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Outsourcing IT Security

The rise of Anonymous and LulzSec, two of the most notorious hacker groups in the world today, had shown that cybercriminals are increasingly becoming sophisticated in their attacks against government and corporate websites that host sensitive data.

The breaches in security that happened last year to Sony's PlayStation network, when thousands of user info were compromised, and the hack attack that happened on Internet security firm VeriSign two years ago, show that even with the best tools and the best people, cybercriminals work 24/7 to exploit vulnerabilities in the virtual world.

With money to hire Internet security specialists to manage and protect precious, virtual assets, large companies have the resources to defend themselves from cybercrimes. What about small and medium-sized businesses? How will their websites, their information assets, fare against hackers?

Outsourcing has given birth to specialty firms that provide knowledge-based services to other companies, such as accounting firms, human resources agencies, and even IT services. Small and medium-sized businesses that do not have the requisite resources can immediately set up virtual defenses against cybercriminals by outsourcing their IT services.

According to Small Business Center of Fox Business, an increasing number of small companies are turning to managed-security services providers for their IT security needs. These providers, composed of IT security veterans armed with the latest Internet security technologies, offer cost-effective solutions - a more viable alternative to establishing an internal IT security department.

Companies are also expected to increase their budget for managed-security services - from $8 billion in 2011 to $14.9 billion in 2015, as quoted by the article in a report by research firm Gartner, Inc.

Contracting the services of a managed-security services provider only involves the cost of the service. On the other hand, even if a company has the budget to create its own IT security department, the decision would be cost-prohibitive due to the steep cost of equipment and the high demand for IT security experts.

Outsourcing security services also enables a company to focus on their core services. Instead of shifting resources towards protecting their virtual assets, the same resources can be used to improve product lines or strengthen service offerings.

Managed-security services providers offer a set of services that can be customized for a client. A customer can take advantage of cloud technologies, opt for equipment installed to their sites or even go for an effective combination of cloud services and equipment to get the service they need. Aside from customized services, providers also offer flexible rates - this can help a company quickly adjust their operational budgets relative to market conditions.

Protection against cyberhacking does not need to be expensive. Outsourcing IT security to a managed-security services provider is cost-effective as it provides flexibility in managing expenses and more time to develop core services.

Changes in ITO Contract Sizes Reveal Issues in Multisourcing

NetworkWorld.com recently released an analysis of Information Services Group's (ISG, previously TPI) 2011 quarterly statistics report, where data revealed that the sizes of contracts in the information technology outsourcing (ITO) sector are shrinking for the past decade. Moreover, smaller contracts, which are valued at around $100 million or less, are believed to have ballooned three times their size since 2002 and have now surpassed medium to large deals.

The report from ISG likewise showed that since 2009, the smaller IT deals-bracket has been accounting for 70 percent of the total contracts, a trend that started years back. Furthermore, even if the number of signed deals during 2011 jumped eight percent from the previous year and has increased 85 percent since 2005, the overall values of signed contracts decreased marginally every year during the fourth quarter and for the whole year since 2010. The total decline was at six percent or $66 billion.

John Keppel, ISG's Partner and President of research and managed services, said those who are new to the business process outsourcing (BPO) industry favour smaller contracts as the clients are more vigilant of the quality and capability of organizations. In fact, those who know their way around in the ITO sector are now more inclined to ink smaller contracts. He added that clients nowadays are trying to apply multisourcing or the process of isolating their ITO processes into several sections, and outsource each vertical to a different provider, instead of hiring just one provider.

Keppel warned that even if multisourcing is an ideal model, it comes with several major challenges:

Poor Management of the Multisourcing Operation
There are several problems in an ITO operation which can be brought on by the clients. Some of which are mismanagement of hired providers and having no sense of ownership of responsibilities whatsoever.

This is where service integration comes in handy. It means collectively managing multiple IT service providers internally to streamline the entire ITO process. The process should be able to alleviate performance, quality, and cost issues that may affect an operation's objectives. It can either be rendered by a third party provider or managed internally.

ITO clients who are already established in the industry are likely to develop a system in managing different IT providers. Control over the multisourcing model is very crucial, which is why proper delegation of tasks and responsibilities should be worked out long before the operation starts. The providers should also align their processes with the clients' goals and expectations should be discussed before drafting a contract.

Keppel said since globalization has paved the way for ITO and BPO, multisourcing will be one of the foremost models that will be used by customers.

Vague SLAs
Contract ambiguity will remain an issue as customers are still getting used to the idea of multisourcing and only a handful have had the experience of making use of the model. This will also result to ineffective service level agreements (SLAs).

Security Issues
Trepidations over intellectual property and data security can affect the growth of an operation. More often than not, further development in a multisourcing operation is hampered if service providers disagree with one another.

Expectations and Job Descriptions are not Properly Identified
Usually, when plans miss the mark, the providers blame each other or the customer. This often results to precious time lost in trying to find a proper remedy for the situation, which also costs money.

Outsourcing Opportunities for SMEs

Since technology is constantly evolving, companies - especially small to medium enterprises (SMEs) - have a hard time coping with the latest trends. Keeping technology up-to-date and having what the big players have not only empower the smaller organizations but also keep business offerings fresh and more marketable to consumers.

For SMEs, having to upgrade the technology means more overhead costs as it is always changing. But most players in the SME division cannot afford to continuously invest on temporary features, which is why some of them consider outsourcing minimal or their entire IT operations.

Clive Longbottom, Service Director at Quocirca, shared with executivebrief.com other alternatives that can be adopted by SMEs to resolve their IT needs.

Weighing in on the Outsourcing Option
Companies that do not outsource have one thing in common - they have full control over the entire operation, which means triumphs and downfalls will be credited to them. The downside of not outsourcing, however, is they should be able to provide ample facility to accommodate IT equipment. The other one is having adequate technological know-how in managing the operating systems and maintaining the facility. Lastly, keeping everything economical and congruent with the business' needs is also considered a struggle for SMEs.

Segmented Outsourcing for SMEs
Outsourcing a segment of an operation, like support, to a third party provider is probably the easiest way to alleviate issues internally and maximize the potential of a company's IT infrastructure. Larger organizations are often the ones that make use of this by hiring systems integrators like IBM, CSC, and HP to manage their data center fully or otherwise.

By doing so, they can have a flexible IT environment and lesser issues to deal with because they now have a supplier that will shoulder the tasks for them. In outsourcing, service level agreements (SLAs) are also customized according to the needs of the company, usually covering recommended and basic processes like replacement and repair of equipment, root cause analysis (RCA), and base problem identification, along with remediation where possible and the overall asset life cycle management from the installation, regular systems checkup and replacement, depending on the coverage of the warranty of the kit.

SMEs are still accountable for the Data center and IT Equipment.
When SMEs outsource the IT function, they will be given the option to keep the equipment in-house or be located in a shared facility for all the SMEs' IT equipment. But since they are sharing the space and in fact, the owners of the IT equipment and software, SMEs are still accountable for them. SMEs are also given the option to adopt the design presented to them by the provider. This reinforces the fact that SMEs need to have basic knowledge in creating the appropriate environment for their IT infrastructure. If an SME decides to outsource IT and opt for the co-location setup, third party providers are expected to manage the facility, power distribution, uninterruptable power supplies (UPS), cooling, internet connectivity, and physical security of the data center.

Have the Service Provider do it All for You.
Another popular model is the hosted one. SMEs can also acquire the services of a hosting supplier, which will provide the location (whether shared or private) and IT equipment.

One of the most talked about versions of hosting is the cloud where it acts like a virtual data center, which means it is accessible almost anywhere, although the leading model is still SMEs renting IT equipment, along with the operating system like Linux or Windows, and gradually adding applications as the operation goes. The host manages the facility, equipment, and operating system, while the SME only looks after the applications. Granted SMEs opt for this model, they can acquire or rent physical or virtual equipment (depending on the needs of the business) and even hire popular providers like Memset, Rackspace, UK2, and 1&1.

Getting Ready to Outsource

Outsourcing as a business strategy continued to mature last year as companies faced challenges in the global marketplace. However, outsourcing, just like any business strategy, is not capable of solving a company's woes by itself. As a tool, outsourcing is only as good as the organization that wields it.

Companies that want to explore outsourcing to stay relevant in the marketplace may think about 10 tips that industry website Business Finance says can help organizations in deciding whether to outsource or not.

Results versus process. Outsourcing, according to Business Finance, has two types now - �black box� and �white box�. Black box outsourcing refers to results-oriented outsourcing - SLAs, SOWs, and service deliveries are designed to deliver results, with less emphasis on how the results are achieved. White box outsourcing, on the other hand, is process-oriented - the outsourcing framework is designed to maintain efficient and effective processes.

Create the criteria before issuing RFPs. To maintain an objective approach and at the same time, streamline the outsourcing evaluation process, ensure that outsourcing goals and objectives are set in place before issuing any Request for Proposals (RFPs). The company knows their system best - weaknesses and all - and they should offer this info to any prospective outsourcing service provider.

Take charge of bidding. Do not let the outsourcing service provider dictate how the negotiation progresses through pre-packaged services that do not specifically consider the company's unique requirements.

Check the resources of the outsourcing service provider. Top service providers even suffer from a varying level of quality among their employees. Choose a service provider not only because of its credentials, but also because of the quality of its staff.

Peg transition costs to real market values. Transition costs of outsourcing are usually underestimated, as change management costs and losses due to transition delays are not factored into cost equations. A comprehensive outsourcing transition plan will ensure that hidden costs are revealed.

Take advantage of innovation. Due to technological innovation and process improvement, most service providers are increasing their profit margins yet offer the same rates to their clients. With a properly-structured outsourcing agreement, clients have much to benefit from their providers.

Be prepared for change. Transitions involve teams of people who may be working with each other for the first time. The complexity of the whole operation may require forming a transition task force and even the hiring of transition specialists. As with any process, the transition phase must be organized with milestones and quantifiable factors.

Create SLAs that are relevant to the organization. Too much metrics can actually complicate Service Level Agreements (SLAs), resulting to lost productivity hours and administrative nightmares. Establish few yet relevant metrics that contribute towards making the outsourcing agreement as productive and efficient as possible.

Do the homework first before negotiations. Clearly outline the role and responsibility of each member of the negotiating team. Identify possible deal breakers, and draw up a list of unfeasible alternatives that the provider may offer.

