Business Process Outsourcing: Friend or Foe?

You may be considering handing off one or more of your business processes. But identifying the proper areas to parse out, while keeping it all cost effective, involves deep institutional analysis with a dash of corporate soul searching.
Posted February 20, 2007
By

Mike Houghton


Outsourcing rumors are sure to set off pandemonium among employees in an IT organization. Though outsourcing may seem like management’s shortsighted means of cutting costs, the act of determining the pros and cons of meting out certain business processes can have real benefits for your organization.

The key is to conduct a thorough outsourcing analysis.

Why Not Outsource?

Having taken a good look at both sides of the proverbial fence, there are many scenarios where outsourcing can work as well as situations where it won’t solve a thing. For starters, there’s finding the right outsourcer, which you’ll quickly discover is just a small piece of the puzzle.

Nearly any outsourcer can make a strong case, but with a proper analysis of your current processes, an equally, if not stronger, case can be made for keeping the business in-house.

If you have never done this type of analysis before, it can be a real learning experience. Keep an open mind and you may find that there are situations where outsourcing makes perfect sense for your enterprise by freeing up some of your internal resources for more important and sensitive efforts.

USA vs. the World

The most notable and politically charged trend has been to outsource labor to countries outside the United States. Countries like India and Mexico, among others, tout well-trained, low-cost workers and can be a good fit in some situations. There are also, many well-established domestic outsourcers that may be a better fit for your business depending on the sensitivity level of the process under consideration. Regardless of whom you consider, whether based in the US or overseas, be vigilant that all scenarios have been accounted for, that there are no hidden costs, and that service levels will not be compromised.

In one outsourcing analysis, it was found that telecommunications and software license costs were not included in the foreign outsourcer’s initial proposal. With the addition of these costs, the foreign proposal was comparable in cost to that of the domestic outsourcer. Given that the process involved direct contact with customers and requiring the ability to listen in on live service calls, the contract was awarded to the domestic partner.

In another example, rather than hire additional staff to keep up with the workload in the networking department, it was decided to outsource routine administrative and maintenance processes from skilled internal positions to an outsourcer.

In this case, the foreign outsourcing proposal was a perfect fit. It freed up skilled internal resources to perform the intensive work while routine processes were handled by capable, but less skilled and less expensive resources overseas. The best part of this particular outsourcing initiative was that no jobs were cut and the company ended up getting more for its payroll dollars. While headcount reduction is often a goal in outsourcing, it is not always a prerequisite.

This last example involves depot repair. The shipping costs alone eliminated foreign outsourcers from the equation. Most of the domestic companies that were evaluated came in pitching that they could take over the whole department. One company listened and provided a proposal that would meet our needs and allow them to earn more business based on performance goals. It was a new concept at the time and their proposal was accepted and they earned more business over time.

One Outsourcer’s Perspective

Carl Albrecht, Founder and CEO of PointManagement LLC, a business process outsourcer, has the following to say.

“It turns out that what customers really need is for us to answer the phone, make decisions, and track and manage their processes with at least as much interest in it as they have. The idea, after all, is to take on the painstaking daily tasks that don’t earn their employees any glory and no one in their right mind wants to do. Make sure they know you get it: The purpose of outsourcing isn’t to replace a core competency. It’s to free them to do brighter work on the core business while you use your core competency and economies on the mundane things that have to be done well.”

All or Nothing?

If management is determined to outsource, your best bet is to be open to the possibilities; suggest a multi-phased approach; have your processes documented and have internal baselines for comparison.

Some of the most successful outsourcing strategies involve keeping the highly skilled, specialized functions in-house and farming out the smaller, routine processes. Not only can this strategy save time and money, but as mentioned earlier, it can free up your skilled internal positions to work on more pressing initiatives.

And while many outsourcing companies will come in and try to pitch an all or nothing approach, if you start small and reward good performance it can make for a smoother transition out (or back in, if necessary). Regardless, analyzing your processes is well worth the time and serves to improve efficiency.

This article was first published on EnterpriseITPlanet.com.






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