The 3 R’s

Is there more to outsourcing than the bottom line? What are the other reasons companies choose this route? What about ramifications for aspects of your business that are not so easily quantified?

In this article, we’ll discuss the 3 R’s of outsourcing: Reasons, Risks and Rewards, specifically as they relate to information technology (IT). And, as a bonus, we’ll provide some tips to help you manage successful relationships with your IT service providers (whether they are full-time staff, or outsourced).

The Reasons

According to the Outsourcing Institute’s Outsourcing Index 2000, there are many reasons why companies outsource. Here are some of the top reasons:

  1. Reduce and control operating costs. When you outsource, you eliminate the costs associated with hiring an employee, such as management oversight, training, health insurance, employment taxes, retirement plans etc.
  2. Improve company focus. It is neither practical, nor possible to be a jack of all trades. Outsourcing lets you focus on your core competencies while another company focuses on theirs.
  3. Gain access to exceptional capabilities. Your return on investment is so much greater when you outsource information technology to a firm that specializes in the areas you need. Instead of just the knowledge of one person, you benefit from the collective experience of a team of IT professionals. Outsourced IT companies usually require their IT staff to have proper industry training and certifications as well.
  4. Free internal resources for other purposes. You may have someone in your office that is pretty good with computers or accounting, but most likely these were not the jobs he or she was hired to do. If they are spending time taking care of these things, who is doing what they were hired to do? Outsourcing allows you to retain employees for their highest and best use, rather than wasting their time on things that may take them longer than someone who is trained in these specific areas.
  5. Resources are not available internally. On the flip side, maybe you don’t have anyone in your company who can manage your IT needs, and hiring a new employee is not in the budget. Outsourcing can be a feasible alternative, both for the interim and for the long-term.
  6. Maximize restructuring benefits. When you are restructuring your company to improve costs, quality, service, or speed, your non-core business functions may get pushed aside. They still need to be handled, however, and outsourcing is an optimal way to do this. Don’t sabotage your restructuring efforts by failing to keep up with non-core needs.
  7. Function difficult to manage or out of control. This is definitely a scenario when outsourcing to experts can make a big difference. But don’t make the mistake of thinking you can forget about the problem now that it’s being “handled.” You still need to be involved even after control is regained.
  8. Make capital funds available. By outsourcing non-core business functions, you can spend your capital funds on items that are directly related to your product or your customers.
  9. Reduce Risk. Keeping up with technology required to run your business is expensive and time consuming. Because professional outsourced IT providers work with multiple clients and need to keep up on industry best practices, they typically know what is right and what is not. This kind of knowledge and experience dramatically reduces your risk of implementing a costly wrong decision.

The Risks

Anytime you give someone else responsibility for an aspect of your business, whether a full-time new hire or an outside vendor, there is risk involved. Did I hire the right person/company to do the job? Will they do what they are supposed to do? How will they “fit” with existing employees or departments? These are the questions that nag owners of small businesses when handing over the reigns to a new employee or vendor.

According to Yvonne Lederer Anotucci in her article “The Pros and Cons of IT Outsourcing,” business owners who consider outsourcing IT functions need to be aware of the following risks:

  1. Some IT functions are not easily outsourced. IT affects an entire organization; from the simple tasks employees do everyday to the complex automated aspects. Be sure the outside vendor are qualified to take care of your greatest needs.
  2. Control may be lost. Critics argue that an outside vendor will never be as effective as a full-time employee who is under the same management as other employees. Other concerns include confidentiality of data and disaster recovery. However, a supervisor that is knowledgeable in managing an IT staff member will usually be required.
  3. Employee morale may be affected. This is particularly true if you will be laying off employees to replace their job functions with an outsourced firm. Other employees may wonder if their job is at risk, too.
  4. You may get “locked in.” If the vendor does not document their work on your network and system, or if you’ve had to purchase their proprietary software, you may feel like you can’t go anywhere else or take back your network. Many outsourced companies require you to sign a year to year contract which limits flexibility.

Most of these risks can be avoided altogether if you know what to look for in a vendor and ask the right questions. Wondering how your current or prospective IT service provider stacks up? Take Corporate Computer Service’s Support Provider Ranking Quiz at:www.corpcomputerservices.com/computer-support-quiz.php. These questions will get you thinking about what to ask and what to look for, whether you want to hire a full-time IT professional on staff, or outsource to a support provider.

The Rewards

Still not sure whether to outsource or not? According to Anotucci, who provided the list of risks outlined above, there are many rewards you can expect when you outsource your company’s IT functions as well:

  1. Access to the latest and greatest in technology. You may have noticed how rapidly software and hardware becomes obsolete in this industry. How is one staff person going to keep up-to-date with everything? Outsourcing gives you the benefit of having more than just one IT professional. And since it’s the core competency of the company, they can give you sound advice to put your IT dollars to work for you.
  2. Cost savings. Outsourcing your IT services provides financial benefits such as leaner overhead, bulk purchasing and leasing options for hardware and software, and software licenses, as well as potential compliance with government regulations.
  3. High quality of staff. Since it’s their core competency, outsourced IT vendors look to hire staff with specific qualifications and certifications. You may not know what to look for if you’re hiring someone to be on staff full-time, so you may hire the wrong person for the job.
  4. Flexibility. Vendors have multiple resources available to them, while internal staff may have limited resources and capabilities.
  5. Job security and burnout reduction for regular employees. Using an outsourced IT company removes the burden from your staff who has taken on more than he or she was hired for because “someone needs to do it.” You will establish a better relationship with your employees when you let them do what they do best and what they were hired to do.