Don't lose focus - the negotiation is about to outsource or not. Companies may take up outsourcing without really realizing what they are signing on with a very aggressive outsourcing service provider. The outsourcing solution is not for everyone - it can only be as effective as the company relying on it.

What to Expect from the BPO Industry this Year

Gareth Pritchard, CEO of BPeSA Western Cape, shared with ITNewsAfrica.com his predictions for the business process outsourcing (BPO) industry in 2012. He cited major innovations and of course the economic downturn as key indicators of what lies ahead in the BPO landscape.

India's no longer the go-to voice hub.
2011 had seen several UK-based customer service companies bringing call center processes back home from India to reduce the risk of losing customers over the quality of service. For them, cutting costs during a bootstrapped economy is one thing, but losing a customer because of a transaction gone wrong is more critical. They are also keen on spending more just to keep their customers. Nearshore providers such as South Africa can also benefit from this as they can use their time zone and cultural affinity to their advantage in the voice-based outsourcing sector.

Unemployment level leads to creation of US anti-outsourcing bill.
With the likelihood of another recession and no evidence of the unemployment levels improving, Republican Tim Bishop (D-N.Y.) and the Communications Workers of America (CWA) are rigorously working on getting a House Bill approved that aims to discourage US firms from outsourcing to offshore locations. It would also restrict government aides such as loans and grants. It is predicted that outsourcing destinations such as India and the Philippines will be affected as these countries mostly provide voice-based and back office services to the US.

In outsourcing, quality comes first before reduced costs.
Outsourcing will still be seen as a valuable tool and will definitely grow in 2012 as businesses brace for the recurrence of another economic depression. Business executives will find ways to cut operational costs without sacrificing the quality of work. In fact, a study from Horses for Sources stated that 25% of organizations will remedy the looming recession with outsourcing as it has proven its worth to the services industry.

The cloud will prevail.
Technology is definitely one of the important components of a company's success. The cloud is seen by numerous companies, especially by small players, as a viable solution in terms of cutting costs and incurring other ground-breaking benefits. The demand for the cloud will grow, as well as the service itself in 2012.

Social media is now widely integrated into business plans.
In recent years, social media has become a great tool for businesses to address customer-related concerns. It also helps in the marketing efforts of companies, and in making a mark in the online world.

Also, this trend has paved the way for other types of customer support in 2012. Call center services will be a mere addition to a bigger package that includes various platforms such as chat, social networking sites, and micro blogs where customer concerns can also be addressed in a timely manner, just like in voice-based services.

Outsourcing Tips to Keep IT Projects Moving

While data security concerns stop some business owners from outsourcing IT-related functions, many remain confident that the process will be beneficial to their operations. Aside from cost reduction, the most obvious reason for outsourcing, clients can utilize talent and expertise that may not be readily available locally. Outsourcing also enables clients to tap new markets and bring their products and/or services closer to their target customers.

Company owners who have been outsourcing IT functions are enjoying the benefits of the process. However, nowadays, many offshore service providers are downscaling their on-site team and resources. Visa application of employees and profit margins are considered common reasons service providers reduce the number of offshore IT employees who coordinate with clients regarding outsourced work.

Stephanie Overby shares at ITWorld.com five tips on how to keep IT outsourcing on track despite the decrease in on-site employees:

Take a look at the process design.

There should be IT professionals who will fill the crucial roles of the operation for it to be effective and successful. For short-term requirements, companies may need to look for employees on a contractual basis, according to Amneet Singh, Vice-president of global sourcing for outsourcing consultancy firm Everest Group.

Develop a communication plan for users.

Singh said companies need to have a change management or communication plan to handle consumer inquiries and needs in case there are changes to the outsourcing delivery model.

How about nearshoring?

Esteban Herrera, Chief Operating Officer of outsourcing analyst firm HfS Research, said there are service providers in other locations that do not have to deal with concerns in visa applications. Companies are advised to look at nearshore options for better knowledge transfer and project management.

Ramp up your in-house technological capabilities.

Service providers may utilize more advanced technological platforms to make up for smaller on-site teams. Singh said outsourcing buyers need to make sure that they have the right setup and proper training on how to use high-end IT tools.

Review contract pricing.

Now's the time to talk about pricing terms, especially when the service provider is reducing the number of its IT employees. It pays to discuss better ways on how to make IT outsourcing a great business solution for both parties.

Developing a Mature IT Process

Business processes are often streamlined to thorough efficiency through strategic decisions meant to leverage existing resources and processes. However, these strategies, bound by time-proven frameworks, are limited in scope and effect by the amount of discipline and loyalty to process among stakeholders - from the encoder to the Chief Information Officer (CIO).

A high level of discipline in adhering to IT processes directly translates to improved efficiency in routine IT processes and faster resolution of IT-related challenges. How does a company achieve that level of discipline? Chris Pfauser, Principal Consultant at Compass, shares with sourcing advisor TPI the following tips:

Clear-cut roles and goals. Enable the IT staff to have well-defined roles and responsibilities within the process flow. With a clear set of functions among employees and managers, identification and resolution of issues become faster. This also gives the added advantage of viewing challenges from the perspective of the whole organization, and not just within the isolated context of the IT department.

Process ownership. Accountability emanates from ownership, and when a process is clearly owned by someone, the blame game is stopped. Process ownership can also serve as motivation for results-driven leadership, since accountability is clearly illustrated when it comes to efficiency and improvement initiatives.

Resolution time versus response time. Gone are the days when record-keeping only meant activity tracking. Records are now being analyzed to see what areas of a process need improvement. A quick resolution time is now considered better at improving processes compared to a quick response time.

Catalogued services. With processes outlined and resolution times drawn up to real scenarios, a catalogue of services can be created. Documenting these services is an important task towards realizing an efficiency-driven strategy in managing IT services.

Costing tools. The impact of costing decisions can be immediately derived from a costing sheet. The costing sheet, based on the service catalogue, improves decision-making at all levels, since rising costs affect operational efficiency.

A mature IT process demands a high level of discipline among its stakeholders in adhering to the process. Such a process enables a company to stay competitive and efficient in the global market.

The Right Questions for IT Service Providers

Multinational and large companies have their own IT departments due to the big role that IT plays in their business processes. However, IT has permeated our daily lives, from our personal finances to our utility bills. Any important transaction now is recorded beyond mere paper documents - a financial account has a hard copy and a �soft� copy.

In such context, small and mid-sized businesses need IT support more than ever. However, SMBs do not have the budget to spend on an IT department. Thus, many SMBs have turned to outsource their IT needs to a service provider.

Finding the right IT service provider is also akin to finding the right employee - there is a need to thoroughly screen service providers to get the most out of an outsourcing relationship. In an interview with InformationWeek, TeamLogic IT Vice-president for IT Vince Plaza named four questions that SMBs can ask of prospective IT service providers.

What makes you better than other service providers? Being shy of asking the right questions will not give you the best outsourcing deal. It's also a way to test a provider - providers which know their services well will take advantage of this opportunity to showcase their company.

What will you do to help my business keep pace with the competition? As the global marketplace gets smaller, companies are also becoming more competitive among themselves. Will the service provider be able to enable your company to keep pace with modern technologies?

What will you do to give my business a fast ROI? An IT service provider should provide more than the hardware and software, says Plaza. Quality service providers enable business owners to understand how their investment in technology will help their ROI rate accelerate.

Who will provide support when my business needs help? Working with a service provider means you also have to know how they work. Who provides support when problems crop up? How fast do they act on a problem? Does the person have the right credentials to help you solve an issue?

These are just general questions for a prospective outsourced IT deal - your business will provide you with more specific questions, such as the number of your IT equipment, the scope of work that needs attention, software deployment, among others. Location and vendor partnerships are also major influences in choosing an IT service provider, although most service providers can provide support to major technologies, i.e. from Apple, Google, and Microsoft.

12 IT Outsourcing Trends to Look Out For in 2012

Now that we are treading the last days of 2011, the year when the IT outsourcing industry saw smaller deals, customers were doubtful of the process, and cloud computing was talked about a lot, it is believed that 2011 developments might resonate throughout 2012. However, economic issues will still take its toll on the entire sector.

At CIO.com, Stephanie Overby listed down 12 IT outsourcing trends that may be seen next year, according to industry experts:

1) International firms are set to look for other locations besides India.

Phil Fersht, founder of outsourcing analyst firm HfS Research, said India will see slower growth. Cost efficiency will no longer be the main reason international companies outsource offshore. They will now consider expanding their skills and knowledge in back-support and other processes by tapping into countries like Brazil, Malaysia, Mexico, South Africa, Romania, and Bulgaria.

2) Expect sterner IT security.

Mark Ruckman, outsourcing consultant at Sanda Partners, predicts �2012 will be the year of security�. He believes that sooner or later, one of the numerous IT service providers worldwide will experience an embarrassing security breach, which is why he thinks outsourcing firms will definitely find better ways to protect their client's data.

3) Application development will likely be sourced from the US.

Financial service firms have long sourced fragments of their codes from offshore providers, but will realize that it is actually more affordable to do so by establishing captive centers or acquiring the services of third party providers in secondary US cities.

4) IT outsourcers will try different things.

Everest Group believes IT service providers, specifically the ones offshore, will find new and innovative ways to counter the pressure brought about by pricing issues to reinforce growth and profitability.

5) Failure to put backsourcing words into action.

Steve Martin from Pace Harmon predicts companies that are fed up with procuring IT services offshore will make impulsive decisions to the point of scheming a plan to bring back work in-house, only to realize that it's too much for them.

6) IT Outsourcing clients might axe account managers.

Phil Fersht of HfS Research believes account managers of IT service providers should not focus on sales to the point that the core requirements are brushed aside. There is a need for account managers to think about not just the revenues but building relationships as well.

7) Opportunities in Infrastructure building.

Offshore IT providers are set to expand their service offerings by trying their hand at infrastructure building. They have actually been working on developing the process and honing it to move past application development and maintenance work.

8) It's time for small players to shine.

Outsourcing providers will try to bank on smaller enterprises as they have exhausted their leads from the Fortune 1000 pool.

9) IT vendors will remain fixated on labor arbitrage.

