First of all, you have to understand what offshore outsourcing services really imply. Offshore outsourcing means that a company will be hiring another company to work on their business processes. The company that offers offshore outsourcing services will be doing the business process or part of the business process.
Companies in developed countries, such as the United States, Canada, and European nations are now outsourcing their business process or part of their business process in order to save money. This is the primary reason why companies today are now outsourcing their business processes.
Companies that offer outsourcing services are usually offshore or are located in other countries. Usually, countries from developing nations do this because of the high demand for outsourcing services from western countries.
If you have a company, then outsourcing can be one of the best things that can happen to your business, in case you choose to outsource your business process in offshore companies. Besides, because you can save your company from spending a lot of money and at the same time fully function as a whole company, who wouldn't want to get outsourcing services from offshore companies?
By outsourcing, your company will be able to save significant amounts of money. This is because offshore companies, particularly in developing nations, charges only a fraction of the amount to get the job done compared to your own country.
Developing nations that usually offers outsourcing services are China, the Philippines, Mexico, and India. These countries are considered to have such a low labor cost that companies from developed countries are considering hiring their services to get their business process work done.
Another benefit of outsourcing for your company is that it can take heavy workloads off and divide it to offshore companies to do part of your company's workload. Because of this, your company will be able to focus on more important matters to make your company more competitive in the world of business.
If you are in the software developing business, it is better that you should outsource part of your software development department in order to cut operational costs and at the same time, let your in-house software development department breathe.
This is because IT professionals in developed countries, such as in the United States charge a high amount of fee for every software developed. If you outsource it to offshore companies, particularly in developing countries, such as India, and the Philippines, that has a large pool of qualified and equally talented IT professionals, they will charge you for only a fraction of the amount that IT professionals will charge you in your own country.
For example, if a programming job costs about 100 dollars in your country and the same programming job in offshore countries cost only 20 dollars to develop, you would want to hire the cheaper alternative. Obviously, if you need 100 or 200 of these programming jobs, you can see the difference in cost. Your company will be able to save thousands of dollars if you offshore your business process or part of your business process.
Always remember that you only have to offshore certain jobs. You should never offshore any projects regarding strategies of your business. You should also consider the quality of the product the offshore company can provide. If the offshore company's product is not at par with your company's standards, you should not hire the company at all. You better look for an offshore company that provides better quality.
5/09/2007
India and China, the two emerging giants
| The fact is incontrovertible that India would land in the company of developed nations by 2020. She would infact take over some of European economies like Italy, Germany and Spain and would further move to become the world’s third largest economy by 2040. |  | |
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Offshore Outsourcing enabled Transformation
As per a recent McKinsey Article “we continue to find that companies make suboptimal design choices when crafting offshoring programs. Some lack awareness of the vendors’ capabilities or feel pressure to capture near-term cost benefits without thinking through a two- or three-year plan strategically. Others have preconceived notions about what they must keep close at hand.”
As an offshore outsourcing consultant, I couldn’t agree more with the findings of the McKinsey article. I have mentioned in one of my previous articles that offshore outsourcing needs to be looked at a strategic initiative rather just a cost saving exercise.
I have a classic example where a leading Financial Services company outsourced one of their core processes of document conversion to EDGAR II format for SEC filing. The workload in this process was seasonal and was usually very high during the quarter end period. As a result the company had challenges to arrive at a successful formula that could help them service their clients’ at most competitive price. The company looked at offshore outsourcing this core process to a low cost country and spent over a year and substantial money to train the offshore resources who could execute the process seamlessly. Had this company just looked at short term benefits, they would have not been where they are today – a market leader in their business!
Like this organization, company executives should look at innovation in offshore outsourcing. Executives should move away from piecemeal, task-level offshore outsourcing and use offshore outsourcing as a tool for a fundamental redesign of their existing operating model.
For all these years, we have been hearing about business transformation using ERP, CRM, etc. In my personal opinion “Offshore Outsourcing enabled Transformation” should be the new business model for organizations.
