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.

Outsourcing in the core service areas in South Africa: Is it working?

Private companies in South Africa now handle essential service sectors, including water, housing, and health. But is this a positive move? The answer is a flat “No”, according to British charity Oxfam. Oxfam believes that privatization has put essential services out of reach of the poor, and is leading to corruption.

However, Social Development Minister Zola Skweyiya has a different theory altogether. According to him, core service delivery is hampered by reluctance on the part of municipal employees to train themselves adequately to deliver access to portable water, electricity, and health amenities to the poorer social strata.

While the two points of view thrash it out among themselves, let us hope that conditions improve soon for the less fortunate in South Africa.

Reuters has more details from Johannesburg.

Privatization in schools: It pays to outsource

In July last year, I mentioned about the outsourcing storm brewing in schools. More than a year down the line, the controversy seems to have taken epic proportions, but paradoxically, the concept of privatization in schools is also gaining credence.

The pressure of working with smaller budgets has led to widespread privatization in non-instructional areas such as janitorial, food, and busing services. This has also stirred superintending authorities to investigate privatization in schools.

The statistical figures are there for all to see:

Officials at Muskegon Reeths-Puffer expect to save about $480,000 a year with private custodians over the life of the contract. That works out to about $114 per student. In Auburn Hills, a new contract may save the Avondale School District up to $490,000 — $128 per student — in fiscal 2007. In Jackson, a new custodial contract is expected to annually save $1.3 million, or about $193 per student.

Outsourcing or contractual agreements with third-party service providers are here to stay in school management. Private vendors increasingly provide services like transport and food. The school authorities are happy because it gives them an efficient management  technique, and then there is the "small matter" of budgetary savings.

Make no mistake, the benefits of privatization in schools are real and touches lives across different districts in the US.

Mackinac Center, which contacted all 552 schools listed in the Michigan Education Directory, has more details on the growing trend of privatization in schools.

Loyalty counts: National Australia Bank widens outsourcing deal with Accenture

Perform well, and you will be rewarded with a bigger piece of the cake—that's what NAB seems to be telling Accenture. To begin with, NAB's agreement with Accenture was limited to a finance and accounting arrangement; by April 2007, Accenture will be awarded 81 back-office finance-processing roles, where Accenture will validate and convert data into reports, and look after procurement administration.

However, NAB has not taken this step out of the blue. A pilot project was completed some months back with encouraging results, and this helped in sealing the final deal for Accenture. As Global Services reports, the NAB outsourcing venture will not lead to job layoffs:

It is expected that many of the affected employees will be re-deployed to other roles within the bank.... The plans do not involve customer-contact roles, and all customer data will remain stored in Australia. 

Maryland State Highway Administration goes the outsourcing way

You or I may not realize it, but quite a few arms of the government machinery are also attracted to outsourcing. Outsourcing is attractive because it enables you to "manage more with fewer headaches." This premise has worked well in the corporate environment, and now numerous government departments are queuing up in that belief.

The Maryland State Highway Administration has entered into a five-year $44 million agreement with CSC to enhance the Coordinated Highways Action Response Team (CHART) system.

CSC's part of the deal is to standardize a system where the administration is able to meet current and future IT requirements as stipulated by the Federal Intelligent Transportation System committee. Global Services gives more specifics:

Under the new agreement, CSC will provide systems integration, development testing and deployment of the enhanced CHART system throughout the state. Initially, CSC will assist the Administration in a review of its business area architecture to certify all CHART system requirements.

Dept. of Health Awards Outsourcing Contract to BearingPoint

The US Department of Health and Human Services (HHS) has signed a $13.7 million outsourcing contract with BearingPoint, a Virginia-based management and technology consultancy firm. Under the terms of the four-year contract, BearingPoint will provide various program management services including planning support, contract-management support and portfolio management. The company will also provide its health IT expertise as per the requirements.

Read one of our interesting posts titled "Healthcare IT Outsourcing in Europe".

Mobile Phone and PC Industries Outsourcing Webinar

Both PC and mobile phone original equipment manufacturers are making extensive use of contract manufacturers to reduce cost and increase efficiency. However, the outsourcing dynamics in the two industries and the roles of Electronics Manufacturing Services (EMS) providers and Original Design Manufacturers (ODMs) in each supply chain vary dramatically.

It is necessary for the users in the PC and mobile phone industries to understand the difference in outsourcing trends between the two supply chains. To address these concerns, iSuppli Corp. is hosting a free Webinar event on August 30 titled "Apples to Pomegranates? Outsourcing Across the Mobile Phone and PC Industries". Leading giants from PC and mobile phone industries will attend the Webinar.

Read our previous post titled "Offshore Outsourcing is Set for a Huge Growth" for more information on outsourcing.

Hawaiian Airlines Moots Outsourcing

Outsourcing has become a buzzword in the airline industry. You must have heard about the impact of outsourcing in that industry. According to reports, Hawaiian Airlines is planning to take the help of outside companies for certain jobs. It is planning to downsize departments and transfer employees to save money. Hawaiian Airlines' decision is based on its objective of improving both the service and profits.

The airlines may outsource all or parts of its operations in eight groups. It is important to note that telephone reservation is the largest operation it is having. There are about 300 employees in Hawaiian's reservations department. Recently, I had written a post titled "Aircraft MRO Outsourcing Is On Rise". That will give you more information on Aircraft MRO Outsourcing, which is considered a new revolution for outsourcing industry.

