Outsourcing Times

Is Outsourcing Cost-Effective?

By Priya Jestin, Staff Writer

While just about anybody worth is two-bit sound byte has already said something about the outsourcing phenomenon, much is lost in this public debate. What many people don’t realize is that the actual process of transferring business operations to a third-party company outside the US is not an easy task. It takes up a lot of time, is complex and fraught with dangers.

This means without proper oversight, the entire outsourcing drama could end up as an exercise in futility. Most firms don’t realize that in addition to planning and execution, an outsourcing strategy requires continued oversight to succeed. So, why do some companies perform woefully on the outsourcing front?

One big reason is underestimation. Firms don’t realize that it takes a lot of time, money and resources to manage offshore operations effectively. To worsen the situation, these companies also under invest in the ongoing governance and management of the service provider relationship. This means the company will have to establish a dedicated team of people, on both ends. This will help ensure compliance and adherence to optimum service levels.

Agreed labor and other costs are lower elsewhere. But this doesn’t mean a company can go slack. It needs to continually evaluate the labor situation and have a back up plan ready in case of any problem. One of the most important things you need to find out is if the decision to outsource will give you any monetary benefits. If your service levels and costs are already competitive, it doesn’t make sense to outsource it.

Finally, be more careful in your dealings with laid-off employees. They are often bitter, and could cause your company its goodwill if you don’t deal with them correctly. For instance, let your employees know they are valued. Help them stay current with training in new areas.

Trouble in Wonderland

All’s not well at wonderland. At Walt Disney World, where employees are called “cast members,” almost 500 outside contractors recently have joined the show, putting outsourcing front and center in labor talks that opened this week. Signonsandiego.com reports:

On the outsourcing issue, Disney spokeswoman Kim Prunty said, “Recent initiatives have impacted fewer than 600 jobs, which represents approximately 1 percent of our work force of nearly 60,000 cast members,” Prunty said. “We will continue to look for ways to staff our resort in a smart and efficient way and, on occasion, we will work with appropriate external partners when it makes sense to do so.”

Read more: Outsourcing at heart of Disney World labor talks

Home Calling

While we are fretting and worrying about the outsourcing phenomenon we may have failed to realize that the trend is changing. Nowadays, increasing number of companies are choosing to keep their call centers in house rather than send them elsewhere. Banks in particular have decided that the customer care that happens in the call center is too important to trust to a third party. Yes, it does end up costing more to work from home, but there are obvious benefits to home shoring.

For example, U.S. Bancorp is one company bucking the call center outsourcing trend, despite the obvious financial benefits of sending work offshore. According to Celent, companies spend $6.85 per call to serve a customer compared with $4.95 for e-mail and 50 cents by Internet. Banks on average spend more than $5,000 to hire and train one agent. In the U.S., such workers generally make at least $10.50 an hour, 90 percent more than their counterparts in India. Itbusinessedge.com reports:

Yet U.S. Bancorp has poured $20 million into its five call centers across the U.S. over the past two years and employs 1,400 agents, who handle some 73,000 calls a day. At least one analyst interviewed here says it's a smart strategy because of the importance of the call center in retaining bank customers.

Read more: Bank Bucks Call Center Outsourcing Trend

UK Outsourcing Model Needs Change

Experts in the UK are now trying to encourage local firms to look beyond traditional outsourcing models and embrace new ideas. Nowadays, a growing number of companies are turning to outsourcing in areas such as analytical support, market analysis and financial modeling, sectors that do not have a traditional link with outsourcing. Ihotdesk.com reports:

Neeraj Bhargava, the group chief executive officer at WNS Global Services, told a meeting of leading executives that knowledge-based outsourcing revenues are set to grow to $5 billion within four years, well up from the current figure of $1.2 billion. "Outsourcing offers specialized industry and functional expertise, predictable cost and risk management and increased efficiencies," Mr. Bhargava remarked.

Read more: UK outsourcing model to see shift

Change Indiana

--By Priya Jestin, Staff Writer

Another bastion falls. The Indiana Family and Social Services Administration recently announced that it would undergo significant changes under a decision to privatize jobs now performed by state workers. The agency provides Medicaid and welfare services to more than 1 million Hoosiers.

This change is based on a recommendation by a committee that was assigned the task of reviewing the agency. So what exactly was the recommendation? Among others, the committee recommended that FSSA's current intake program should be outsourced, its technology upgraded. The committee also sought to make changes that could help FSSA serve its clients better, save taxpayer money and improve working conditions for overburdened workers.