How to Brand IT Outsourcing Services
The most common and least understood marketing barrier facing outsourcing service providers is the absence of a strong brand. Most brands associated with IT and IT-enabled services (ITeS) companies are chosen on the basis of criteria relevant to where outsourcing firms are based, rather than where they intend to do business.
In the outsourcing industry, branding challenges are most acute for companies based outside of their target market -- that is, based in locations with competitive cost advantages. Companies in these locations commonly face branding challenges due to incumbent brand selection and deployment practices.
Most offshore call centers, BPO (business process outsourcing) firms and software service companies are located in economies where major purchasing decisions have traditionally been made on the basis of longstanding personal connections -- rather than on the qualifications of a seller -- and where buyers face fewer competitive choices than in the U.S.
In other words, most offshore outsourcing companies choose brands as if they were in a sellers' market. It was a sellers' market during the first five years (2000-2004) of the Indian call center boom and from 1995-2000 in the market for software services from India.
Now outsourcing is a buyer's market, thanks to increased competition from emerging destinations and the commodification of numerous types of outsourcing services.
In a buyer's market poor brand choices become marketing handicaps. A good, persuasive brand can provide competitive advantages, especially in a buyer's market. A brand can and should encourage buyers to make positive associations with a vendor.
In its broadest sense, the definition of "brand" can extend beyond the name of a company or service or product line to include brands expressed as graphic logos, slogans and color schemes. Here we focus on brands as names of companies and product or service lines.
The Ten Commandments of Branding
Failure to follow any one of the following 10 rules makes it difficult to market a company successfully. Any company that violates one of these rules needs to spend more money on sales and marketing to compensate for poor branding choices.
1. Focus on Target Markets
The first commandment of branding is that a brand has to work well in a company's target markets. This rule is often ignored in favor of brands that confer status in locations where a company is based.
2. Don't Covet Another's Brand
A brand should not borrow or approximate a brand name from a firm already known in a target market, regardless of whether service offerings are dissimilar.
3. Match Brands Exactly With Domain Names
A brand should be identical to its corresponding domain name. For example, a brand for news and services to protect against software vulnerabilities could be expressed as SoftwareVulnerabilities.com, not Software-Vulnerabilities.com or iSoftwareVulnerabilities.com. The dash can help in mirror sites put up for search engine optimization, but not for the primary brand. Unless streaming video is involved, only dot-com and dot-net names should be used for international and North American markets.
4. Don't Use Silly Prefixes
Unless a company has been in business for more than five years, its name should not contain the prefix 'i' or 'e.' eBay has built up immense brand equity. Other companies with other lower-case prefixes in their brands have not.
5. Escape the Background Noise
Avoid overused words such as "global," "tech," "soft," "serve" or "solutions."
6. Obey Rules of Grammar
Do not violate rules of grammar, including the use of capital letters. When your company becomes bigger than eBay, then it can break this rule.
7. Avoid Negative Connotations
Brands should not carry confusing or negative connotations for people in target markets. This extends to sexual and religious connotations.
8. Make Brands Memorable and Easy to Spell
9. Obtain Internal Understanding and Acceptance
The exact name of a company and its brands need to be accepted within and communicated throughout the company's organization. At an Indian call center company and a software services firm in Pakistan that I'm working with now, there are disagreements and uncertainties among top managers at each firm about what their companies are called. This is not uncommon, especially at small Indian call centers that operate locally on a largely cash basis.
10. Test Prior to Deployment
In the outsourcing industry, branding challenges are most acute for companies based outside of their target market -- that is, based in locations with competitive cost advantages. Companies in these locations commonly face branding challenges due to incumbent brand selection and deployment practices.
Most offshore call centers, BPO (business process outsourcing) firms and software service companies are located in economies where major purchasing decisions have traditionally been made on the basis of longstanding personal connections -- rather than on the qualifications of a seller -- and where buyers face fewer competitive choices than in the U.S.