R&D Outsourcing on the Move

Many companies are collaborating with outsourcing providers in a bid to get their products to market faster and cut costs on innovation. A recent study revealed that CIOs and IT directors are increasing relying on the global services market for their research and development. R&D outsourcing is giving companies a competitive advantage over their business rivals. Reduced R&D costs are a top driver for outsourcing. Lower cost is the largest benefit of offshore development. There is no doubt that global R&D is one of the most important benefits of outsourcing.

Manage time, outsource email!

In this time and age, we are all familiar with the value of the adage, "Time is money." All ventures are resource-strapped, and the objective is to maximize output from the limited human resources.

Communication plays a big part in maximizing the output; the quicker you are able to communicate, the more is the yield. But what if an external agency is able to manage communication for you and free your in-house resources for core activities of the enterprise?

Many companies have taken that route by outsourcing their email requirements. Apart from cutting operating costs, outsourcing emails also leaves "both hands free" for your IT department to concentrate on day-to-day business requirements.

There are other potent advantages of email outsourcing. Outsourcing can tell you exactly how much it is going to cost to manage email, so you are better prepared when allocating budgetary needs. It also lets you get away with your technical limitations in email management; your service provider will be tech-savvy and have all the updated strappings necessary—POP3, IMAP4, WebMail—for effective email communication. Most important, you will be backed up by 24x7 tech support from your service provider, and this will ultimately boil down to better customer response.

So, what are you waiting for, go the email outsourcing way, and discover a new management tool; your customers—and your IT department—might just thank you for taking that step!

Click here to read more about email outsourcing.

Outsourcing from within: Specialized units draw local health outsourcing business

In an older post titled Medical Outsourcing Catches On, I mentioned the rampant outsourcing of health services from U.S. hospitals to India. However, that is only one face of outsourcing. Another facet that is emerging now is local health outsourcing within India to counter lack of specialization.

For instance, when a patient goes to a hospital for a diagnostic test, it is likely that the test will be outsourced by the hospital to another unit, which has a specialized capability to carry out the test. This mode of health outsourcing may be right across the street, or in another city.

For complicated health-checks, hospitals in remote areas in India are particularly benefited by this trend, because they can now outsource the test requirement to a high-end testing laboratory located in a metro.

The patient is ultimately the winner, although —ironically—the patient rarely gets to know that his or her health has been outsourced!

The Financial Express has more.

Outsourcing Raises Uproar at Bank of Ireland

A recent report raised serious concerns in Bank of Ireland and its trade unions. It has been reported that technology jobs outsourced by Hewlett-Packard (HP) to the bank could be shifted to India and other countries. In 2003, HP signed a contract with the bank to manage its technological needs for a seven-year period. Now it is thinking of shifting some jobs to India. The confidential report was leaked in the media. It triggered a controversy and annoyed Irish Bank Officials Association (IBOA) and the trade unions.

CAD Outsourcing Industry in India

Until now, you have heard about several sectors that have outsourced their work to India and other destinations. Now CAD has been added to that long list. CAD outsourcing services have been a major sector where Indian companies have achieved success. Leading firms belonging to documentation design and AEC are utilizing the Indian talent in CAD. Most of these firms are from the United States, the United Kingdom and other European countries. These companies are enjoying the benefits of cost effective production as well as the expertise developed by India in the past two decades.

Is The KPO Boom Over?

Until recently, the Knowledge Process Outsourcing (KPO) boom was hyped in the industry and in media. It was touted as the future of thousands of professionals. However, if we are to believe the recent reports, the much-hyped KPO boom may be over soon. A huge supply gap is all set to cripple the growth of KPO industry.

The evidence gathered by RocSearch, suggests that the KPO market may just reach $5 billion by 2010 instead of the earlier projection of $12 billion. What could be the possible reason for the downward trend in KPO industry? Do you believe that there is a knowledge crunch, which is affecting the KPO growth?

According to The Times of India -

Assuming an average revenue per person of $55,000 over the next four years, 100,000 knowledge workers point to a $5 billion market. This size, though based on a CAGR of 32%, is still 60% less than the $12 billion potential projected by big KPOs, like Evalueserve, last year.

Hard times, outsourcing times: Can outsourcing bail out San Diego?

A decade back, authorities in the county of San Diego were faced with a financial crisis, and saw privatization as a way out. But it obviously hasn't worked, because San Diego is in an even worse financial crisis than before. The resources are drying up, and "job hunt" is the keyword among its employees.

The Mayor is talking about opting for the outsourcing model to save up to $10 million per annum, but the picture is totally blurred about the specifics: what is going to be outsourced? According to Mayor Jerry Sanders:

We've not looked at any one area. Right now, we're more interested in getting the ballot proposition passed. . . . It's our goal to make sure each function we have in this city is as effective and streamlined as it could possibly be.

It is a guessing game right now, but whatever City Hall decides ultimately, it has to be substantial. The memory of the failure of outsourcing street repairs in San Diego is still fresh in the minds of the people, and the Mayor will have to spell out the areas clearly in order to ensure a positive response this time round.