The contract will most probably be awarded to IBM once federal authorities approve the plan. Privatization will cost FSSA $1.6 billion and will take around 10 years for the process to be completed. This works out to be much cheaper than the $2.1 billion it could cost FSSA to modernize on its own.

IRS No To Outsourcing

This didn’t sound right from the start so when the plan was shelved, you probably had the urge to say, “I told you so”. Those not in the know, let me update you: The Internal Revenue Service has decided to shelve a plan that would have seen it outsource the management and maintenance of more than 100,000 desktop computers at facilities across the nation to a private contractor.

An IRS spokesman explained that this would be a huge and complex undertaking and hence they’d decided to pull back. The IRS had been in preliminary talks with technology vendors about the plan but no deals had been signed. Informationweek.com reports:

The halting of the plan is unrelated to the fact that the IRS has a poor track record when it comes to managing large outsourcing projects, the spokesman insists. In the most recent foul up, the agency issued more than $318 million in refunds on phony returns last year because of a botched software project, a government report released earlier this year concluded. The project had been outsourced to Computer Sciences Corp.

Read more: IRS Deep Sixes Outsourcing Plans As Tax Season Approaches

CRM In The Time Of Outsourcing

Outsourcing is here to stay… at least for some time. And the sooner we accept it, the better. That sounds like conventional wisdom. But can we blindly follow this advice and outsource our operations, especially our CRM (customer relationship management) services? I don’t think that is such a good idea.

Outsourcing, like any other business plan, isn’t a one-size-fits-all kind of thing. Agreed that when you outsource, you can get the benefits of qualified talent pools and cheaper infrastructure in offshore locations. But customer satisfaction is a very tricky thing and once you lose a customer thanks to bad management, it is very difficult to get them back.

So you have to be exceptionally careful, since even today, quite a few American customers are still quite prickly about the outsourcing of a company’s CRM activities. There are good reasons for U.S. companies to select large, relatively expensive U.S. providers…Customer service and some back-office operations can be so critical to a company's image and brand integrity that it is worth paying premium rates in order to minimize risks. The best choice for risk minimization is usually made by trusting an experienced market leader, despite the higher prices levied by the major firms.

Schools before, Universities now: On with the outsourcing bandwagon

Outsourcing administrative processes by educational institutions is nothing new. On this very forum, I reported on the practice of outsourcing food and transport components by school authorities. Although the outsourcing efforts in schools have met with roadblocks, the idea now appears to be appealing to higher educational institutions, such as universities like California Coast University.

Indiana University officials are debating whether to invite a private operator to look after the 600-odd school vehicles that are used on the Bloomington campus. While a decision is expected by the year-end, the outsourcing wave is also likely to spread to the operation of campus bookstores as well. At least eight other support areas are also being targeted for outsourcing.

The move toward outsourcing can swing one way or another, based on the raging debate now on between board members: Should the university be accountable for its spending, or should it decide to turn out people to save a nickel?

For more on the debate, click here.

Hospital Outsourcing

Bangalore-based research BPO firm BrickWork has taken a project that is entirely a new concept in India. The project is outsourcing of hospital management and administration. The company has signed a contract for a 300-bed hospital project called the Cauvery Medical Center in Bangalore.

Under the terms of the contract, BrickWork will manage the hospital, recruit doctors and nurses, put in IT systems, procure medical equipment and run the hospital for five years. The US-based investors are putting in Rs 150 crore into the project. BrickWork is expecting that its network of 175 medical professionals can refer the patients to this hospital in Bangalore.

To know more about mid pharma outsourcing, read my previous post titled "Mid pharma Outsourcing Pipeline".

CAD Outsourcing in India

CAD outsourcing services have been a major sector where Indian outsourcing firms have established themselves. Leading firms in the United States, United Kingdom and European countries are utilizing the Indian talent in CAD services. These companies are enjoying the benefits of cost effective production and expertise.

Sectors in India such as building industry, building services, mechanical engineering and architecture are attracting business from foreign countries. In Indian firms, the raster to vector technology is being used for quick production. Hence, the foreign companies are choosing the Indian firms to outsource their business processes. The entire CAD industry is growing with providing more benefits to their Western counterparts.

Refer to my previous post titled "R&D Outsourcing on the Move" to know about the current trend in R&D outsourcing.