Conclusion:

Now that you have seen the risks and rewards associated with outsourcing the IT function of your business, there is a lot to think about. Whether you choose to outsource or hire internally, one thing is certain, you must know how to manage successful working relationships with your IT service providers. Let’s face it, they’re not always the easiest people in the world to understand and deal with, right? Here are some tips:

  • Clearly form and communicate the goals and objectives of your project or business relationship.
  • Have a strategic vision and plan for your project or relationship.
  • Select the right vendor or new hire through research and references.
  • Insist on a contract or plan that includes all the expectations of the relationship, especially the financial aspect.
  • Keep open communication with all affected individuals/groups.
  • Rally support and involvement from decision makers involved.
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Why “Middle Managers” Are Critical for BPO Companies

There is a commonly held misconception that “middle managers” can cost companies both money and efficiency.  However, in the business process outsourcing industry, this statement couldn’t be any farther from the truth.

When it comes to business process outsourcing Philippines, these middle managers are essentially the glue that keeps the entire organization together.  Without them, fundamental processes would fall apart, and the company would be left afloat in very dangerous waters.  Here are several reasons why middle management is such an integral piece of Philippines business process outsourcing:

Internal and External Communication

In a business process outsourcing company, middle managers are the ones who communicate externally, typically with customers and suppliers.  In addition, the middle managers are the ones who communicate internally with members of senior management.  This means that middle managers essentially bridge an important gap in business process outsourcing companies.  They know what’s happening inside and outside the company.  In Philippines business process outsourcing, this could mean that answers to critical problems exist in the hands of middle management.

A Diverse Skill Set

Middle managers possess a wealth of diverse skills that make up part of the glue that holds business process outsourcing companies together.  One of the key skills they often use is virtual management, which involves working remotely with teams of people across the globe.  This means middle managers are experts at using technology to collaborate and achieve a common goal.  Without the know-how of middle management to apply technology in a team-oriented environment, the cohesiveness in Philippines business process outsourcing would not exist.  Other skills that middle managers excel in include cultural awareness and sensitivity, multitasking, trouble-shooting, and change implementation.

The Future of the Organization

Middle managers serve as leaders and mentors for the employees working under them.  They are essentially responsible for building the next generation of management in the company. Business process outsourcing Philippines will continue to grow at an exponential rate, and it is important to have excellent middle managers in place to foster the development of upcoming players in the game.

With middle managers taking on the responsibility of communicating externally and internally, exercising a diverse skill set, and training the future leaders of the organization, it is clear that these employees are integral to the advancement of Philippines business process outsourcing.  No organization would be successful without the presence of strong middle management.  There is simply no way to accomplish business process outsourcing Philippines without them in place.

Read the full article at trybpo.com
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Virtual Outsourcing vs. Traditional Outsourcing Providers

About a decade has past and there was a time where, an IT service provider could feel confident marketing itself based on two strengths—process expertise and scale. But in an age of cloud computing, virtualization and automation, staff size may no longer matter.

Even as HP’s fate once it sheds 27,000 employees is still up in the air, the headcount required to staff a successful outsourcing engagement is most certainly decreasing. And the days of outsourcing-related layoffs and the “lift and shift” of the remaining labor force to a third-party provider aren’t likely to return.

“The number of resources that a provider has on staff used to mean a lot more than it does today. The average outsourcing deal size is decreasing, while the number of deals continues to increase. The market is starting to realize that it is about engaging the provider with the best overall value proposition, as opposed to the biggest—or cheapest—provider.”

In today’s buyers outsourcing market, it’s outsourcing customers that may be driving this change. “Buyers are two steps beyond reducing headcount, while interested in a more efficient and effective service delivery, [they] are now seeking transformation.”

Someday “your mess for less” may be supplanted by “our processes, your people,” as customers seek out providers who can transfer their expertise and methodologies to the client’s existing IT staff. Where outsourcing providers used to say, “tell me what you do and I’ll do it (for you), or, better yet, give me your people so we can limit operational risk. The new approach is, I’ll tell you what is best and you tell me [whether or not it will] work. This new dynamic brings outsourcing relationships to a more advanced state.

The most mature providers are already pushing the ‘virtual outsourcing’ value proposition to their clients. Staff transfer is not a differentiating capability for the IT majors.

Indeed, most providers will resist taking on client staff today. Providers now have plenty of people and equipment so they are usually not interested in a transfer. When we see that these days (particularly in it deals), it is more of an accommodation than something that the provider needs in order to perform. And it’s one that comes at a premium.

In the application development and maintenance space-where labor arbitrage had been the big driver behind outsourcing-price is becoming less of a differentiating factor. And “with the advent of platform-as-a-service (offerings), buyers can now manage their own code-and staff-to build customer solutions. Providers are simply passing on the capability.

In the end, the extent to which a provider offers or simply transfers knowledge, service, and value to a client is highly dependent on the buyer’s IT and IT services maturity.”

Provider’s are pushing [virtual outsourcing] as one possible strategy, but we don’t see [many] customers ready to move forward with it. That could change in the future, but widespread acceptance of that model would take several years. These things aren’t yet happening in practice even if this is where we want to go.”