The Prison BPO: A waiting-to-happen industry

The question of outsourcing has always been linked to unemployment or under-employment. This has made India the volatile market that it is today. India had a large educated workforce that needed a financial incentive, and outsource vendors were able to capitalize on this workforce and convert it into an effective tool to attract outsourcing business from the West.

Now think of another potentially large workforce that is underutilized at the moment, but can contribute effectively to the outsourcing wagonwheel. Yes, you've got it: the prison labor. Across the US, the many prisons house about 7 million people; in other words, this means 1 in every 100 US adults is a potential worker for the BPO industry. The process has already started in the form of Unicor, the brand name for the U.S. government's prison industries. Unicor has recorded a very positive production rate, and this encourages one to expand prison BPO well beyond this small start.

Because of the transparency of the prison force, data security is a non-issue, and business can go on as usual in a prison just as well as in a BPO in India. It remains to be seen how this idea is exploited in the future; with the right initiatives, we can certainly see a new forum brewing for the BPO industry. Line 56 reports:

Until now, the use of prisoners to perform business process outsourcing (BPO) functions like marketing and customer care has been considered something of a novelty. Certainly, this kind of economic activity isn't yet substantial, but it seems inevitable that it will grow in volume.

Cross-cultural communication training increases productivity: Accenture study

When work travels offshore, you can imagine the inherent complications. Perhaps the cornerstone of any offshore understanding is an effective channel of communication. If you attempt to take your work overseas, the temptation of cutting costs is the highest on the agenda. However, you must also cross cultural barriers to be able to extract the most out of your outsourcing partner. But how do you go about surmounting, say, language barriers?

According to Accenture, you must set up a training procedure so that your executives are in sync with outsource service providers beyond your borders. If you implement this, you can increase your productivity by about 26%. On the other hand, if you do not train your personnel to communicate, your turnover can drop phenomenally, and even lead to a premature closure of the outsourcing deal. As Management Resources reports:

Two-thirds of those polled said they had experienced miscommunication issues within their global sourcing operations, compared with six out of 10 among executives at companies that offered cross-cultural training to their employees.

In this new age of a telecom revolution, it is no longer the physical obstacles to outsourcing that will hold you back on engaging in a project overseas. However, you must overcome cultural differences—not only the language, but differences in approach as well—for your outsourcing project to yield maximum productivity.

ING in a string of outsourcing agreements worth nearly $2 billion

The Dutch market is plagued in recent times by a slow growth rate in the market, and leading financial institutions like ABN Amro and ING are making an effort to cut costs through outsourcing. Since April this year, ING has entered into three separate outsourcing agreements to cater to its various business processes.

It all began in April with the 200 million  euro six-year contract with LogicaCMG for IT maintenance and testing in the banking operations of ING. A month later, Astron came forward to manage processes of banking and insurance documents for ING under a 400 million euro agreement, spread across seven years.

And most recently, the biggest outsourcing deal of 800 million euro came about between ING and four suppliers—Accenture, Atos Origin, Getronics, and KPN—to look after installation and support for desktop and laptop computers, printers, and telephones for ING. The final stamp on the deal is likely to be put in the year-end.

Marketwatch has more details.

Law Firms Contemplate Outsourcing

It has been noticed that many legal firms in the United States are now planning to outsource their operations to third-party companies in India and other countries. Recently, Seattle-based Perkins Coie LLP formed a task force to look into offshore outsourcing. The group would develop some initial recommendations on issue of legal outsourcing. The legal industry has been traditionally reluctant to endorse changes in the industry. However, in the recent years, they have acknowledged the need and benefits of outsourcing, which result in better productivity, quality and cost-efficiency. More and more law firms are now considering how they might cut costs by moving portions of work to other lower-cost markets.

According to MSNBC -

Some observers predict that outsourcing of legal services, which can range from work typically performed by paralegals to that usually done by attorneys, will accelerate as law firms respond to clients' desire to manage their costs.

InBev signs Outsourcing Deal with LogicaCMG

InBev has signed an IT outsourcing contract with LogicaCMG for the management of its Western European and global business systems and application services. According to company sources, the transition will begin on July 1, 2006. The transfer to LogicaCRM will decide the fate of 70 Inbev employees. It will cover Belgium, the Netherlands, Luxembourg, the UK, Germany, Italy and France. The 70 million euro deal will run for five years. Through this contract with LogicaCMG, InBev will be able to achieve a more consistent approach to its information services across a number of European countries.

DRINKS Business Review Online According to TMCnet -

The decision is a follow-up of InBev's intention announcement from February 24th, 2006 to rationalize its information services.

Game Outsourcing Summit

The CMP Game Group announced a GDC focus on Game Outsourcing Summit. The event will take place on August 14, 2006 at the Los Angeles Airport Marriott. This is the first of its kind in the gaming industry. The summit will discuss how outsourcing is becoming more prudent with next-generation game design. Game outsourcing presents both opportunities and challenges to videogame development. In some cases, outsourced development has helped companies in reducing costs and in improving efficiencies for the production cycle. Game Outsourcing Summit will provide better opportunities to key players in the industry.