In other words, most offshore outsourcing companies choose brands as if they were in a sellers' market. It was a sellers' market during the first five years (2000-2004) of the Indian call center boom and from 1995-2000 in the market for software services from India.
Now outsourcing is a buyer's market, thanks to increased competition from emerging destinations and the commodification of numerous types of outsourcing services.
In a buyer's market poor brand choices become marketing handicaps. A good, persuasive brand can provide competitive advantages, especially in a buyer's market. A brand can and should encourage buyers to make positive associations with a vendor.
In its broadest sense, the definition of "brand" can extend beyond the name of a company or service or product line to include brands expressed as graphic logos, slogans and color schemes. Here we focus on brands as names of companies and product or service lines.
The Ten Commandments of Branding
Failure to follow any one of the following 10 rules makes it difficult to market a company successfully. Any company that violates one of these rules needs to spend more money on sales and marketing to compensate for poor branding choices.
1. Focus on Target Markets
The first commandment of branding is that a brand has to work well in a company's target markets. This rule is often ignored in favor of brands that confer status in locations where a company is based.
2. Don't Covet Another's Brand
A brand should not borrow or approximate a brand name from a firm already known in a target market, regardless of whether service offerings are dissimilar.
3. Match Brands Exactly With Domain Names
A brand should be identical to its corresponding domain name. For example, a brand for news and services to protect against software vulnerabilities could be expressed as SoftwareVulnerabilities.com, not Software-Vulnerabilities.com or iSoftwareVulnerabilities.com. The dash can help in mirror sites put up for search engine optimization, but not for the primary brand. Unless streaming video is involved, only dot-com and dot-net names should be used for international and North American markets.
4. Don't Use Silly Prefixes
Unless a company has been in business for more than five years, its name should not contain the prefix 'i' or 'e.' eBay has built up immense brand equity. Other companies with other lower-case prefixes in their brands have not.
5. Escape the Background Noise
Avoid overused words such as "global," "tech," "soft," "serve" or "solutions."
6. Obey Rules of Grammar
Do not violate rules of grammar, including the use of capital letters. When your company becomes bigger than eBay, then it can break this rule.
7. Avoid Negative Connotations
Brands should not carry confusing or negative connotations for people in target markets. This extends to sexual and religious connotations.
8. Make Brands Memorable and Easy to Spell
9. Obtain Internal Understanding and Acceptance
The exact name of a company and its brands need to be accepted within and communicated throughout the company's organization. At an Indian call center company and a software services firm in Pakistan that I'm working with now, there are disagreements and uncertainties among top managers at each firm about what their companies are called. This is not uncommon, especially at small Indian call centers that operate locally on a largely cash basis.
10. Test Prior to Deployment
5/06/2007
What The World Is Flat Means to IT Outsourcing
May 01, 2007 — CIO — Nandan Nilekani, CEO of the outsourcing firm Infosys and the man who inspired the phrase “the world is flat,” is pushing a new mantra that could become just as universal:
“Work will be done where it makes the most sense.”
Relaxing on the couch in his Bangalore office, Nilekani points out that his own company has offices in 39 countries around the world. And it’s not alone. Wipro, another large India-based IT services company, has eight offices in Europe alone, and TCS, the IT services arm of the Indian conglomerate Tata, has 10 development centers and 10,000 consultants in the United States and Canada.
Meanwhile, providers we identify as American are no longer so. IBM now has 53,000 employees in India (up from 4,700 five years ago), and Accenture (which is actually based in Bermuda) will soon have more employees in India than in the United States and delivers its infrastructure and hosting services from 15 delivery centers scattered in countries across the world, including China, Argentina, Slovakia and the Philippines. In other words, as sourcing has gone global, so have sourcing companies.
