security will largely depend on the people who handle the information. Organizations that implement tough employee credibility measures have a direct implication on its outsourcing ethics.

Communication

Clear and open communication channels are another sign of an ethical company. When a project does not go the right way, an ethical partner will always keep you informed of the problem and possible solutions and time needed.

Inquiry

A thorough enquiry should be made about the organization and their nature of work management. Talking to the employees and references will give a clear idea about the professional approach of an organization. Check if the following requirements are met by your outsourcing partner:

• Proper information security systems
• Appropriate programs to protect the trade secrets of its clients, partners and their customers
• Infrastructure
• Training and upgrading the security skills and awareness of employees.
• Safety of electronic data storage
• Presence of a whistle blower
• Proper arrangement with third party service providers

How does being ethical help in reducing the risks of offshore outsourcing?

You can always find companies that offer services at very low costs. An ethical concern might seem to be a costlier choice. However, the price difference could be deceptive as the variation will only be in the initial cost. In the long run, the overall cost will prove to be much lower when you are working with an ethical partner.

Ethical vs. Unethical Partnerships

 

Client responsibilities

Before making an outsourcing decision, the outsourcer should also be clear about the responsibilities that he should share. This will help in building a healthy relationship base.

• Willingness to discuss
• Manage expectations
• Last agreed document should be the basis
• Build flexibility to contracts
• Openness to intermediate scope and price review

Make sure that all the loop holes which can disrupt the outsourcing process are dealt with. The benefits of outsourcing are sure to show up with safe outsourcing practices.

How Does Outsourcing Benefit Both the US and India?

Despite the anti outsourcing backlash, benefits from outsourcing are very tangibly felt in the US economy. The very fabric of American success lies in opportunity and innovation, making it very difficult for anyone or anything to paralyze its workers or its economy.

• "America's pain, India's gain", The Economist, Jan 2003
• "Is your job next ?", BusinessWeek, Feb 2003
• "Study sees 406,000 U.S. jobs shifted overseas in 2004", Financial Times, Oct 2004

For many people, headlines such as these define offshore outsourcing - an ill wind that 'hollows out' America by taking away dollars, jobs, skills, and experience to foreign shores.

This is an unfair perception and unnecessarily spreads hysteria about a much misunderstood marketing tool.

Yes, jobs are going offshore...

A 2003 McKinsey Global Institute study estimates that outsourcing by US companies is likely to increase by 30 to 40 percent over the next five years and this will result in the loss of about 200,000 jobs a year in services over the next decade.

However, these figures must be viewed in perspective. A June 2004 report by the US Department of Labor states that in the first quarter of 2004, less than 2 per cent of job losses in the non-farm private sector were due to outsourcing.

.. but this is good for the economy

Far from being bad for the US, McKinsey finds that outsourcing creates additional net value for the US economy that did not exist before. When $1 of labor cost is outsourced from the US, the total value created globally is $1.45 to $1.47. Out of this, the receiving country, India in this case, captures just 33 cents. The remaining $1.12 to $1.14 is captured by the US in terms of new revenues (the receiving country buys goods and services from the US), repatriated earnings, and redeployed labor.

The study simply quantifies what companies have known years - that outsourcing delivers tangible and significant benefits in the following ways:

• Reduced capital costs
• Increased efficiency
• Reduced labor costs
• Quicker project starts
• Focus on your core business
• Level playing field
• Reduced risk

…and a growing economy creates new jobs

It is cold comfort to a programmer whose job just got 'Bangalored', that his company benefited from that fact.

But a rise in corporate profits is good for the US economy as a whole. According to a Global Insight study sponsored by the ITAA (Information Technology Association of America), the benefits of offshore IT outsourcing added $33.6 billion to real gross domestic product in the United States in 2003. By 2008, real GDP is expected to be $124.2 billion higher than it would be in an environment without IT software and services offshore outsourcing.

Traditionally, the US economy has been a huge job creating machine. Over the last 10 years, the economy has created an average of 3.5 million new jobs a year, and the vast majority of displaced workers are re-employed within six months.

This has been true even during times of great change. McKinsey estimates that between 1983 and 2003, two million manufacturing jobs were lost in the US. But 36 million new jobs were created in services. Many of these were jobs that people didn't know even existed before.

Despite the present lull in the job market, researchers expect that trend of innovation and job creation to continue.

Forrester estimates that despite the headlines on offshore outsourcing, IT jobs in the US grew in 2003 and will continue to grow at three per cent from 2004 to 2008.

Some industry associations and economists have reacted skeptically to these estimates. They argue that it is dangerous to assume that the US has better trained, harder working or more innovative workers capable of higher value added work than its foreign competitors.