Whirpool Selects Accenture for Outsourcing Contract

Whirpool has decided to outsource its business to Accenture. Both companies have signed an agreement on this regard. The outsourcing agreement is likely to boost Whirpool's operations in North America, Latin America, Europe and Asia. Accenture, a New York based management consulting company will provide maintenance and support services for SAP applications related to demand chain, supply chain, HR and finance. According to Whirpool sources, the contract will transform their global information systems. It will also help Whirpool to enable its strategic vision of developing a single global application management model.

TCS Plans to Buy Vertex

India's largest software company Tata Consultancy Services (TCS) is planning to acquire Vertex, one of the largest BPO in India. It is holding discussions with United Utilities, as Vertex is the BPO arm of the company. The offer to buy Vertex is said to be 800 million US dollars, which is approximately Rs.3,600 Crore. Neither TCS nor Vertex has confirmed the report. TCS has refused to comment on a speculative news items or queries. Vertex runs back office operations in areas such as customer services, human resources, procurement, finance and accounting. It has about 9,000 employees across the UK, the USA, Canada and India. Financial Express has published an article on the Same Topic.

Vertex's revenues have been flat for a while and this could be one of the reasons for the sale. Its revenues this year were 688 million dollars as against 673 million dollars last year. It made an operating profit of 35 million dollars this year.

Infosys to Ride Outsourcing Boom

Infosys Technologies is expected to register a growth of 26-28% in the second quarter of the financial year. The potential growth has been attributed to the global outsourcing boom. According to company sources, the company's $1 billion cash pile would be used for acquisitions to get it into a certain market or a new technology. Infosys has the ability to immediately respond to marketplace needs or risk factors. In the recent years, the firm is growing steadily and the result in the previous quarter was a clear indicative of that. DNA Money has published an article on the Same Topic.

Multinational companies have embraced Indian software services firms as a way to lower costs by outsourcing key processes such as supply chain design and payroll accounting to India’s army of low-cost, English-speaking developers.

Outsourcing Woes for Pepsi Workers

Now a days, most companies are opting to outsource their business to third party businesses. However, it is causing restlessness among local workers, as they feel deprived of their rights. Workers at Pepsi Cola Ltd on Spanish Town Road, Jamaica are restive over a reported plan to outsource functions carried out by unionized workers. According to workers' union sources, if the allegation is true, it may have far-reaching consequences. Radio Jamaica Same Topic.

The Management of Pepsi has reportedly planned to meet with the workers on Monday to inform them of the decision.

How to Get Outsourcing Clients?

Outsourcing is generally referred to hiring adequate work force on a per-head-count hourly rate. Today’s outsourcing model has embraced a global delivery application that is dependant on risk management/government contingencies and long-term service level agreements (SLAs). The definition and scope for outsourcing services has evolved over the past decade. Historically, IT executives have been the primary buyers of outsourcing services. However, companies are now driving the need for more business process-focused outsourcing solutions.

It is not easy to find outsourcing clients. It is a challenging task and requires proper strategy and implementation. First of all, it is necessary to seek objective analyst opinions. Industry analysts, who cover outsourcing industry, can provide detailed information on this matter. Analysts may be in a better position to validate marketing approach by serving as third party, neutral advisers.

Another important task is to participate in industry or educational forums. Outsourcing conferences enable companies to display their clients' success stories and achievements. This interactive, peer-to-peer format allows business prospects in a similar industry to address common challenges.

Hosting seminars may also help in wooing outsourcing clients. In the competitive environment, companies target programs that demonstrate solutions geared to business challenges within a specific industry. Web conferences also serve the purpose, as they are cost-effective and require no travel. Making a research in media also helps in getting more outsourcing clients. The media is powerful and influential source for educating potential customers on outsourcing trends and solutions.

Role of Risk Management in Outsourcing

Changes in operating models and dispersed global footprints of corporations have brought in risks that need to be managed effectively. IT and ITES outsourcing has gained momentum globally over the last few years. It has brought significant changes in operating models as different functions of the same supply chain are now being performed in different environments. Businesses are trying to adapt to this drastic change. The risks have multiple dimensions that include political, economic, geographical, legal, social and technical model risks.

The important indicative risks are business continuity management risks, information security/data privacy risks and process related risks. A full-proof Risk Management model is critical from the business perspective and is a differentiator for outsourced operations. It can be done by adopting quantitative or qualitative methods. Risks need to be carefully analyzed by the top management in order to understand the various options for a cost-benefit analysis. This strategy is crucial in implementing a sound risk treatment plan.

Impact of Employment Law on Outsourcing

According to reports, there may be some amendments to European employment legislation soon that will make it more applicable to outsourcing contracts. The new Transfer of Undertaking Regulations was updated in April 2006. It will bring in changes for employers and outsourcers. The law has been there since the early 1980s. However, in the changed scenario, a new directive is being added to it so that it could be used to the benefit the industrial growth. The changes will make it clear when the law is applied. As customers are likely to try to push the cost of compliance onto the outsourcers, it is definitely in their interest to understand the changes.

A New Outsourcing Model

Outsourcing has been a buzzword in the business sector for quite a few times now. New practices are being developed in outsourcing business applications in order to maximize its impact. Traditionally, organizations have been bringing expertise in-house or passing a specific function to an external specialist provider. Each model provides benefits for the successful management of specialist or non-core functions.

