Outsourcing is one of the fastest growing business phenomena globally. Yet, it is important to remember that outsourcing brings challenges as well as opportunities.
The new breed of outsourcing
Modern-day outsourcing was initially hailed as a saviour. As with many new business trends, it certainly experienced some early disappointments and re-considerations, due largely to companies trying to outsource too much too quickly. But outsourcing is now beyond its early problems.
Increasingly, companies are experiencing a real return on their outsourcing investments. They are using off-shoring to expand their presence in new territories, to build links in other parts of the world, and expose their offerings to new sets of customers.
In the past, off-shoring has been criticised because it moves jobs away from the employer's own country. The reality is that while some jobs are transferred overseas, it is only part of a much bigger picture.
It is important to consider that parts of a business can be moved off-shore without being outsourced. And likewise, outsourcing can, and often does, take place on a company's own territory.
Off-shoring enables companies to make better use of resources, which in turn can lead to job creation in the home market. This is due to the company experiencing better economic health, exploring new territories and - when off-shoring is associated with outsourcing - it brings in new expertise.
The new breed of outsourcing has also created a new term: ‘transformational outsourcing'. This refers to how outsourcing can add value to a company's performance - not just through cost savings. For example, transformational outsourcing looks at whether the company can become more profitable, move into new markets, or improve operational efficiency.
As the outsourcing provider is not involved in day-to-day operations, it can look at the long-term, bigger picture. As a result, the outsourcing provider is able to recommend and apply the relevant techniques to achieve these goals. Tangible benefits include better customer service, a fresh injection of innovation, or faster time-to-market.
Key considerations when developing an outsourcing strategy
- A company must always retain control over its business ‘core'. That's what makes each company unique. And it means that the company will remain in charge of its future strategy, supported by outsourcing partners who supplement its core skills.
- It is also important to protect the company's culture and avoid a ‘them and us' attitude between the host and outsourced/offshore staff. The outsourcing provider should have the global presence and experience to handle any cultural issues.
The outsourcing provider should ensure that "supply chains of knowledge" are maintained, from top management to the agents, and without any barriers being formed.
- Companies are also increasingly "right-shoring". In other words, their outsourcing provider should be able to recommend a combination of off-shore and local facilities.
For instance, a company can consider to move transactional low customer value works (e.g. service calls) to off-shore sites, while keeping the on-shore facilities for higher value responsibilities, such as driving sales calls to increase revenue streams. Benefits of "right-shoring" include the ability to offer "follow the sun" and 24/7 customer support more easily.
- Look for a successful track record. A company that is taking its business in a new direction, such as outsourcing or off-shoring, cannot afford to take risks. Choose a proven supplier that has established and strong reference clients.
- Reach - When trying to expand into new business areas or geographies, make sure that the provider has sufficient resources in place or they are easily accessible. Do they have established offices in the target countries?
- Much of the success of any outsourced or off-shore operation depends on a robust communications infrastructure and advanced IT, which all help to ensure transparency between the company and its outsourcing provider. What kind of global network does the provider have, and is it continually being improved?
- Staff care - How well does the provider look after its staff? Are they well trained, do they seem satisfied with their jobs? Are they loyal? Remember that these outsourced staff will be representing your company. So do not settle for anything that does not feel right.
- Developing outsourced contracts off-shore often involves close liaison with the country's own government officials, developers, etc. Is this an area where the provider is skilled?
- Leverage comparative advantage of different locations, whereby one country is better placed than another to produce or sell a certain product or service. So, if India or China can provide Europe or the US with cost-effective customer care services, but those same countries are able to provide something in return - for example, higher paid jobs for local employees - then the process achieves balance.
Modern outsourcing has come a long way in a few short years. It once involved the simple transfer of basic services to a third party. Today that same third party can help companies take their businesses to a new level of profitability and customer service.
This is particularly true in markets where maintaining a competitive edge is increasingly difficult. For example, a company that has experienced several difficult years may not have sufficient capital to expand in its home market.
However, the company may be able to revive its ailing circumstances by working with an outsourcing provider and having new products and services developed externally.
Clearly, outsourcing is a trend that is here to stay. When handled correctly, it presents considerable advantage for businesses.
As well as cutting costs, outsourcing enables businesses to improve - and even transform - themselves. It is a major step for any organisation to take.
It makes business sense to work with partners who have the right geographic reach and resources, experience and expertise, to help businesses avoid pitfalls and make the most of the outsourcing opportunity.