And it hasn’t just spread. It’s evolved. Sourcing isn’t just about finding cheap labor anymore. Yes, you can still take something, ship it offshore and probably save a few dollars. “But cost in and of itself isn’t going to get anyone a competitive advantage,” says Tom Sanzone, CIO of Credit Suisse.
The New IT Supply Chain
The new model is more refined and complex. Today, IT services companies take work, break it down into pieces, and perform each piece in the location that offers the best combination of skill, cost, quality and manageability. If, for example, a new insurance application requires frequent contact with underwriters in New York City, any of the emerging global providers can do it there. But if there is a component of that work that only requires cheap coders, these companies will do that component in China, or if they need to speak Spanish they’ll do it in Costa Rica or Spain. “This is the future,” says Nilekani. “IT is being disaggregated. Slice by slice, the whole model is changing.”
With change comes opportunity for CIOs, who can tap into the global network that the outsourcing companies are building to improve quality, gain the flexibility and agility to respond to business changes faster, and, yes, save money. The outsourcing vendors have spent the past several years establishing centers of excellence dedicated to specific tasks—Java programming or business intelligence, for example. This allows for economies of scale and maximizes the chances that someone will find a way to improve the process. It also means that outsourcers have assembled deep rosters of talent, organized by skill and experience, that most CIOs cannot match. “I can’t think of any IT organization that has skilled people just sitting on the bench,” says Alan Boehme, CIO of Juniper Networks. “What you are really talking about is building a variable cost model for your IT organization.”
To reap all the benefits that modern outsourcing can provide, CIOs need to start thinking like a service provider, says Dane Anderson, an analyst with Gartner. That means examining your own internal model for IT service delivery and breaking down the work into the most granular pieces possible, just like outsourcing companies are doing. “You have to look at your operating model and ask how it developed and for what reasons,” says Sanzone. “Then you need to ask yourself if it still makes sense in today’s environment.” It’s a grueling process that Sanzone says can take a team months to complete. But it’s worth it. Thanks to the evolution of the outsourcing industry, he says, “You have a chance to reinvent your operating model. That is what we are really talking about.”
Stop Outsourcing Problems
When a company first engages an outsourcer with offshoring capabilities, it is usually thinking one thing: reduce costs. True, the labor arbitrage can be staggering; an experienced full-time engineer in India or Eastern Europe costs about $30,000 a year, and only half that in China (U.S. programmers can cost as much as $90,000 a year, according to a 2007 salary study by Robert Half Technology, a staffing firm). Not surprisingly, many, if not most, companies end up saving money—at least up front—when they outsource offshore. Consequently, according to a recent McKinsey report, a large majority of outsourcing customers say that on the whole they are very satisfied with their offshore outsourcing initiatives.
But the initial cost savings often mask long-term problems. Most companies tend to outsource processes without examining their quality and efficiency. They generally hope—or contractually demand—that the outsourcer fix things for them. Indeed, after the first year of an engagement, McKinsey found, companies begin to focus less on cost savings and more on flexibility and agility. That takes time, money and management attention—and may blow away the initial cost savings. “If you are outsourcing a problem, it will still be a problem,” says Bill Homa, CIO of the supermarket chain Hannaford Bros.
Breaking down IT processes into discrete components and analyzing which ones you can or should do and which ones a partner with subject matter expertise should do lets CIOs avoid merely shifting bad processes to an external provider. “If the CIO paints all of his IT areas with the same outsourcing brush, he is going to fail,” says Joseph Rottman, assistant professor of IS at the University of Missouri, St. Louis.
Break Down the Work
Boehme knows how to break things up and parse the work sensibly. For example, at a previous job he had to build an order configuration management system. He had his own people do the requirements gathering since they understood the business and worked closely with the users. The design was done with a mixture of in-house staff and contractors. Three groups—one in India, a team of onsite contractors, and students at a local university—did the actual coding. Yet another group did the initial testing before his team did the final regression and load testing and finished the deployment. “It made sense to do it this way since we didn’t have all the skills in-house and we couldn’t move people off of other projects,” Boehme says. But he found that breaking down the work like this allowed the project to be finished 25 percent faster and 20 percent cheaper than if he had done it all in-house or outsourced it entirely. Plus, his team was able to keep architectural control and retain the intellectual capital the project created.