In outsourcing business, shared services is gaining momentum as a model, which helps organizations face challenges such as limited budgets, failing processes and optimization of IT infrastructure. Shared services can be single, specialized units that focus on a standardized process on behalf of an entire organization. Shared services enable organizations to share key parts of their infrastructure, applications and business processes. The New Outsourcing Model based on shared services can optimize business processes such as finance, personnel and e-mail. It also helps in identifying IT and business problems and assessing their potential impact.

Mid Plains Community College opts for "managed food" through outsourcing

Following a trend that is already afloat among several colleges, the Mid Plains Community College management has decided to go ahead with a three-year contract with Consolidated Management Company. The driving force behind the contract is the hope that Consolidated Management Company will develop and utilize cyclic menus, control food orders and inventory, manage the staffing area better, and improve college catering services.

Obviously, Hipp Wholesale Foods, the current supplier of food for MPCC, is not exactly thrilled at the decision, and has warned that the college will learn from the experience and return to operating on its own steam. The war of words might well continue, but one thing is certain: students will savor a new menu starting August 1.

Click here for more on the MPCC move.

Sharp Corp. to meet shortfall of LCD TV panels through outsourcing

Sharp Corp. in Japan expects an increase in shipments from 4 mln in 2005 to 6 mln in 2006, and this has forced the company to look beyond its in-house manufacturing unit. Forbes reports:

The [Economic Daily News] report said AU Optronics Corp (2409.TW) and Chi Mei Optoelectronics Corp (3009.TW) are both expected to benefit from Sharp's outsourcing.

Major Outsourcing Conference

The annual Pharmaceutical Outsourcing of Discovery Chemistry, Advanced Intermediates and API's conference will be held on July 17-18 at the Hyatt Regency Jersey City on the Hudson, New Jersey. At the 10th anniversary of the conference this year, greater focus will be given on pharma needs and fine chemicals in general. The emphasis is also being given in contract manufacturing as well as custom synthesis.

At the conference, the global pharmaceutical industry's suppliers for custom synthesis, fine chemicals, manufacturing and other related contract services will be covered. Top industry experts will participate in the conference and address the gathering. Areas such as globalization, outsourcing, emerging markets and virtual outsourcing will be prominently featured in the discussion.

More Information: Read Here

Exhibiting companies include InterChem, Cardinal Health, Enamine, Ricerca, Key Organics, Johnson Matthey, KNC Labs, Tyger Scientific, deCode Chemistry, PharmaCore, Helsinn, Carbogen, Amcis, PDMS, J-Star, and ChemDiv.

An Cheim signs IT Outsourcing Deal with HP

An Cheim has signed a seven-year IT outsourcing deal with HP. The deal is worth €20m. An Cheim is a collaborative higher education information management system that consists of several institutes. HP will host the hardware and associated software for each institute from a single central location. It is said that each institute will benefit from significant savings. An Cheim was established to implement library, finance and human resources information systems in the Institutes of Higher Education.

The IT outsourcing will largely benefit software configuration, hardware, documentation and training. The systems implemented within the IT outsourcing programs will include a financial management system and integrated HR applications. There is a library system that provides a self-service facility to reserve items and enable users to access a range of specialist websites.

More Information: Read Here

According to Paul Malone, national project manager with An Cheim Computer Services, the deal will provide the institutes with a total cost of ownership saving of €20m over five years due to a combination of “significant” infrastructural and organisational cost savings.

Invest in outsourcing management for success: Study

Outsourcing partners are increasingly becoming aware of the fact that it is equally important to invest in the management and governance of outsourcing relationships as much as to invest in the outsourcing deal per se. A study by EquaTerra, a multinational outsourcing and insourcing advisory firm, has shown that at least 4 to 7 percent of the annual outsourcing outlay should be invested in the management and governance of outsourcing. Based on a study of more than 250 ITO and BPO role-players in North America, the study reveals that it vital for companies to invest in personnel, processes, software and tools, and external services to build their success in outsourcing relationships.

The EquaTerra study has also shown that the success of an outsourcing agreement also rides on the time given to the relationship; a minimum of two years can help ensure a higher success rate. Also, outsourcing has a greater satisfaction level for IT and CRM executives, the returns are less in the HR sector. This is because HR outsourcing projects tend to under-invest in outsourcing management and governance. Another key finding of the study is that companies are now taking recourse to an increasing array of software tools to further their outsourcing pursuits.

A webcast reviewing the EquaTerra study on "Outsourcing Management and Governance: Building a Foundation for Outsourcing Success" will be conducted on Thursday, June 1 at 11am eastern.

TMCnet has the full story

Trust thy partner

The bottom-line for the success of any partnership is trust. In the absence of a proper understanding and belief in each other, any alliance is doomed to fail. Thus, an outsourcing arrangement is like a marriage, and the relationship must breathe trust and faith in each other. However, a recent study by PA Consulting shows that many customers and suppliers do not have this very vital factor in their relationships.

Out of the 300 organizations surveyed from the IT services sector, the majority reflected this problem. This kind of situation is bred by both parties; IT service providers fail to provide services that go beyond the contractual agreement, while customers fail to cultivate clear lines of communication with their suppliers:

According to the report, customers are particularly guilty of failing to develop skilled partnership management teams capable of communicating clearly with their suppliers. The survey found 44 percent of suppliers thought their customers' organization was "immature,” and almost half felt their customers’ skills were inadequate.

