Outsource Magazine

Somewhere in South East Asia the rain gently hits upon the window of the multi-story office building where people are intently engaged in providing services to a client in a far away land.  The picture could be repeated elsewhere; in Kenya under intense sunlight and the heat of a savannah, or a seasonal snow squall in the Ukraine, people are busy working as an extension of a business enterprise. While the West laments about jobs lost and buyers look for ways to squelch the angry crowds while maintaining a doable operating cost, outsourcing ventures churn on. The economic uncertainty of our time has set about slowing of interest and in somes case a reconsideration of whether to bring work back home. At the end of the day it still remains a difficult model to discount when your back is against the wall for higher levels of profitability.

In those early days the jump to outsourcing, as a solution, was keenly centered on cost savings.  Drive by the lure sources were sought and deals were rapidly put together.  Some of the early failures were the result of hastiness but others were simply unavoidable because there was no similar situation that one could reference as a benchmark. 

In outsourcing 2.0 the focus shifted from immediacy to practice refinement.  All sorts of methods were conjured up to cover everything from provider selection, contract negotiation, and transitioning to contract renewal and engagement arbitration protocol.  It helped a lot - but still we need to realise that frameworks can only serve as a guide and not a comprehensive and definitive solution.

Pressures of the times have caused us to tighten the circle - not purely in terms of reducing costs but doing it via process and approach solutions.  Even some of the earlier failures, such as captive operations, are being dusted off and revisited using the knowledge that has been accumulated over the last two decades.  These incremental steps are healthy and safe, but can we do more to optimise our service delivery and at the same time abate the public discontent with our business choices?

Outsourcing 3.0?

I’m not a fan of labels especially when they are not the result of pre-planning. Coincidental labels used as a means to captivate intrigue never seem to strike at a solution; rather they report on obvious existing or historical conditions.  The present reality is that outsourcing is coming under scrutiny.  Buyer nations, pressured by high unemployment, are responding with proposed legislation to limit the amount of services that are acquired from outside.  The public, being on the receiving end of unemployment, are equally disturbed and revolting against further erosion of employment by outside service providers.  Neither party has taken the time to better understand why buyer companies have pursued this business decision.  Undoubtedly rising costs and lower profits have forced their hand.  Since many established these relationships during good times, it is even more pressing that further reductions be pursued in order to sustain a competitive business.

At this juncture there are similar pressures on providers to sustain revenue goals but at the same time to hold onto staff despite many nations facing employment pressures caused by higher wages.  So how can these two parties - the buyer and provider - reach a place where both can achieve their goals?  Let us also not forget that public sentiment must be addressed and not simply overlooked as just background noise.

Solution Opportunities

The burden of responsibility rests with the buyer community.  Clearly buyers are in a position to control the engagement relationship and to take the necessary steps to keep costs in check.  In this position it is the buyers' responsibility to acknowledge and address the impact of their actions on providers.  Some would choose to turn a blind eye but without sustained relationships, stable viability, and cross-cultural impact, a buyer will face service uncertainty.  A number of companies have chosen to negotiate hard and to use labour arbitrage as the focus of these discussions.  Whilst this may not be an issue, it is cutting into provider margins that had a trickle-down effect to experienced staff that may be seeking modest pay increases.  In perspective these amounts may be quite small in comparison to Western countries but nonetheless they are essential in areas where the difference can be between staying and leaving for other unaffected employment outlets.

Looking back at how a buyer company transitioned from self-supported to serviced, the services followed a lift-and-drop form of approach.  A lift and drop is simply taking what is presently being done and shifting it over to a servicer who will carry on with the work.  Over time the transferred services can easily have gone through multiple transitions and changes that were implemented, but often end up disturbing the efficiency of the process.  An avenue of opportunity exists for the optimisation of these processes to reduce costs and to make them more efficient.

If we step just a bit further back the question should be asked whether some of the services already sourced should be scrutinised for curtailment.  As much as we hate hearing the term “we’ve always done it that way”, we sometimes find ourselves comfortably positioned in that situation.  Tolerance is one matter, but reinventing the way we go about doing business is an essential element for sustainable business.

How can we get this done?  Our staff has been diminished, experience has been lost, and it seems that hiring local experts is just adding more cost without the certainty of recovery.  One such company, a large financial institution, found that it was cheaper to hire offshore experts to perform this work.  In fact many of these individuals were ex-pats who emigrated to provider nations.  Using this approach they gained the value of qualified experience, a better understanding of offshore markets and conditions, and enjoyed a dramatically reduce labour cost to do the job.  In this particular case the savings amounted to a 25 per cent saving over domestic rates.

Are there further steps that buyers can take to address the present sourcing situation, in a competitive business climate and with global economic uncertainty?  The answer to this question lies within and it has to do with how sourced relationships are managed, and the level of risk that is carried with them.  Buyers usually adopt two types of relationship management with providers: remote control, whereby they manage from afar and utilise service level agreement (SLA) criteria; and the other which couples remote control with routine visitations. 

The danger is that statistics are based on past history and real-time dashboard information and are so microscopic that it’s difficult to see trends until sufficient (or catastrophic) information becomes available.  Whilst the routine visitation can help to add context to performance it often concentrates on issues or future discussions and doesn’t critically examine the provider operations.  Sure there is the routine meet-and-greet, followed by a tour, a few lunches and dinners, combined with the problem discussions - but what is left out?  I contend that there is a lot and this involves continued corporate viability, staff conditions and local culture. 

You can’t see the facts from the comforts of a Western hotel; it requires local emersion on a purposeful long-term basis.  Larger companies can enjoy the value of this if they have operations located in these sourcing regions.  But if you don’t, you are left to see these factors periodically, jaded by the press and news accounts, and certainly not always in a fashion that would allow for graceful adaptation to these conditions. 

Feet on the ground make a world of difference but should not be viewed as simply a heads-up exercise but one that can serve as your local representation to keep the relationship and service moving in a productive strategic fashion.   In order to carry this out the “feet” have to be objective, connected and share the perspective of the buyer first and foremost.  This cannot simply be carried out by a warm body who will follow a script or who has never served in a representative capacity (especially in a foreign land).  Most often it is best to utilise independent professionals rather than large service companies because of the reduce bureaucracy.

What More?

Our world is an endless cycle of experimentation, learning and improving.  When combined with pervasive social change, whether economics or cultural norms, the cycle continues to be fueled.  Often this leads to confusion on what is the best course of action to take, which reverts to no action at all.

As the buying public you have choices and much of the direction involve aspects that are entirely within your span of control.  Honestly it’s not about more provider services or a different twist on old ones, although one should be vigilantly watchful, it’s about…

• Looking for business possibilities that have been overlooked or misunderstood, and
• Seeking solutions that address new business opportunities with sourcing being the catalyst for change.

In summary, the time to take action is now when there is sufficient economic motivation to stimulate change.  But change must be undertaken in areas which are within reach of your direct control, otherwise efforts will be wasted.  In this context, present buyers should concentrate attention on:

• Sourced services re-evaluation with consideration given to present business practices and pursuits;
• Feet-on-the-ground support to reduce risk, access immediate attention, and to secure objective opportunities; and
• Formally evaluate business processes with a keen eye toward optimisation.  This last point should not be taken lightly.  Optimisation has to be carried out skillfully and must give consideration to retaining sufficient internal controls, checks-and-balances, and core structural integrity in order to sustain a level of supportable order.

Outsourcing 3.0 isn’t a place in time… It’s here now.