Outsourcing buyers will be looking for more factors other than low costs before signing deals. Service providers, on the other hand, will still focus on keeping costs low.

10) The cloud will be more defined.

The hype around the cloud will definitely mellow down as IT providers shift their focus on improving the service by calculating the risks and providing the service in areas where clients need it most. Stricter regulations for the cloud will also be implemented by 2012.

11) Outsourcing buyers will be on guard for another recession.

The decisions for improvements and expansions by outsourcing buyers will most likely be put off until they are confident enough in the economic situation. Most of them will see large contracts as a business solution that entails a lot of risks, said Everest Group, and added that there may be slow activity during the first half of 2012. However, there's a great chance that it'll gain stride in the following months.

12) 2012 will be made up of M&A combos.

Fersht of Hfs Research said providers will avoid large mergers due to scarcity of the business model that they actually need and want. One example is a flexible structure that can accommodate expansions and reductions.

In the US, Fersht sees large providers that have merged are making use of cloud-based tools. According to Ruckman, there's also a possibility that three mid-sized companies will merge and make up a large IT service provider.

Marketing Practices that Need to be Retired

Many IT outsourcing service providers today are offering innovative, highly customizable solutions for companies that seek to use outsourcing as a strategic business tool to remain relevant and competitive in a global marketplace.

However, some of these service providers market their services using irrelevant and outright archaic marketing tools - tools that came out of a traditional and static marketplace. Industry website CIO compiled ten of the worst marketing strategies used by IT outsourcing service providers in making sales.

Solutions packaged for the provider's own benefit. Instead of offering clients with solutions that specifically solve their problems, some IT outsourcing service providers present packaged deals that only solve part of the client's problems. Outsourcing consultancy firm Pace Harmon principal Marc Tanowitz says providers must propose solutions that are parallel with what the client wants.

Sales that talk too much. Clients come to an outsourcing service provider to seek solutions from experts, not from sales people who focus on hollow statements on EBITDA impact and other irrelevant issues. According to outsourcing analyst firm HfS Research COO Esteban Herrera, although salespeople are critical in the process, they should let the subject matter experts directly speak with the clients.

Boring PowerPoint presentations. Everybody now does a sales pitch with slides. It may pay to stand out from the crowd - a straight, nonchalant conversation with clients about what their companies need and what the service provider can do to fill those needs. Herrera says clients remember those who actually spoke with them and started a conversation.

Misleading introductions. Some outsourcing service providers bring along a VIP on an initial client meeting, creating the impression that the VIP will be working on their project. Sadly, the impression is wrong from the start, and the client feels short-changed. Herrera suggests bringing along to the meeting a customer who can personally testify to how the service provider has helped his or her company.

An expert in everything. Sanda Partner Founder Adam Strichman comments that industry-specific expertise is 85% marketing - some sales teams peddle expertise that is actually a label only instead of actual experience. Strichman says supplying answers to a client's business headache is better than proposing solutions that are off-target.

Closing a deal to be changed by the legal department. Usually, outsourcing deals begin as fair, verbal agreements between client and provider, until the provider's legal department draws up the document. IT service providers can include lawyers early on during the negotiations to thresh out key definitions and only include what is needed for the contract.

Big discounts just to close the deal. Intelligent clients know that surprise price drops are not exactly healthy for the business. Two things come to mind when big discounts are suddenly laid on the negotiating table - either service levels will suffer due to the lower profit margin or the sales team was playing them. Transparency in negotiating the contract, especially in pricing services, contributes a lot towards a healthy business relationship.

Slow presentation for a big finish. A company executive wants to quickly know how an outsourcing service provider can help. Do away with all the excess information drawn up on documents - a business wants to know how to be more efficient and competitive.

Persistent calls and visits. Repetitive follow-ups are annoyingly unproductive, says KPMG Advisory Services Principal Ron Walker. A simple rule of thumb - three calls will do. If they are interested, they will definitely call back.

Selling the deal to the higher-ups. Most salespeople spend more time selling a deal to their executives rather than to their clients. Experts say the smarter thing to do for a sales team is to familiarize themselves with a client's need in order to draw up a deal that effectively delivers solutions.

10 Worst Sales Techniques by IT Service Providers

IT service providers continuously engage in innovation especially when it comes to product and service development. Their sales techniques, however, come as an exception. Buyers observed that they have been using the same methods since time immemorial and these tricks only bring about frustration rather than an actual sale. Based on consumer and market feedback, Stephanie Overby of CIO.com produced a list of the least effective sales techniques employed by IT service providers.

Can you hear me now?

Service providers miss out on understanding their customers' specific needs because their perspective is based solely on standard set delivery models. Outsourcing companies are found to propose packages that suit their own business needs and furthermore compromise customer requirements just so it fits a solution that's convenient for them.

Alternative: Sincerely listen to every customer's requirements before carrying on with the usual spiel. Afterwards, present only service offerings relevant to their needs.

A little knowledge is a dangerous thing.

A typical salesperson starts any endeavor with an adequate amount of research. Then they start a meeting with highlights on net profit ratios and effects on EBITDA. While these technicalities are useful to mention, they are not effective to spearhead a sales pitch.

Alternative: Tone down the sales and use real subject matter topics that are worth your clients' time.

Death by a thousand slides.

With the usual sales call's long and dragging PowerPoint presentations, you're bound to think the number of slides impact commission. This is not at all helpful in pursuing a deal.

Alternative: Engross your clients in an actual conversation. Talk to them, hear out their needs and concerns, and address their questions. You will easily be handpicked among a sea of PowerPoint slides flashed by competitors.

The old bait and switch.

Providers create an illusion of high service delivery by bringing in a VIP in a meeting with a client. They say a big shot will be dedicated to your project when the truth is, same top performers are also being promised to other clients and you'll never see those VIPs again.

Alternative: Take in an actual client. Fly in a customer and treat him/her to a nice stay at a resort nearby. Bring your customer in the meeting and allow the prospect to ask questions.

I'm the XXX Expert.

Introducing people with varying titles to reflect industry expertise is a marketing strategy that clients can detect. Most of the time, the same pool of people is utilized to service all existing clients.

Alternative: Work on becoming an industry expert and ask your clients valuable questions that can lead to crafting effective and customized solutions.

A deal until the lawyers arrive.

There exist providers who start with fair and mutually benefiting agreements that are eventually overhauled with new terms and clauses by a legal department. Customers find a gap between what has been agreed upon to what they are being made to sign.

Alternative: Define terms and develop negotiating options with your lawyers. It also helps to revisit your business objectives to be reminded of what you can and ought to provide customers.

The last-minute price drop.

Outsourcing deals are crafted to deliver at least 20 to 30 percent profit margin. This gives providers leeway for a price drop. Then again, when a significant discount is suddenly offered to a customer, it can rouse apprehension among buyers. It's either their provider was initially trying to extort more money out of them, or the discount will lead to lower profit and equally lower service quality.

Alternative: There is no need for surprises. It's far more assuring to customers if providers remain transparent with pricing all throughout the deal.

Burying the lead.

Salespeople are fond of the slow buildup before they get to an actual selling proposition. Customers want a solution that's straight to the point, a proposal that will clearly reduce costs and improve efficiency in their practice.

Alternative: In your next presentation, open with the grand finale. Start with the supposed final spiel, your value proposition in summary.

The never-ending check-ins.

Consistent follow-up calls can be annoying. Customers find it irritating and unproductive.

Alternative: Stop being a bother after checking in with the prospect thrice. Stop calling or sending messages. They will reach out to you when they need you.

Inside sales.

A typical sales lead will exhaust efforts in convincing internal management that a new prospect has potential and can be a good deal. More time and resources are spent selling internally rather than making a pitch to the client.

Alternative: Focus more time and resources on understanding a client's needs.

Common Outsourcing Mistakes when Looking for IT Talent

A lot of companies in various industries have turned to information technology (IT) outsourcing to utilize resources of third party providers so they can focus more on their core competencies and to improve productivity. In fact, it has become one of the greatest financial and quality reinforcements for any operation to date. Some of the most commonly outsourced IT functions are systems administration and networking engineering, and it's been proven that outsourcing has a positive impact to the entire business operation.

IT providers worldwide now have more options which are beneficial to clients, their customers, and service providers themselves.

Since the IT industry never ceases to develop, value added resellers (VARs) have come up with different ways for more sales opportunities by expanding their service offerings. For example, businesses nowadays can outsource IT professionals - this saves them time and money in training yet provides their customers the same experience with local employees. VARs can also take advantage of the sudden growth of the market by providing outsourcing infrastructure models.

However, in most cases, companies that choose to outsource tend to overlook the actual quality of the candidates presented to them by the service providers because they are too absorbed on the low rates.

Astreya Partners' Jim Illson recently shared with CRN.com common mistakes companies make when looking for the right outsourced IT personnel:

Not hiring locally

Skipping out on local talent while establishing an office offshore may put any operation at risk. Why? Having a new branch in a different location may well be a fish out of water. If the outsourced employees don't have a clue on what's going on around them, chances are they will have a hard time understanding their market.

Forgetting to evaluate the employees

Almost all industries use performance metrics as a gauge to see how effective the talent is for the process. Clients should also be able to participate in such evaluation so they can personally see if they are actually maximizing their funds and both parties are following the service level agreements (SLAs). Evaluations also enable clients to point out which area the service provider should improve more on or just give them a pat on the back for a job well done.

Presenting candidates randomly and hope they can get away with it

A proper screening process can save time and money for the service provider and the client. Some candidates may look as if they are perfect for the job yet they lack a specific skill or the personality doesn't actually match the position. These are also things that firms should look into before presenting a candidate to a client. Companies that give out exams and perform intense screening processes should have a standardized format so in the end, clients will get only the best.

The freelance and exclusive dilemma

Companies should measure the capability of candidates before signing them off for a project. For example, do you assign a long-term project to an exclusive employee or to a contractual one? Firms should always keep in mind that once a candidate is chosen by the client, they will become a representative of the VAR, so the candidate's failure or success will definitely reflect on the VAR.

Not all IT processes and candidates are the same.

Just because a candidate knows the basics of IT management doesn't mean he/she can resolve IT infrastructure issues. The talent should also be able to ride the tides with the client as they expand, and not get stuck on the basic process which he/she was hired for. Providers and resellers should likewise be flexible enough in measuring and providing evaluating systems for clients.