IT Week has more 

Cesspool emptier trucks to be outsourced in Africa

Outsourcing clearly knows no boundaries. Kampala City Council (KCC) is looking to outsource services for cesspool emptier trucks for emptying and disposing human waste. KCC is finding it difficult to manage the growing fleet of five trucks, and seeking professional management services. All Africa reports:

Proposal documents cost sh100,000 and the deadline for receiving the request for proposals is June 30.

ING goes into outsourcing in a big way

There is no stopping the outsourcing snowball. Big corporations going into outsourcing is part of the daily news spreads, and this phenomenon is not limited to any particular industrial sector, be it manufacturing, banking, pharmaceuticals, or IT. Companies are seeking new outsourcing partners and launching into multi-million dollar outsourcing deals.

Now in the news is the Dutch banking and insurance company ING, which has signed two separate outsourcing deals: one with U.K. vendor Astron going beyond $750 million, and the other with LogicaCMG worth another $375 million.

Let's look at what ING hopes to achieve through these high-end deals. The arrangement with Astron is to acquire low-skill, high-volume BPO work for ING, particularly in countries like Belgium and the Netherlands. For ING, the deal will entail movement of 700 Dutch and 100 Belgian employees to Astron. On the other hand, LogicaCMG will develop and manage applications for ONG.

If you think ING is done with outsourcing deals for some time, the company could prove you wrong; the grapevine has it that Accenture might be asked to step in to handle the human resources function for ING in the near future.

Ciber wins $13.1 million outsourcing contract from Army Medical Center

Ciber Inc. has bagged a five year contract from the Womack Army Medical Center at Fort Bragg, N.C. to streamline it's operations with a view to reduce costs and provide high quality health care. Ciber which has a staff strength of 8,000 employees and annual sales of $950 million has prior experience of working with the army on similar projects. Washington Technology reports:

Under the contract, Ciber of Denver will handle network operations, help desk, Web development, systems analysis and project management services.

Joint Ventures – Pros and Cons

The joint venture is becoming a popular way for companies that outsource their operations to retain a piece of the ownership pie. The creation of a new legal entity during the launch of a joint venture comes with its share of ups and downs.

On the plus side…

• Both the company and the outsourcer receive revenue and tax advantages
• Risks and rewards are shared alike
• The buyer of outsourcing services is able to exercise control over the outsourced operations
• There is also more transparency of operations
• Financial interests will ensure that both parties pay more attention and commitment to the venture

On the minus…

• This model demands more sophistication from the buyer
• Decision-making is slower
• Clash of corporate cultures of both parties involved in the venture can lead to disastrous consequences

The Ramifications of Health Care Outsourcing can prove hazardous

The Health Care Outsourcing sector has been showing an increasing trend due to the digital revolution. This trend has it's pros and cons as there are certain factors which can hamper the sector as a whole if the primary driving force is money. The advantages are many, including a major improvement in access to specialized services.

However, there is a darker side to the issue as the players in the sector grapple with maintaining quality standards and patient confidentiality. The local phenomenon has given way to outsourcing and local providers are facing the stick as outsourcing is forcing them to quit from their local presence. This does not bode well for the local health care centres as the same services can be obtained with lesser cost. All said and done, it looks as if this trend will continue in the times to come. eMaxHealth reports:

Although resistance from doctors and professional societies is inevitable, Wachter suggests the medical community begin to consider how outsourcing can serve the interests of patients and hospitals, along with ways that local providers and hospitals can improve their own quality and efficiency to compete effectively.

Corporate governance key to bagging BPO orders

While cost effectiveness is still a key consideration, BPO buyers are increasingly giving more importance to factors other than cost while deciding on BPO vendors. Corporate governance, for example, is high on the list of such non-cost deciding factors, according to IDC.
In its latest study of business process outsourcing trends in the Asia-Pacific excluding Japan market, IDC predicts moderate growth for BPO services in the region. There are several other interesting findings in the study.

Read more: Corporate Governance as a key factor for outsourcers in Asia

Indian BPO cos need to change strategy

With BPO vendors in the West setting up more and more offshore units to leverage India's cheap but huge talent pool, pressure is building up on Indian vendors. They now need to focus more on consultancy and providing complete solutions packages rather than merely offer cheap IT-enabled commodity services since Western vendors are now able to offer similar price advantages using cheap Indian talent. Experts are veering round to the view that firms such as Wipro will have to increasingly use its consultancy arm as a fulcrum to increase its market share in BPO space. In short, Indian vendors now need to seriously think of a strategy shift.

Read more: Outsourcing Strategy Shift

Granules India first Indian SME to outsource IT services

Now even Indian SMEs have woken up to the benefits of outsourcing. SQL Star International Limited, an IT knowledge and enterprise services unit, has bagged the first strategic outsourcing contract in the Indian SME market segment.

Granules India Ltd, a fully integrated pharmaceutical formulations manufacturer with the world's largest 'granulation' capacity, has entered into an agreement to outsource its entire Information Technology (IT) management to SQL Star. Incidentally, Granules India is itself a provider of outsourced pharmaceutical formulation solution services to large global pharmaceutical firms. Now it is outsourcing its own requirements to another Indian firm. SQL Star's CEO Narendra Shukla told The Economic Times:

We believe that the best of global expertise can be cost effective and made available to the domestic enterprise in India. Mostly organisations do not deploy their better talent for the Indian domestic customers; but SQL Star seeks to change that situation 

Is this a new trend? We have to wait and see!