By understanding exactly what a process or task requires, CIOs can determine if they have the skills and the resources internally to do the project and if doing so would give their companies a competitive advantage. If not, an outsourcer can sometimes take better advantage of geographic location and a deeper bench of special skills to do the job. It’s a low-cost way to get the skills you need, in the place you need them, for as long as you need them. “If I have 20 testing resources working on PeopleSoft, I don’t have the volume” to get economies of scale and to quickly react to business changes, says Boehme. But outsourcers do. “And at the same time, because of the size of their organizations they have the ability to offer advanced training programs to those people as well,” he says.
How to Be Introspective
The first step to componentizing your IT department is to stop thinking of the various jobs IT does as functions, and start thinking of them as services. It sounds like semantics, but there is an important distinction: Functions describe something from the perspective of the person or group performing it, while services describe it from the perspective of the person or group who benefits. “What is a help desk after all?” asks Gartner’s Anderson. “It provides a service to internal users of IT.” Look across the rest of the department, he says. “Everything can be considered a service. You just have to figure out who the customer is.”
Once you adopt that mind-set, you are in a position to think about your IT department like a discerning shopper and not get distracted because something has always been done a particular way. That’s critical, because componentizing your IT department will require you to challenge assumptions and the status quo. CIOs need to break each of these services into discrete processes, and each process into tasks. (In outsourcing lingo, tasks are a subset of processes. For example, requirements gathering might be a process; talking to users would be a task.) In some cases processes and tasks will overlap. In others, you will find extraneous or poorly performed steps. That’s one of the benefits of the exercise, says Louis F. Rosenthal, executive vice president of ABN Amro Services. “I don’t think that a company can be rigid with its own processes and expect to get maximum value from a strategic sourcing partner,” he says. CIOs need to do more than merely evaluate the processes they have; they must think about the processes they want to have in the future.
It’s not enough just to identify these processes, however. They need to be broken down into specific tasks. For example, a company may have a group of programmers who understand every aspect of the business and turn out amazing applications that give the company a competitive advantage. Outsourcing the entire application development process in this case would be a nonstarter. But if you break down the application development process, you end up with a list that looks something like: requirements gathering, functional design, physical design, building, testing and deploying. Maybe the team isn’t great at testing. Or maybe there is a testing group somewhere in the world that can perform that task cheaper and more efficiently. Breaking processes into tasks gives you the opportunity to make these kinds of decisions.
Questions to Ask
The next step is to figure out whether a process or a task can or should be outsourced. The way to do this is by running each one through a set of questions. While the exact questions will vary depending on the company, department or process, here are some guidelines suggested by CIOs who have done it.
1. Does this have to be done inside our office?
Almost anything can be done from anywhere, including tasks that would have seemed impossible to do from afar just a few years ago—network monitoring for example. CIOs need to establish whether the person performing a task has to be physically present in order to get it done. It could still be outsourced, of course—the old model of hiring consultants to work in your office hasn’t gone away completely.
This is the first question that Sanzone, the Credit Suisse CIO, asks when he is evaluating a task or process. He’s looking for a solid business reason behind the answer. For example, he recently developed a new trading application for his company’s brokers. The first task in the process—requirements gathering—is the sort of thing that needs a lot of back and forth between IT and the brokers. It could be done over the telephone or through collaboration software, but realistically the best results always come from face-to-face meetings. And being colocated makes it easy to ask quick, stupid questions that someone offsite might not feel safe in asking. So despite the fact that New York, where the traders work, is the most expensive market in the country, it made the most sense to do the requirements gathering there.
And of course if the answer is no, then the process or task is a candidate for outsourcing.