Procurement as an Essential Business Unit

To acquire vital equipment or to manage consumables in a company, an executive or an employee has to coordinate with the procurement department. As the business unit most responsible in managing company expenditures with respect to operating resources, the procurement department is as essential as the human resources, the finance, and the operations departments.

The following qualities have been identified by outsourcing consultancy firm TPI to make a company's procurement department more responsive in providing services to other business units:

Strength in leadership. Leadership skills should make the procurement manager stand out of the department. The department head will need to rely on experience as a stepping stone in achieving company goals. A strong leader facilitates change in the department, enabling employees towards a service-focused strategy for other business units.

Goal-driven organization. For progress to occur within the organization, a clear direction for the organization must be set. Objectives serve as directions that the procurement department can take. These objectives must be understood well among the employees for the department to take the path towards progress.

Support from the top. Including the procurement department in executive meetings and planning conferences emphasizes their significance to the whole company. This show of support gives the procurement department a sense of pride and importance to the business operation.

Empowerment. Providing the procurement department with autonomy enables them to quickly respond and interact with other business units. Less time bogged down in bureaucracy and more time used in providing services result to an efficient company. Autonomy, however, relies on teamwork, and teamwork is made possible with a clear set of goals and responsibilities among employees.

Maintaining integrity. Consistency in providing quality services is a hallmark in achieving integrity and a good reputation. With a good reputation, a procurement department becomes a valuable partner among business units.

A more responsive and dynamic procurement department brings more than departmental change. This will definitely spread to other business units, as the procurement department's interactions with them rise. Eventually, there will be a need to evaluate this growth and make the procurement department a better business unit.

Top BPO Trends to Watch in 2012

US-based research and solutions firm DATAMARK, Inc. recently released a projected list of upcoming trends for business process outsourcing. The article highlights not only the latest in technology but also the state of global economy. It also sheds some light to the buzz in cloud computing. So without further ado, below are the top trends that may reshape the BPO industry.

What is the �Cloud� exactly?

A lot of service providers and clients will still be clueless as to what the �cloud� and other IT-related terminologies (Caas, PaaS, IaaS) mean. In a nutshell, the �cloud� simply means the internet. So if ever service providers present you a business plan highlighting their proposed �cloud solution�, be sure to ask them these questions: how susceptible is it to security attacks? Is it consistent? What are the key performance indicators? If you think that they have given you a concrete solution, then by all means go for the cloud.

Lack of local talent will stimulate BPO and ITO.

Cutting costs effectively has always been the primary reason for outsourcing, although a report from Duke University contradicts the statement. According to a survey of managers done by the Fuqua School of Business, lack of local talent is the main reason domestic businesses outsource. Majority of the survey participants stated most of the functions that they were outsourcing didn't alter the volume of jobs locally. Also, high-end services are starting to proliferate and if this trend continues, the US will fall behind by 14 million post-secondary educated skilled workers come 2020.

Unstable economy will increase outsourcing demand.

With the second coming of the recession looming over business owners, they are still searching ways to minimize costs. In fact, one fourth of the organizations in the survey by industry expert Horses for Sources stated they are more likely to outsource in case the second recession comes. The experience of buyers from the previous financial crisis will definitely come in handy and they will start to look for major improvements from existing service providers.

Latin America is a gem in the rough.

Latin America, armed with a highly skilled BPO workforce, can provide services which can be done in both English and Spanish languages. Mexico, Colombia, Brazil, and other Latin American countries also have similar cultures with neighbouring countries where time zones are not much of an issue. What buyers should do is to gauge the pros and cons of each country to get a better understanding of the service provider the best suited for the processes that they need to be done.

New BPO technology should undergo rigorous testing.

BPO companies can either find groundbreaking IT solutions and present them to clients or make them into a reality by shelling out their funds and employ the services of third party IT contractors. Other than being innovative, they should also be able to provide clients with the highest level of data security and find the best IT supplier in the market. This will enable them to test each IT solution effectively to find out which will work best for future clients.

The US will focus on bringing jobs home.

Companies that doubt their contracts with service providers will definitely look into finding a service provider locally. Various government bodies will definitely look into what competing countries are doing and ask chambers of commerce and service providers to open those commonly outsourced work positions locally.

Public-private initiatives worldwide will stimulate BPO growth.

Industry analyst Ovum stated that since the BPO market has projected an annual growth rate of 5.4 percent to $93.4 billion by 2015, numerous countries are now vying into getting their hands in on the movement. Since outsourcing to India has become more costly, buyers are now looking into outsourcing to countries such as the Philippines, China, Africa, and Latin America.

Get more social.

Social networking sites have become one of the main avenues of communication - there's no question why it should be one of the most used platforms to communicate concerns and receive proper customer service. A good PR team should be available whenever and wherever because social networking customer support is a 24/7 operation.

Gaming will revive the BPO industry.

The BPO industry is delving into a world that would give life to not just itself, but business process engineers as well. This is what you call game theory application, or gamification. It has gained its silent prominence over the past year, although it has been around practically since time immemorial. It is slowly gaining ground as more business tycoons are using this concept to boost profit and revenue.

Companies which have this underlying theory in place are those which offer frequent-flier miles, and those which give out gifts to reward loyal customers in a point accumulation scheme. In the game world, this is called �levelling up�. Rules applied to games make repetitive processes a whole lot more enjoyable without going off trail, and rewards players based on merit, rather than connections and tenure.

Mobile apps are not only for games.

A lot of you will see executives totting handheld devices, and with that, you will see them tinkering with their mobile apps and you'd think that they're playing but they are actually checking updates and reports from their BPO providers. It will become the direct line of the service provider to reach clients and easily show them what they have achieved and what still needs to be done.

Outsourcing in China to Hit US$10bn, says Everest

It looks like the next few years will be great for the offshoring and outsourcing industry in China. Advisory and global services research firm Everest Group predicts that by 2015, China's global services exports may reach a compound annual growth rate (CAGR) of 20-25 percent, valued at US$9.5 billion. This is a significant increase from US$3.5 billion posted back in 2010.

According to a recent Everest study entitled �Global Locations Compass: China�, the country's global services exports rose to US$3.5 billion in 2010 from US$1.2 billion in 2007. IT outsourcing accounted for 65 percent of the total services export revenues of China. The rest (35 percent) came from business process outsourcing or BPO.

With the country's 2010 market growth, it has been re-classified as a mature offshoring location in the Market Vista Locations Maturity Map of the Everest Group. It also comes close to India and the Philippines in the Offshore Locations Survey, also of the Everest Group.

Vice-president - Global Sourcing Amneet Singh said China may not have an advantage in terms of cost and English communication skills compared to India and the Philippines, but the country can still be seen by the US and European markets as an alternative to reduce risks. The country has a regional language advantage and cost arbitrage is predicted to stay sustainable in the next 13 to 14 years.

The study also shows that in the last 12 months, more than 15 delivery centers were developed or expanded in Tier-1 and Tier-2 cities. The efforts and incentives of the Chinese government also drove the growth of the market.

Vice-president - Global Sourcing H Karthik advised companies that intend to tap or expand in the Chinese market to pay attention to talent, keep track of data protection policies, and assess Tier-2 cities for cost reduction.

What to Look Out for when Reevaluating Contracts

Service terms and contracts in the outsourcing industry continue to change as the landscape of the field evolves. Not a lot of terms change on regulatory requirements or governing transactions in outsourcing, but they can increase in importance as outsourcing risks and challenges continue to emerge. As a case in point, accounting scandals with Satyam and terrorism in Mumbai changed security controls in India.

As client markets pick up from recession, rates are again experiencing an upward movement. The question on who takes on greater risk between provider and client has also shifted, and this resulted to more considerations on liability clauses, especially for outsourcing to cloud service providers.

With the trends and changes in the market, buyers are pushed to reassess their contractual terms. A research from Forrester enumerates guidelines on how to evaluate outsourcing contracts and protect players from risks and threats, as stated in the article published at NetworkWorld.com:

Directly address the need for liability - As the need for a cloud computing strategy increases, clients ought to be more cautious in reviewing terms on liability. Forrester clients discovered that there are cloud service providers who refuse to accept liability and insure clients for exposure of private data. Because of this, a Forrester client was forced to pull out from the deal.

Update change of ownership provisions to safeguard against industry consolidation - The possibility of industry consolidation makes it more important for buyers to ensure that their contract allows for termination in the occurrence of a company changing in ownership and control. In most cases, it is impossible to predict the actions of a provider but clients should expect volatility in SaaS and cloud segments.

Bulletproof your provisions for permissible rate increases - A clause or a statement on allowable rate increases is appropriate for expiring contracts or those with terms that cover a long period of time, but clients should take it upon themselves to compare ongoing increases with current labor costs. Also, consider that services costs typically decrease over time, and in this regard, increases might not be justified. Lastly, contest provisions that will allow your provider to raise prices without your permission.

Transition assistance is important - With the rapid changes the industry is experiencing, it is safest to have provisions in your agreements that cover transition assistance. This normally includes terms on timeframe and costs to compensate for loss of business. The stated requirements should apply for both transitioning work back in-house or onto another provider. It would be ideal to have clearly stipulated roles and responsibilities for the parties during transition.

Key personnel provisions - Direct contact to a supplier's managerial, administrative, and technical support teams can make a big difference in the success of an outsourcing venture. Adding provisions on the ability to access key personnel assures customers that they will be given quality service. In the cases of ramps or issues, it is critical that customers be able to connect to the right people.

Align termination fees with length and type of contract - For contracts that are shorter in term and that will utilize less assets on the supplier's end, termination fees and provisions might be in the form of a penalty rather than a way to compensate for rendered investment. Costs that are for the purpose of a penalty should be avoided. Suppliers will always try to recover costs in the process of winning and executing a contract. In this scenario, it will be smart to research on supplier selling and delivery costs and use this as ammunition to negotiate.

Upsurge in ITO Spending and BPO Trends

The TPI Momentum 2011 Market Trends & Insights Service Line Report has just been released and it includes observable trends across eight outsourcing disciplines. The customer markets of ITO and BPO services are all looking out for the best technologies available - some examples are mobile device support and Cloud Computing. Clients also demand better forms of customization from providers in terms of functionality and features.