Accenture picks up Savista's BPO assets to focus on middle market

Accenture, the global management consulting, technology services and outsourcing company has agreed to acquire key assets of Savista, expanding the range of bundled, back office business process outsourcing (BPO) capabilities the company offers to include those designed specifically for the middle market - organizations with fewer than 12,000 employees. The market for these services is estimated by industry analysts to approach $17 billion and is expected to grow to more than $25 billion by 2009.
The acquisition will supplement Accenture's market-leading business process outsourcing capabilities in human resources, finance and accounting, learning, customer care and procurement. The acquisition is expected to close in the next month. Terms of the agreement were not disclosed.

Following the asset acquisition, approximately 400 Savista professionals will join Accenture, bringing the total number of Accenture professionals performing BPO work to more than 18,000.

This acquisition, perhaps, confirms the notion that as far as the BPO market is concerned, we have seen only the tip of the iceberg. A lot more action is in the offing. One can bet on that!

Read more: Accenture to Expand Business Process Outsourcing Offerings with the Acquisition of Savista's BPO Assets; Bundled Back Office Business Process Outsourcing Solutions Will Target the Middle Market

Onshore vs. Offshore Competition

Competition between offshore team and onshore team can either be good or bad based on how you manage it. Hence it is important to recognize it and plan accordingly. But first let’s take a look at the how the competitive spirit plays out at various stages of offshore engagement. Please note that this discussion applies equally well to captive offshore team as well as offshore outsourced team.

The relationship between onsite and offsite team evolves during the life cycle of the engagement. During the initial planning phase of the engagement it is very important for the onsite team to work closely with the management and personnel of the offshore team to produce a plan that is workable and provides a good chance at making the offshore effort succeed. One of the leading causes of failure in offshore outsourcing engagements are problems relating to the extent and quality of the client-vendor planning sessions prior to commencing the engagement. Often, there is mistrust amongst the participants at this stage. And this results in the two parties not forming an effective team and fight on misperceptions and missed expectations. This in turn leads to the significant issue of maintaining the support of the internal team during offshore outsourcing engagement. It is a fact that offshore strategies are difficult and will require onsite employees to be active participants willing to help address issues as the management implements the offshore strategy. And this leads to a sense of unfair competition on non-level playing fields for the two teams.

In all offshoring initiatives, there are varying degrees of competition between the onshore and offshore teams. The onshore team will try to prove they are still needed and the offshore team will posture for greater responsibilities. It is for the enterprise management to first recognize that this is an issue and not to deny it. Once this happens it will allow the management to take an active approach in mitigating this problem. Otherwise management will have a dysfunctional global team incapable of delivering any product. Instead, the team, will engage in squabbling and sweating the small stuff.

On the other hand, this competitive spirit can also be harnessed to produce great results from both the teams. The management can get more productivity along with higher morale levels. The secret to this is to separate the tasks within the teams clearly in such a fashion as to reduce overlap of responsibilities and functional areas between the two teams. As a rule of thumb, management should be the one pushing for greater clarity throughout the entire engagement and afterwards and not wait for the offshore team to ask for management to step up.

By shankar@webkiran.com

Do Outsourcing Certifications Help?

In search for better quality and lower risk many enterprises are now mandating certain certifications for possible candidates for outsourcing. Are they making a mistake? The short answer is "Yes". Even though in many cases over emphasis is placed on the certifications, there is no doubt that having certifications shows that an outsourcing outfit takes quality seriously as a corporate priority and is willing to spend time and resources to do so.

Now let's dig into my previous statement a little bit more closely. Let's assume there is an outsourcer-XYZ Corp. And they want to get one of the many possible certifications available (more on this later). They settle on one such certification. And they form a team to study the certification process and the team is then chartered with the goal of having the company be certified within a certain time frame. All well and good! But here are two question that you need to worry about as the enterprise working with this outsourcer:

1. Who are the members of this team?
2. Whose time is being used for doing this effort?

And in a lot of cases the answers respectively will be (1) Staff working on your projects and (2) Time you are paying for. And so you must ask yourself if it is the correct usage of your resources and time. The answer to this question is not a simple one. In some cases this effort will actually help your team and in some cases it will just suck away resources from your team.

How can you decide what is the right answer? Get more information from the outsourcers. The more you know, easier for you to make the right call. As a rule of thumb if your organization does not have any written quality practices and processes in place then it is worth letting the outsourcers divert resources to certification effort. On the other hand if you have strong quality policies already in place for the outsourcers to follow you may want to curtail or completely bar any member of your team from participating in the certification effort. But please read the fine print in the outsourcing agreement.

As promised some of the certifications options:

• ISO 9000: This series of five documents ISO 9000 - 9004, is primarily for quality assurance where each document caters to separate entities of a process such as design/development, production, installation, inspection, testing and others.
• BS7799 Security Standard: This caters to the need for security and provides certifications after companies achieve the entire gamut of controls prescribed by it. And this standard is getting a lot of attention because of recent happenings in some of the offshore contact centers.
• eSCM: This model has been developed by Itsqc group at CMU Serwiz with Carnegie Mellon University. It aids the customers to determine the ability of the service providers to establish, maintain and improve the outsourcing relationship with the client.
• PCMM: The People Capability Maturity Model operates as a guide for a company to establish, employ and train employees to attain expertise and contribute to the software development capability. And some readers will recognize this as a sibling of the more famous Capability Maturity Model (CMM).
• Call Center Industry Advisory Council (CIAC) is a non-profit certifying board for contact and support center professionals worldwide. The not-for-profit CIAC is dedicated to advancing the business of customer care and support centers by cultivating professionals with high level expertise.