2. Are there other geographic limitations?
Sometimes a process or task doesn’t require face-to-face interactions but frequent contact is still important. It is possible to outsource these projects, but the outsourcer better be located nearby. Boehme was involved with a project during a previous job that involved a lot of data scrubbing. His department wasn’t staffed for the project, and it was low-level work anyway. “But at the end of the day you have to call people and verify their addresses,” he says. He found a partner in Mexico that had the computer skills, the language skills and, best of all, a voice over IP network, making the phone calls even cheaper. He decided on Mexico because he wanted to have people in the same time zone so they could call U.S. customers when they had to. It worked great. (He tried to source a DBA project in Mexico more recently, but after 90 days of interviewing, he couldn’t find the skills he needed. He ended up moving the project to India and having a team there work the night shift.)
When Sanzone was sourcing the trading application, he realized that the design team needed to be in occasional, but not frequent, contact with the requirements group and the traders—just enough to get a few questions here or there answered. So he decided to source that task out of Credit Suisse’s Raleigh office. The project was still done by his employees and in the Eastern time zone, but it was a less expensive rate than New York.
3. Does having your employees do it provide you with a competitive advantage?
This is the number-one reason not to outsource something. And it is a determination that every company will have to make for itself. There are some things that hardly any CIO would outsource—architecture, for example. And then there are situations where the answer may be counterintuitive. Homa, the Hannaford Bros. CIO, doesn’t outsource his help desk, even though that has become the low-hanging fruit for many first-time outsourcers. “I support about 300 internal applications and it would be very difficult to train an outsider how to answer those questions,” he says. But it would be possible. And if the cost savings were large enough, he might try to do it.
But there’s an important argument against it that isn’t readily apparent until you look—and think—more deeply. Hannaford Bros. is based in Maine, where IT talent doesn’t exactly grow on trees. So Homa views the help desk as an important training ground for his future stars. “My help desk is my farm team,” he explains. “It is a great way to get into IT without having an IT background. Maybe a third of the people who came into IT came in through the help desk.”
If Homa outsourced the help desk, he would be limiting his ability to grow the rest of his IT department. It’s not an obvious reason, and it illustrates why deciding to outsource something requires more than just a cursory level of scrutiny.
The End of the Billion-Dollar Outsourcing Deal
Understanding your IT department at this level also makes you a better outsourcing customer. Rather than taking large pieces of IT and outsourcing them to one vendor in a megadeal that essentially marries the company to that partner, CIOs can use the insight they gain from the analysis to find the right partner for specific processes and tasks. In fact, Boehme suggests that CIOs should have at least two partners, and make them compete for your dollars.
Jimmy Harris, managing director of infrastructure outsourcing for Accenture, agrees, although he warns of a few potential problems. First, he says, it isn’t a good idea to divide a process between vendors, despite some vendors’ claims that they can work together. Also, he says, CIOs should not spread out the tasks that form a particular process too broadly, because it just adds complexity. Workers are less motivated because they feel as though they have less invested in the final product. And, he adds, “If you have to engage in thousands of low-level communications because you broke up the work at too fine a level, you are going to lose stuff.”
In fact, in order to combat the complexity that comes from spreading your IT processes and tasks around the world, some CIOs have created a high-level position to keep track of outsourcing vendors and the projects that they are working on. “It’s an emerging function that may not have existed at a global level before,” says ABN Amro’s Rosenthal. “Vendor management becomes much more important now. [Having that group] helps us facilitate business decisions in ways that we didn’t have to before.” Applying this kind of methodology to your IT operations will let you see what components of your organization can be moved. By tapping into the skills network that outsourcing companies have built, you can react to new requirements faster. It’s enough to let even the smallest companies act like a big company.
“We’ve been able to get our staff to move up the value chain,” says Homa, reflecting on the impact that taking advantage of the new outsourcing world has had on his department. “It’s allowed us to raise our game.”
Ben Worthen writes about emerging business trends.
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