Rapid IT developments and changes in the field do not cause resistance but these even fuel the growth of the market. A record on closed contracts in the BPO industry is at record high in 2010, directly correlated to expenditures in ITO and network solutions.

Here are some of the highlights from the report:

Business Process Outsourcing (BPO) is gaining support in new client markets. A total of 759 BPO contracts were closed in 2010. This poses a 20-percent increase from records in the previous year. Most of these deals are inclined towards disciplines such as Contact Center, Finance and Accounting, Human Resources, and Procurement. Majority of the contracts are with small companies exploring outsourcing, and are not necessarily large in volume. Consequently, total spending decreased by 12% from 2009.

Evaluating strategies slow ITO. The ITO market had to take a stop and wait as clients evaluated their IT strategies. This resulted to a decline in contract volumes because clients involved themselves with exploring options and setting guidelines for new technologies, like with mobile devices, applications, information security, Cloud Computing, etc. Contracts in ITO increased by 1.6 percent in the US, and faced a decline in EMEA and Asia. The Managed Network Services service line experienced greatest demand mainly due to telco-to-telco needs.

Clients are bundling up. Clients opted to utilize more bundled contracts, as opposed to standalone, in 2010. Especially with Cloud Computing and finance and accounting, clients build portfolios or separate bundles of outsourcing contracts that consider business and technology perspectives. Portfolio bundling and developing a niche expertise led to multi-provider sourcing.

Mobility is moving the market. The business need for mobility is setting direction in the field of outsourcing. This demand has the greatest effect to the End-User Computing service line because providers need to expand solutions to respond to the growing number of mobile devices. Providers now are asked to create mobile applications, manage network traffic, and allow mobile access to business applications.

Expert help wanted. Clients seek providers with expertise in their particular field. They would rather outsource to companies who can offer customized solutions for a particular industry or business process, instead of generic services. Cost-effective and innovative solutions are also a selling point, like Cloud Computing services that both result to cost savings and greater efficiency. Lastly, there is observed inclination to �business-process-as-a-service� solutions where entire functions like payroll and recruitment are outsourced on a project basis.

The entire TPI Momentum report dedicates one chapter for each service line that tackles their respective trends and developments in greater detail.

Choosing between Being Secure and Being Flexible

As the world becomes smaller due to emerging web technologies, information security has become more important as companies seek to go global. Some have even outsourced captive offshore operations in their bid to become global companies. As with any expansion, plans are needed to ensure that the expansion enables the company to achieve its objectives of being effective and efficient. Among companies that rely on outsourcing, an offshore risk mitigation plan is needed for captive operations.

Most companies already have internal security controls in place before turning to outsourcing. Since captive operations are regarded as offshore business units, a captive operation is expected to adopt its mother company's security policies. Outsourcing consultancy firm TPI points out that captives oftentimes face hurdles in enforcing these policies due to internal customizations made by client companies, especially in policies regarding Internet use, social networking exposure, and the use of storage devices.

TPI suggests the following tips for outsourcing companies and their clients in formulating an offshore risk mitigation plan:

Assess the mother company's internal controls. Can the mother company's internal controls be immediately adopted for the captive operation, or do they need to be modified accordingly? With a comprehensive assessment, risks can be mitigated early on as the outsourcing service provider takes an active stance to quickly address issues as they crop up.

Focus on human resources. The reputation of the outsourcing service provider is at stake in any outsourcing deal, especially those who serve the financial and healthcare sectors where data confidentiality is of top concern. An exhaustive screening process is vital in hiring staff for captive operations.

Include local influences in creating the plan. Study how captive operations and local companies deal with security issues - how do they compare against the mother company's internal controls? Such observations can be used in assessing whether those internal controls can be adapted into the local operation.

Imbibe the importance of security. More security controls do not mean an office is better secured than an office where the employees are security-conscious. Having a culture of security among employees is more effective than enforcing a multitude of security controls and policies among employees who may find ways to circumvent security policies.

Constant training. Train the staff regularly on information security courses. The effectiveness of the training must be measured to evaluate if it supports and complements the company's risk mitigation plan.

An offshore risk mitigation plan ensures that the outsourcing service provider is ready to hurdle the operational challenges in a captive operation that functions as an extension of the client company. Such a plan must include security policies that should be flexible enough to factor in human behavior and local culture.

Avoiding Visa Delays in Transition Phase

Multinational corporations consider their global service delivery networks as vital communication channels among international offices. Internal electronic communication is oftentimes supplanted with personal, face-to-face interactions between managers and staff. Governments, such as the United States and the United Kingdom, issue a variety of visas to facilitate the entry of foreign staff needed by either mother companies or client-companies based in these countries.

However, due to security issues, the issuance of US visas has seen additional restrictions, stretching the timeline for companies relying on outsourcing as they shift to a global service delivery model.

Outsourcing research firm TPI lists five tips that can help companies avoid these visa delays:

Include delays in the transition timeline. Formerly, offshore employees needed to work in the US arrived within a month's time. With the new visa restrictions, foreign workers coming in to the US arrive within two months - an addition of one month. This is a very significant delay for those in transition.

Establish backup plans. Delays in transition are normal, but since they directly affect the profitability of a company, a backup plan is needed in case the needed foreign workers do not arrive in time.

Take advantage of the Internet and new technologies. There are various software programs or applications that enable virtual collaboration and file-sharing among team members spread across the globe. These tools and technologies must be set up early in the transition phase, as time saved in business converts to money saved.

Shift the majority of transition work to the offshore service provider. Many client companies based in the US are now sending their local resources to offshore sites during the transition phase, serving as subject matter experts (SMEs) and trainers. Outsourcing service providers have established client services departments for such situations, taking care of visas and accommodation for the direct employees of their client companies.

Create a risk mitigation plan with the service provider. Client companies will find it easier if they work on transition delays with their outsourcing service provider. Usually, risk mitigation plans are included during the onboarding phase. These plans must be created even before the ink on the outsourcing contract dries up.

There are various details involved during the transition to being a global company, but a well-defined plan will help a company pursue its outsourcing goals. Visa restrictions, part of the transition process, can easily be mitigated with the right strategy.

Everest Group: Global Outsourcing Slowing Down

Activity in the global outsourcing scene is getting slow. From 503 outsourcing contracts posted back in third quarter of 2010, the number went down for the same period this year - only 472 according to market advisory and research firm Everest Group (reported at zeenews.india.com).

Everest Vice President (Global Sourcing) Amneet Singh said the decrease in the number of outsourcing deals and transaction volume indicates the �sluggish� phase the global outsourcing market is currently facing. However, several large deals have been closed during the quarter, and this drove the global transaction volumes to reach US$2.7 billion in annual contract value (ACV).

IT outsourcing and business process outsourcing (BPO) posted a drop in transaction volumes, though the former had seen a 14-percent increase in ACV for the third quarter of this year.

It's good to note, though, that Q3 is not all about outsourcing slowdown. Third quarter had seen an increase in the number of captives that were set up. In 2010, only four new captive centers were established, and nine expansions. For Q3 2011, however, 20 new centers were set up.

This slowdown in the global outsourcing landscape is almost something to be expected, considering the current financial woes in the US and UK, two of the largest markets being tapped by the industry. Of course, various business owners are getting more and more cautious when it comes to spending especially in times of financial uncertainty.

It may be the reason the global outsourcing market is now seeing a decline in deal signings and transaction volumes, but then again, there are other companies that are realizing what outsourcing can do for them. By transferring work to a service provider, they can take advantage of the labor arbitrage, enabling them to reduce their costs and keep the business going.

Like what Singh said, it is still too early to say what will happen in the next few quarters or years. This Q3 decline may or may not be a trend. The key, as always, is to stay updated on the latest developments and have contingent plans to ensure the business will stay afloat no matter what the economy will throw at us.

Shifting Strategies for the ITO and BPO Services

According to the latest TPI Momentum 2011 Market Trends and Insights Service Line Report, clients who rely on BPO and ITO services are interested in service delivery options and emergent technologies, such as support for mobile devices, cloud computing, and X-as-a-Service. Providers also face the clients who demand custom-fit services and features for their business processes.

The same report from the outsourcing consultancy firm said that 2010 saw a record number of BPO contracts being signed, coupled with a tremendous increase in ITO budgets across companies.

From the same report come these highlights:

New clients came over to the BPO fold. Last year saw 759 BPO contracts being signed - a 20% increase from 2009. Majority of these contracts were signed between companies venturing into outsourcing over Contact Center Services, Finance & Accounting, Human Resources and Procurement. Total spending, though, was down by 12% from 2009.

The ITO market slowed due to re-evaluation of company IT strategies. Contract award volumes were reduced from 2009 since clients were evaluating their strategies and policies, especially with the exponential growth in mobile computing, virtualization, and cloud computing. The Americas, nonetheless, witnessed a 1.6% increase in ITO contract awards.

Clients opted for multi-sourcing. As clients renewed outsourcing contracts, companies opted to use portfolio bundling, creating separate bundles of outsourcing contracts in business and technology sectors.

Mobile computing has changed the market. The explosion in mobile device use and mobile computing has directly impacted the outsourcing industry, via new advantages and disadvantages. Service providers needed to create new solutions for clients who wanted mobility with information security.

Experts needed. Clients have shifted to expertise in their respective vertical industries when it came to choosing service providers last year. Custom-fit solutions have become the name of the game, instead of basic, pre-packaged services. Innovation has also taken the front seat among clients, as they saw the advantages of cloud and mobile computing. Preference for business process-as-a-service has also increased among clients.

Advantages of Using Cloud Services

Logan Harbaugh of PCWorld comes up with six compelling advantages to using a cloud-based solution for business needs. Processes like payroll, web or email hosting, and enterprise resource planning have proven more cost-effective when outsourced to a cloud provider.

However, most companies hesitate at the thought of outsourcing complex IT requirements, like data storage, file servers, and software development. Relying on cloud services would expose a company to risks like data losses, outages, and hacking.

Even with the consideration of these risks, there remain benefits and cost savings to utilizing cloud services:

Save on Infrastructure - A monthly payment to a cloud provider is certainly easier and more convenient than purchasing your own servers, licenses, operating systems, and applications. This is most beneficial to services and processes that need to be tested before actual execution.