By shankar@webkiran.com

Doing Your Homework Before Outsourcing

Doing homework before getting started with outsourcing is as important as managing the outsourcing relationship once established. Like any organizational decision, outsourcing requires effective management from the outset of the outsourcing evaluation through the life of the outsourcing relationship. The most critical part of getting started right is to first determine the reasons for outsourcing. Even before sending the first RFP or meeting with a potential vendor, the company should have all the stakeholders fill out a questionnaire that should contain, at a minimum, questions such as the following:

1. What are our core competencies?
2. What areas of the corporation take a large share of management time and other resources but are not critical to the survival of the enterprise?
3. What has been our approach to fixing the issues enumerated in question (2)?
4. For areas identified in Question (2), are there many organizations that rely on those areas?
5. What kind of relationship with a vendor is most appropriate?
6. What objectives will be used to measure performance of the outsourcer?
7. What are the major issues that we want outsourcing to resolve?
8. What time frame of a business relationship are we looking at for outsourcing?

Let’s consider the 8 questions mentioned above in more detail. The first question is to get the management to clearly define the core competencies for the enterprise. Even though this is a simple question the amount of internal debate this question can generate will come as a surprise to most involved in this exercise.

The second question is more of second part of the first question. Once the core areas have been identified, this question leads to a discussion on the non core activities that are considered a "burden" on the enterprises resources. This question helps bring to foreground areas that are possible candidates for outsourcing.

The third question is for more organizational perspective completeness reasons than for any other. This also allows the organizational heads of non core activities identified in question 2 to be able to offer any plans to fix the problems or issues. Because sometimes it does turn out that an enterprise may prematurely outsource a non core activity without first ensuring that all has been done to resolve the problem organically.

The fourth question is to better focus on the areas identified by answer to the earlier question. Any non core activity that many parts of the enterprise rely on to perform their function will be harder to outsource than a non core function that has few internal clients. And this is very useful information while prioritizing.

Questions five through eight are meant to clarify organizations game plan while walking into an outsourcing identification and engagement process. These questions should be answered in much detail. The more detailed the response the easier it will be later in the process to go back and recalibrate.

The above eight questions are only meant as a guideline and every enterprise should refine the set of questions to be answered on a case-by-case basis before taking on the daunting task of outsourcing. The importance of talking to executives in other corporations who have successfully implemented outsourcing should also not be under- estimated.

By shankar@webkiran.com

Investment banks lean more heavily toward outsourcing

Some of the largest investment banks in the world, including Citigroup (Research), Morgan Stanley(Research), Lehman Brothers (Research) and JPMorgan Chase (Research), have opted for outsourcing their research analysis operations to Asia. This trend is motivated by the twin advantages of the difference in time zones and the availability of cheap labor.

According to Alenka Grealish, manager of the banking group at Celent LLC: "By taking press releases and data feeds and digesting them offshore, the components can be made into basic analyst reports." JPMorgan has moved further ahead in its offshoring program by hiring research analysts in India, Hong Kong, and Singapore, and also outsourcing its back-office and call-center operations to complement its research team in the US.

According to Deloitte Consulting LLP, banks may soon increase their dependence on offshore talent to conduct due diligence and finalize prospective clients for investment banking business. In fact, outsourcing has become a necessity in the competitive market of today.

The escrow system: Toward a better outsourcing arrangement

The crux in any outsourcing agreement is the modality of payment from the outsourcer and the service provider. An outsourcing arrangement could run into problems if the vendor does not meet the expectations of the outsourcer. Similarly, at the end of a successful project, the vendor needs to be assured that its client will release the payment.

To cover such exigencies, it is best that the agreement document covers all eventualities in writing, with the concurrence of both parties. There is also the concept of the 'escrow' system, which is catching on fast. As South Africa's leading media resource Bizcommunity reports, this system envisages that the amount of money due from the outsourcer to the vendor is kept in the custody of an escrow agency, and will be released on completion of the outsourced project.

This system is beneficial to both parties; the service provider is aware that the money is ready and waiting at the end of the project, and the outsourcer has successfully motivated the service provider to work toward a successful project, knowing fully well that the money is still under control and will not be released unless the project is completed satisfactorily.

A forum where the escrow system is already functioning is at Freelanza, a freelance website where outsourcers and vendors conduct business online.  It is a free service provided by Freelanza, and acts as a safety net that allows an outsourcer to release the money only after complete satisfaction at the end of a project. Since the money is visible to the seller, the seller knows that payment is guaranteed on successful completion of the project.

NIIT launches remote infrastructure management service

Remote infrastructure management is where the action is. It is a rapidly expanding market and is a few steps up the value chain. The market is rapidly expanding and it is now estimated to be about $70-85 billion. NIIT, a leading player in the learning solutions market has now joi