True. Workers elsewhere can be as smart, as hard working, and as innovative.

But the US has more opportunities than its competitors. The fallacy is to assume that there are only a fixed number of jobs in the economy and when a job is sent offshore, a US worker is rendered permanently jobless.

Over a 10 year period from 2000-2010, McKinsey expects that while two million service jobs will be lost through offshore outsourcing, 22 million new jobs will be created. Technology and medicine are expected to be major drivers for job creation.

US workers have more opportunities because their economy is growing and new and fresh jobs are being created to more than replace the ones that have gone away. They have more opportunities than anyone else to acquire new skills, and more opportunities for acquiring the jobs that accompany the growth in the economy.

Already, there are intense debates within the US about ways to manage the transition of workers to the new jobs and to insure them against distress in the interim.

There are calls for a sustained push to improve worker retraining and student enrolments in specialized technology courses so that future generations of Americans are adequately prepared for the high-tech jobs of tomorrow.

There are debates on whether the government should provide a safety net to displaced workers or whether corporations should fund this with a part of their profits from outsourcing.

While there are no clear answers yet, what is clear is that reason and logic are beginning to replace the paranoia of the outsourcing debate.

And guess what? Even the media headlines are beginning to change:

• "Stop Blaming Bangalore For Our Jobs Problem", Fortune, Apr 2004
• "UBS Study Finds Outsourcing Not Big Hit to U.S. Jobs Market", The Wall Street Journal, Oct 2004

Outsource BPO Services to India

Outsourcing BPO Services to India is one of the popular business practices in today's competitive environment. The Indian BPO industry is constantly growing.

Outsourcing BPO - The Benefits

British Trade and Industry Secretary, Patricia Hewitt, at a national conference of the Confederation of British Industry (CBI) said, "It is much easier to see the short term benefits of protectionism than to see the long term costs to consumers and business competitiveness."

This is the crux of the pro-outsourcing argument. Outsourcing BPO Services to India offers benefits not only in terms of cost reduction, but also in terms of increased productivity and quality. Companies along with their customers benefit since they can access some of the best talent and expertise in the industry at lower rates.

Outsourcing BPO to India - The Cost Savings

Bob Beauchamp, BMC Software President and CEO talked about the backlash in the US where an economic rebound had not created jobs. Addressing the Product and Embedded Software Summit in Bangalore he said that there may be a backlash, "But as studies have indicated that for every one dollar invested in India, the value derived by the US economy is between $12-14." He termed outsourcing to India as "irreversible" and said it was a "must have" to improve the Indian and global economy.

NASSCOM has tried to address some of the concerns voiced by anti-outsourcing parties especially about the benefits to the American economy.

The study shows that US businesses have witnessed significant cost savings by offshoring to India.

• The US banking, financial services and insurance (BFSI) sector's costs are 7-10% lower than that of its European counterparts
• American BFSI companies have saved $6 billion in the last four years by offshoring to India.

Outsouring BPO to India - Creates Jobs

It seems contradictory to say that the migration of jobs from one country to another actually creates jobs in the former. However, that can ultimately be the case. According to the NASSCOM report, the BFSI sector have saved $6 billion in the last few years and due to these savings have added 125,000 new jobs in this period thus preventing layoffs.

Nearly 170 Indian IT companies have offices in the US and they employed nearly 60,000 people in the US in 2001. These people paid nearly $810 million in taxes in 2001. Employees of Indian IT firms bought goods and services worth $1.2 billion in the US and paid nearly $300 million as social security in 2001.

Outsourcing BPO to India - The Value Addition

The NASSCOM study continues to explain the added benefits. BFSI offshoring has resulted in quality and productivity gains of 15-20% and customer satisfaction of almost 85%.

The report gives a striking example of the success of the automobile industry in the US due to outsourcing. Today, this industry is the largest in the world and two of the biggest automobile companies are American. The industry has the same number of professionals it did in 1994 as it did in 1974, which is 900,000. Over this same period sales and services in this sector grew 20% from 2 million to 2.4 million. Outsourcing gave this industry a competitive edge and opened up opportunities in terms of investing in new equipment and re-engineering processes.

The US steel industry, however, resisted outsourcing and suffered greatly despite several tariffs and quotas.

Outsourcing BPO to India - The Long Term Benefits

Amidst the mounting furor against outsourcing one has to examine things more objectively. In the short term, cost benefits and value addition may not be apparent because of the initial investment involved in training and infrastructure. Also outcries against migration of jobs seem to cement the argument. However, as the NASSCOM report shows, the long term benefits are very powerful. Not only does outsourcing BPO to India allow global companies to avail of some of the best talent and expertise at competitive rates, but it also allows the company to actually save several jobs, which it might have had to lay off otherwise.

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