Save on Setup and Management - Creating in-house solutions requires huge investments on process development and human resource. You would need to hire qualified and talented IT professionals and organize a new function. In contrast, cloud providers have teams of experienced administrators whose sole purpose is to support their services and applications.

Save on Utilities - Cloud providers have new and cutting-edge technology and data centers housed in infrastructure that is shared by multiple companies. This enables them to efficiently manage the use of its resources and its corresponding costs.

Better Performance and Features - Cloud providers naturally purchase high-end equipment and infrastructure of the best possible quality since they provide services to multiple companies. Their systems ought to have higher performance levels. For small to mid-sized firms to employ such a sophisticated setup, it will be unreasonably expensive and even uneconomical. Cloud providers have software licenses that would provide you a wide variety of features. They also have seasoned administrators who know how to make the most of their resources to upscale performance.

Increased Company Agility - Cloud providers can readily add servers and they can make this accessible to all kinds of users - internal in the company, external partners, and customers. The level of flexibility cloud services provide will allow you to more effectively respond to the needs of your customers as well as changes in your company.

Fault Tolerance - Cloud providers have the resources to run a number of data centers, and to create connections and back up data between data centers. They can guarantee data protection, power redundancy to address blackouts, and other contingency plans that will leave your solutions intact in any situation.

Companies can benefit from significant cost savings and the expertise of high-level administrators and engineers by outsourcing to cloud providers. There will always be risks (i.e. losing data, etc.), but ultimately, you must balance the pros and cons of moving to the cloud, find ways to maximize its advantages, and minimize the risks.

How to Manage Common Challenges in Outsourcing Transition

Outsourcing is an effective business tool not only to reduce costs in labor and operations but also to enable companies to focus on their core competencies, gain access to new talent pools, and tap new markets. Businesses all over the world, particularly in Western countries, have long been enjoying the benefits of outsourcing.

It may be a popular business tool primarily for cost reduction, but not all companies are convinced that outsourcing can be beneficial for their operations. One of the factors that keep many businesses from transferring work to a service provider is the transformational change that comes with business process outsourcing (BPO). Change is indeed inevitable, but dealing with change in outsourcing can be very difficult. In a survey done by HfS Research and the London School of Economics Outsourcing Unit, more than three-fourths of companies said they chose not to outsource to avoid any disruption to their business operations.

The outsourcing transition needs some careful planning. Of course, there are challenges involved in the process. In an article by Brad Lillis published at businessfinancemag.com, he enumerates the common difficulties companies may encounter in the outsourcing transition period and ways to manage them:

Process documentation is not in place. Enterprises vary, and not all of them do not have the time and resources to standardize certain processes before they outsource. For a smooth outsourcing transition, it is crucial to document processes - creating standard operating procedures, identifying exceptions, etc. Having proper process documentation will pave the way for a smooth knowledge transfer and performance.

Enterprises failed to create key transition metrics. It is necessary to put transition metrics in place to analyze the operational performance during the outsourcing transition period and before the operations become stable. With transition metrics, enterprises will be able to know the impact right away in case these metrics were not met.

Recruitment capabilities of the service provider are not monitored. Many company owners tend to rely too much on their service providers, particularly when it comes to finding talent and turnover. In the transition period, it is essential to closely monitor how service providers handle staffing and ensure that they will meet the recruitment needs.

Be ready for anything. No matter how much time enterprises spend on planning the transition, certain issues may still arise. It is therefore crucial to prepare for anything and resolve problems immediately. Enterprises can assign a team that will handle any unexpected issues and has the capability to provide solutions as soon as possible.

10 Essential Elements for an Effective Sourcing Strategy

Any activity needs a clear plan, and a clear plan helps to ensure the success of an activity. The same thing happens for companies that consider outsourcing for their business strategies, reports IT research and advisory firm Gartner.

According to the firm, companies that implement a comprehensive plan in shifting to outsourcing fare better in realizing savings and efficiency goals compared to companies which haphazardly shift to outsourcing. Since an outsourcing strategy is, visually speaking, a complicated flowchart of processes and steps, a clear and comprehensive plan needs efficient staff and dedicated tools. This investment in hardware, software, and know-ware will, in the long run, pays off via an effective outsourced operation.

Gartner considers this initial phase - of planning to shift to outsourcing - as the most crucial stage in a company's outsourcing strategy, as this sets the policy for all subsequent outsourcing endeavors.

Here are the ten essential elements:

Lay down the rules and the goals for outsourcing. A company needs to lay down its priorities with respect to outsourcing - its rules and its principles.

Consider existing infrastructure. Is the company ready to outsource some of its processes? The existing infrastructure should be evaluated to know whether it meets customer demands or if it needs upgrading.

Evaluate the ability to manage outsourced providers. Are company executives ready to manage outsourced service providers? Knowledge and skill in managing outsourced processes are vital in making the shift to outsourcing.

Consider barriers, challenges, and advantages for outsourcing. Will outsourcing really help the company? The level of government support for outsourcing also varies among countries - this should also be taken into consideration.

Measure existing processes. Data gathered from measuring existing processes can be evaluated for and against outsourcing.

Know the outsourcing market. Familiarity with outsourcing service providers, their service offerings, and their clients will definitely help when it comes to considering outsourcing service bids.

Plan multiple scenarios. A good plan is composed of multiple plans, making up for potential failures. Never settle on just one scenario.

Do a risk assessment study. For every scenario, study the risks and assess each one. In any business undertaking, there are risks involved - it all boils down to how risks are converted into opportunities.

Write a business plan. Documenting all these steps, a TCS (Total Cost of Sourcing) is created, compiling the sourcing scenarios, financial impact, and other business-related details.

Create the blueprint for action. With a business plan on hand, it is now time to create that blueprint to implement the plan.

Companies can reach their outsourcing goals with a comprehensive sourcing strategy that involves their internal capabilities combined with outsourced services. Without such a strategy, companies are unable to fully take advantage of outsourcing as an effective business tool towards profitability.

Slower Growth Seen in Global IT Market Next Year

In Forrester Research's latest report called Global Tech Market Outlook for 2011 & 2012 (from deccanherald.com), the global IT market research firm predicts that the financial crisis in the US and Europe will affect the global IT spending in 2012. It will still be a positive growth rate, though slower. In 2011, global IT spending reached 11.5 percent, but this will weaken to 5.5 percent next year.

Weak market growth will be seen in the US which will post only 6.4 percent. Europe will likewise see slower IT activity. It is predicted that Eastern Europe, Middle East, Africa, and Latin America will post a growth rate of 12 percent in 2012. This is primarily due to worries brought about by the financial crisis which started in the middle of 2011 and eventually affecting the last quarter of the year.

Forrester said 2011 will have a better global IT market growth rate than 2012, as the first two quarters of the year saw strong IT demand before the economic downturn in the US and Europe.

From 8.1 percent growth in spending on software in 2011, it will drop to 6.2 percent next year. Other aspects of the IT market are also predicted to grow: IT outsourcing (6.3 percent), IT consulting and systems integration (7.6 percent), and computer equipment (6.6 percent).

While it is predicted that global IT spending will weaken next year, the Indian IT industry is not alarmed, at least not yet because according to industry body Nasscom President Som Mittal, companies haven't reduced their IT budgets.

There's no point denying that the outsourcing industry will not feel the impact of the financial crisis. While some may think that this state of the global economy will push US- and Europe-based companies to outsource IT processes and increase or maintain their IT budgets, business owners may do the opposite and be more cautious about their IT spending in the next few years.

Forrester predicted a positive growth but at a slower pace. This forecast should keep IT outsourcing service providers from letting their guard down. In times of economic uncertainty, it pays to be more cautious and monitor recent economic developments to mitigate the risks or lessen the impact of whatever the crisis will bring.

Everest: Pharma Firms' Global Sourcing Spending Likely to Increase

In the "Outsourcing and Offshoring Trends in Pharmaceuticals" report from global services research and advisory firm Everest Group, it is seen that outsourcing spending of pharmaceutical companies will continue to grow as the highest spike of outsourcing deals was posted in 2010 (10-year high). This was an 81-percent increase compared to contract signings in 2009.

The pharmaceutical industry spends US$490-670 billion per year or 3-5 percent outsourcing levels. According to the report, this can become 10-15 percent levels. Amneet Singh, Global Sourcing Vice President, said the growth of outsourcing deals posted in 2010 was driven by the increase in demand during the economic crisis. Other factors such as cost issues, changes in the pharmaceutical landscape, and emerging markets are also considered growth drivers. It is predicted that outsourcing activity will increase in drug development and research, supply chain management, data management, as well as analytics processes.

These are the other highlights of the report:

There was an increase in outsourcing demand from pharmaceutical companies in Europe for the last three years.
More and more companies adopted business process outsourcing (BPO), to outsource not only drug development functions but also processes in finance and accounting, HR, and procurement.
Pharmaceutical firms are starting to set up captives in Asia and Central and Eastern Europe to gain presence in emerging markets.

Also discussed in the report were the changes in the service offerings of providers. Global Sourcing Vice President H. Karthik said the evolving pharmaceutical industry leads to changes in the service provider landscape. From offering traditional services, providers are expanding their offerings which now include specific functions. They are likewise improving their services and capabilities to enable them to offer other pharma-related processes.

IDC Study Presents BPO Contract Figures from 2006 to 2010

�U.S. BPO Contract Analysis 2006-2010 by Vertical� is a report released by global market intelligence firm IDC that summarizes trends of contract values in different industry sectors in the United States. A sample was selected among new and renewed business process outsourcing (BPO) contracts in five primary industries: financial services, manufacturing and resources, infrastructure, services, and public sector. The findings include the following:

BPO contract values were highest in 2008, with concentration in the government, manufacturing, and financial services industries.
Recession caused a decrease in the value of new and renewed contracts in 2009-2010. Also, large deals of over $1 billion dropped during this period.
The financial sector is picking up and contract value is beginning to normalize, the industry's numbers returning to pre-recession ranges. Deals, however, are becoming shorter and smaller in volume.

Trends in the study are presented per vertical in the report. Ruthbea Yesner Clarke, IDC program manager for Vertical Markets Research, says the government, infrastructure, and services industries have been stable at maintaining contract lengths, unlike the financial services and manufacturing sectors that posed a significant decrease.

The analysis identifies the top 5 outsourcing vendors in the 13 industries covered by the report - this is considering contract value during 2006 - 2010.

Banking: TCS
Utilities: Accenture
Transportation: Xerox/ACS
Professional Services: Hewlett-Packard/EDS
Retail Trade: IBM

The study took into account the US contracts signed by BPO services, as well as the total number of deals, agreement length, geographical location, and key vendors. Data was acquired from IDC's BuyerPulse Services Deals Database which has very comprehensive information on market deals. Furthermore, the study includes an analysis of consumer budgets, their buying behavior, and spending trends.

Everest on Healthcare Reform and Benefits Administration Outsourcing

Everest Group, a consultancy and research firm, reported a 12.5 percent growth in the Benefits Administration Outsourcing (BAO) market. The current upsurge in demand for BAO is primarily driven by employers who need direction and advice in complying with healthcare reform measures recently introduced in the US. While the industry has long been sustained by the need to reduce cost and improve employee engagement, news on healthcare reform brings employers to increase enrollment and regulation of insurance plans.

Research director Rajesh Ranjan says it will take years before the said reforms are in its full effect, but a number of provisions are expected to directly affect companies' benefit plans for the year. Buyers look into outsourcing in an effort to understand and navigate through the reforms as well as identify ways to lessen costs.

More highlights in the report concerning the BAO segment:

North America remains the strongest market, while demand potential is seen in the UK, Germany, and the rest of EU.
Large enterprises increased its use of BAO in 2010-2011, 76 percent of participants managed belong to this segment.
The manufacturing sector is the highest proponent of BAO adoption but demand is expected from the government and services industries.

Aon Hewitt and Fidelity are the largest service providers in the BAO market, holding close to half of the market share. Other players included in the report are ACS-Xerox, ADP, Infosys, Secova, and Towers Watson.

The BAO industry is a competitive market and mergers continue to spur progress in the industry. Providers continue to thrive and differentiate themselves by altering technologies, by improving service models and processes, and by specializing based on scope and geographical location.

A webinar will be held on October 11, 2PM GMT to present the rest of the findings. To register, visit research.everestgrp.com/Events/Webinars.

Tips on Working with an IT Service Provider

Small companies generally do not have the resources to undertake massive volume orders or major shifts in technological infrastructure. Outsourcing, whether offshore or nearshore, serves as a strategic tool for small companies to maintain profitability and to ensure efficient customer service.

In any business operation, IT infrastructure is an important aspect. Unfortunately, small companies have limited budgets in hiring IT personnel or purchasing IT equipment. Outsourcing enables small companies to hire world-class IT personnel or to use virtual IT equipment at low cost.

However, compared to large, multinational companies, small and mid-sized businesses (SMBs) generally do not have the skill and know-how in managing outsourcing service providers. Kevin Casey of InformationWeek.com has interviewed TeamLogic IT's vice president for information technology, Vince Plaza, for an insight into how SMBs can fully take advantage of IT outsourcing.

Do not hesitate to ask questions. Asking questions creates an atmosphere of transparency and accountability. A transparent working relationship ensures that all issues are attended to immediately. At the same time, any possible challenges can be foreseen and resolved. A typical question that may be asked in an outsourced IT relationship may be related to general details such as the software and hardware used by the service provider. Software may refer to the applications and technologies employed to deliver the services � it may even help to understand the different levels of service that an outsourcing agreement covers.

Outline a clear job description for the outsourcing service provider. Not all SMBs have their own IT departments. However, tension may occur in an outsourcing relationship that involves two IT managers � the in-house IT executive and the outsourced IT staff. A clearly outlined role and responsibility for the outsourced IT provider helps to reduce this tension. Plaza said an approach like �call on us when you need us� will place the outsourcing service provider in a supporting role.

Regular meetings ensure that the outsourcing relationship is proactive, instead of being reactive. Internal company meetings are done regularly to address issues and avoid problems � why not do the same with an outsourcing service provider? A proactive outsourcing relationship means that problems are anticipated and avoided, resulting to less downtimes and more operational hours.

Do not sacrifice security. Being an SMB does not equate to having less secure IT resources. Awareness of data security is very important, especially for SMBs that capitalize on a specific product or service. Security policies and procedures that do not require additional equipment and staff can be developed and used.

Be fast in solving problems. Even if an outsourcing relationship is proactive in dealing with challenges, inevitably a problem arises. How many times have you dealt with a project that did not proceed as planned? Speed is critical in solving problems, especially problems that may hamper service delivery.

Best Practices in Supply Chain Outsourcing

Outsourcing as a business strategy has gained prominence even in the supply chain industry, where outsourcing fills in the inherent inadequacies of small companies and leverages the comprehensive capabilities of multinational companies. Research firm Gartner, Inc. has culled eight best practices that can help supply chain executives in identifying, evaluating, and choosing the right outsourcing service providers for their operations.

Best Practice No. 1. Create an outsourcing strategy that will integrate into your existing supply chain strategy.

Since the outsourcing service provider will be essentially integrated into the supply chain, strategically, any decision with regards to the scope and magnitude of outsourcing must support the overall operation of the company. At the onset, the outsourcing service provider must be willing to work hand-in-hand with the client-company in improving profitability.

Best Practice No. 2. Ensure that the company is ready to manage an outsourced service provider.

Before setting out to engage the services of an outsourcing service provider, ensure that there will be someone in the corporate hierarchy who is sufficiently equipped to manage outsourcing partners. Supervising an outsourcing service provider is different compared to managing an in-house department. Besides, there are different types of outsourcing services, and a company keen on contracting outsourcing services must be familiar in getting the right outsourcing deal for its requirements.

Best Practice No. 3. Be clear on what you need to outsource.

Decide on what processes to shift to an outsourcing service provider. Essential operations that involve sensitive company data, such as intellectual property (IP) and confidential customer data, may or may not involve an outsourcing service provider. Among providers, competition is so fierce that outsourcing companies are combining and expanding service offerings in an effort to attract more companies into the outsourcing fold.

Best Practice No. 4. Outsourcing is more than cost reduction.

An outsourcing deal that is primarily pegged on reducing cost may be sacrificing other important factors, such as quality assurance and customer service. Some companies have tripped on the mistaken notion that outsourcing deals will solve their problems and return them to profitability. Aside from cost-service analysis, companies considering outsourcing must also factor into their risk assessment the following: quality control, customer feedback, and past performance.

Best Practice No. 5. Carefully consider the variety of risks involved in outsourcing locations.

Consider the location - outsourcing deals are, more often that not, offshore, too, in nature. In Asia alone, IP legislation and enforcement differ widely between India, China, and the Philippines. Corruption in the public and private sectors in the three countries mentioned also varies.

Best Practice No. 6. Open communication channels are vital to an outsourcing relationship.

Communication and transparency, especially involving personnel movement, processes, and capabilities, are important in maintaining an efficient supply chain outsourcing deal. Surprises are not needed in an outsourcing deal that places a premium on predictability and reliability.

Best Practice No. 7. Be clear on managing service level agreements and performance indicators.

Documentation is an important part of any partnership. With clear documentation, qualitative and quantitative assessments can be quickly made and brought up in regular meetings. The impact of the supply chain outsourcing can be safely measured against the performance of the company.

Best Practice No. 8. Take advantage of the outsourcing service provider's skill and experience.

In any outsourcing deal, sharing is as important as having a clear service level agreement (SLA). A partnership between companies is meant to guide both companies to profitability - a mutual relationship that aims to assure mutual growth. A client-company will gain from a specialized outsourcing service provider who has the tools and the immediate know-how that the client-company can take advantage of, instead of having to invest time and resources to have those same skills and knowledge within the company.

Recommendations on Mitigating Outsourcing Risks

In many cases of outsourcing business functions offshore, it is inevitable to give service providers some sort of access to certain systems and information on processes to get the job done. Depending on the outsourced work, the clients are somewhat exposing the way they do business to an external provider, and that makes them at risk.

Today's global outsourcing market continuous to flourish and as more and more companies realize what outsourcing can do, it is highly important to evaluate business relationships with service providers to mitigate the risks involved in transferring processes to vendors.

In a CIO.com article by Stephanie Moore, Vice President and Principal Analyst at Forrester Research, she enumerates several recommendations on risk mitigation:

Make sure the vendor has the right certification. Vendors adhere to delivery standards to ensure the highest quality. For instance, CMMI Level 5 is the highest rating today. This indicates lower risks when it comes to executing programs. Keep in mind, though, that not all service providers have the certifications you may need. Smaller or new vendors may not have the right certifications required for your business.

Assess the qualifications and certifications of employees. Software development work requires employees who have undergone training and have the right qualifications and certifications. Make sure to get proof of certification from the service provider.

Analyze the HR and recruitment capabilities of the vendor. Finding talent is one of the most crucial steps when it comes to outsourcing, but after hiring the right employees, the vendor should be able to retain them and keep attrition rates to a minimum.

Look at the vendor's vertical expertise. Clients must look at the vertical capabilities of service providers. It is important to know how they incorporate innovation and technology with their expertise in certain verticals and the industry.

Evaluate rates and productivity in terms of quality of work. Outsourcing enables clients to save on operational and labor costs, but this does not mean getting deliverables of low quality. Clients need to assess the pricing of projects and ensure that the employees meet their requirements.

Beware of managed services agreements. As with all other business contracts, service level agreements in outsourcing must be crystal clear, making sure that the vendor is not employing, for example, shortcuts in the software development life cycle (SDLC). Evaluate managed services engagements carefully to prevent problems later on.

Why Mid-sized Firms Get More from IT Outsourcing

A study done by outsourcing analyst firm HfS Research and the London School of Economics shows that mid-sized companies get more out of their IT outsourcing deals compared to large organizations.

In the article �IT Outsourcing: What Big Companies Can Learn from Midsize Companies � by Stephanie Overby at CIO.com, with the 277 outsourcing buyers who participated in the survey, 63 percent of mid-sized firms said outsourcing had been successful for them in terms of cost reduction. The report also shows that 42 percent of mid-market clients indicated that their deals have met their compliance and regulatory requirements, compared to only 30 percent of large companies.

According to HfS Research founder Phil Fersht, "Quite simply, mid-market organizations have to bundle more processes together into one broader deal to make it large enough to warrant the attention of the leading services vendors. [They] rarely will have the luxury of outsourcing step-by-step." Larger companies usually outsource services part by part over a long period of time and because of their size, they can tell the service providers how they would like to outsource.

Fersht says this type of strategy is weighing large companies down and the cut up process hinders further developments in contracts. "By and large, organizations outsource processes that probably aren't very well run in the first place. [Their] 'softly, softly' approach to outsourcing is prolonging the disruptive change a buyer needs to go through to reach its desired global operations end-state," said Fersht.

When it comes to outsourcing vendors, Fersht said they should focus not only on big clients but also those in the mid-market where contracts are more flexible.

Making Your Help Desk Smarter

Majority of efficient IT Help Desks are measured by their high basic performance metrics, which cover high resolution rates and fast average handle times (AHTs). However, as outsourcing consultancy firm TPI points out, these basic metrics only measure how quickly agents can manage contacts � they do not reflect how operations can be made more efficient and effective.

TPI says in its report that problems may actually get unresolved in the efforts of agents to score high metrics rates. The consultancy firm cites the example of multiple contacts about a relatively easy problem, which agents resolve by themselves. Instead of elevating the problem to the production team, the agents opt to increase their resolution rates.

Issues are supposed to be resolved and eliminated, instead of being managed with short-term solutions. A smarter Help Desk is integrated with other groups in the IT organization for proper problem analysis and resolution. TPI suggests five strategies that top Help Desks use in improving overall operations:

Knowledge Management Incentives. Targets for agents should be made, with a focus on publishing a certain number of articles per period. This assumes that the publication process filters good writing from bad writing.

Demand Management Incentives. The Help Desk team should get rewarded in reducing the volume of contacts for specific problems.

Incident Management Integration. Reward agents who connect incidents to existing problems. A tool should be in place to enable an agent to quickly report the incident and evaluate it as a consequence of a known issue. This is considered as a critical ITIL asset.

Problem Management Integration. Agents who can characterize a problem, and thus, assist in resolving it should also be rewarded. A problem can become critical especially if it involves a database, yet with a forward-looking agent, the problem can be resolved immediately.

ITIL Process Integration. ITIL, formerly known as IT Infrastructure Library, is a set of best-practice measures for the IT industry. TPI says interconnecting your ITIL processes will highlight the top incident types, record the progress in resolving the incidents, and reduce contacts related to the incident type.

With a more intelligent Help Desk, gains in operational efficiency are made and customers receive better services and products.

Addressing Talent Concerns in the Outsourcing Industry

The Philippines produces about half a million graduates on a yearly basis. One may think that with this figure, the outsourcing industry will not have a hard time looking for workers to meet the demand. While there are a lot of graduates who are readily available for work, the challenge here is finding individuals who have the knowledge and skill sets needed for outsourced business functions. It is a well-known fact that what drives the outsourcing industry is talent. Quantity is not enough. What's more important is to have a huge pool of workers whose skills meet the demands of the industry.

Seeing how important it is to have high quality talent and to keep the outsourcing industry a main economic growth driver, industry body Business Processing Association of the Philippines (BPAP) is working with various government agencies particularly in the field of education. There is a need to improve the curriculum and make students more proficient in the English language - one of the crucial factors needed to enter the business process outsourcing (BPO) workforce. Likewise, trainings programs are being implemented for the same purpose of honing the skills of workers.

It was reported recently that the Philippine government is teaming up with BPAP as part of the efforts to address talent concerns and eventually help the industry in reaching its revenue goal of $25 billion by 2016. The initiative is called Training-for-Work Scholarship Program and it will be launched this year and in 2012. This aims to train 58,000 scholars, and 37,000 are guaranteed to get jobs. This program will need P350 million in investments. According to Department of Budget and Management Florencio Abad, this is something that the government should take into account, considering the revenues that the industry can bring.

The Philippines is now considered the top call center destination and it is inching its way up when it comes to non-voice services. Through these initiatives, the outsourcing industry is with high hopes that the country will meet the ever increasing demand for highly skilled workers and remain globally competitive.

Six Guide Questions in an Outsourcing Deal

A company may find itself in a bind if it shortlists two outsourcing service providers that have equal skill, knowledge and experience in the outsourcing industry. Outsourcing advisory firm Alsbridge has drawn a set of six guide questions that can help a company decide and select a provider that will help them move forward into a successful outsourcing partnership.

Alsbridge has formulated the six guide questions from a recent interaction with a client:

Has the service provider created a comprehensive transition plan? Transition from the present operation to the outsourcing service provider's delivery group should be as smooth as possible, taking into account the issues and challenges that can hinder an efficient transfer. Seek advice from those experienced with transition processes � the information gained can provide an insight into the time involved in managing the transfer. A service provider's transition plan must include a timeline of six to eight weeks of knowledge transfer.

This transfer may involve staffing and recruitment, hierarchy, workflow, metrics, service level agreements, and finally, a certification for an �all systems go� from the provider. Be wary of plans that are either too exacting or too vague � ambiguity may be a sign of inadequate information on the part of the provider.

Did the provider behave well before and during contract discussions? Profit is undeniably a motivation in any outsourcing deal, but there should be a more valuable motivation in pursuing an outsourcing relationship rather than focusing on cost efficiency. First impressions last, and these may also define the outsourcing relationship. Long-term outsourcing deals are based on equitable arrangements - a win-win situation between client-company and service provider.

Is the provider experienced enough to reliably deliver? In making reference calls, it will be helpful to write a common script. Through a common set of questions, answers can be quantified and compared, profiling the service provider's relationships with other clients. Visual aids, such as tables and graphs, can be used in evaluating the reference calls.

Are the right people assigned to your account? Issues and challenges in the outsourcing relationship must be resolved in a timely manner. The Client Manager and Delivery Manager are the people to focus on � are they capable enough to ensure that the outsourced operation runs efficiently? Interactions with the provider's management team and its operations staff during due diligence and site visits are invaluable, since these situations provide an insight into the service provider's internal management processes.

Is the contract price too competitive to resist? A service provider with a lower contract price may spring surprises during transition. They may claim additional charges for items not covered by the agreement, and may even offer additional services for additional fees. Some service providers still use this bait and switch approach in signing up clients.

Is the service provider a cultural match for your company? An honest relationship will drive more than cost efficiency in an outsourcing relationship. If the service provider ensures a sincere atmosphere in your communications, chances are, they will be able to pull through a difficult situation and help beyond what is expected. As much as possible, ensure that the service provider's corporate values and culture are parallel to your own.

Variable Trends in the TPI Momentum 2011 Outsourcing Review

Outsourcing advisory firm TPI has released its Momentum Market Trends & Insights 2011 Verticals Report, which surveyed outsourcing trends in 27 vertical and 68 sub-vertical industries last year. The study found spending for outsourcing across the surveyed industries rose by 5%, but spending per industry was highly variable.

The following are the report's highlights:

Outsourcing spending among Forbes Global 2000 (G2000) companies has increased. Over $72.1 billion was spent by G2000 companies last year for outsourcing services, amounting to a 5% increase. Manufacturing and Financial Services accounted for the most spending, but the Retail sector had the highest growth rate at 37%. The growth was attributed to increased IT spending as new retail business models emerged.

Increased outsourcing deals among G2000 companies. Overall outsourcing penetration among G2000 companies rose by 3% as more companies signed their first outsourcing deals last year. Twelve out of 27 vertical sectors had at least 20% penetration.

Outsourcing momentum led by sub-verticals. Outsourcing activity shifted to sub-verticals as spending on outsourcing declined on the main verticals. Outsourcing spending in the Chemicals industry flat lined, but the sub-vertical Life Sciences increased outsourcing spending by 30%. The Business Service & Supplies industry plateaued, but its Finance Services sub-vertical increased by 15%.

Increased outsourcing activity in specific verticals has shifted the Hunting-Farming dynamics. Opportunities across the 27 industries being tracked by TPI are measured through the TPI Hunting-Farming Index. In the 2010 Farming Index, the Utilities and Retailing industries boosted their ratings from medium to high as outsourcing spending among these companies increased.

Vertical trends have been positively affected by the market's fast growth. Outsourcing penetration has increased significantly among larger firms compared to small companies in majority of the industries surveyed. Most of the new outsourcing growth happened in companies ranked 501-1,000 in the G2000.

As markets recovered last year, the survey revealed which among the vertical industries surveyed offered the healthiest opportunities for investments. Outsourcing spending was indeed not constant across sectors, but the data will help in choosing the correct strategies for outsourcing.

US Credit Rating Downgrade and the Philippine Economy

For the first time, Standard & Poor's had lowered the US credit rating from AAA to AA+. Credit ratings indicate the opinion of the agency about the �ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time,� according to www.standardandpoors.com.

What does this mean? In these uncertain times, it could bring about serious effects to financial markets and businesses not only in the US but also in other parts of the world.

In stock markets, investors may panic over their shares, resulting to rapid selling of stocks. Some individual investors already did. As the US economy slows down, experts and business owners see some sort of a domino effect on various industries and aspects of the Philippine economy, though it may be too early to say what this situation may bring. Of course, one of the first to feel the impact would be the OFWs. According to Department of Labor and Employment Secretary Rosalinda Baldoz, they are now looking at the recent US situation and how it will affect the deployment of Filipino workers to the US. OFW remittances would be greatly affected as well if this gets worse.

How does this affect the outsourcing industry of the country? For an industry where the peso-dollar exchange rate plays a huge role, business process outsourcing (BPO) players will definitely see the effect of the US downgrade. Western companies may be a little bit more cautious when it comes to spending due to the current global economic situation. Since the US is the largest market of the Philippine outsourcing industry, this downgrade will surely be felt in one way or the other. However, the industry remains confident and optimistic and growth is still projected in the next few years. The game development segment, for instance, aims for a faster growth rate of 60-70 percent next year.

It may take time before the economy can really feel the effects of this situation, but the psychological impact is probably the worst right now. In times of uncertainty, company owners obviously become very cautious. Some even panic as they try to keep their investments safe and their business going.

Companies have yet to fully see the impact of this downgrade, but it is important to put the game face on and stay resilient. Now more than ever, it is crucial to stay abreast about what's happening and be ready for anything.

Considering multi-sourcing? Ask the right questions.

A company may rely on an outsourcing strategy that combines the infrastructure and talents of multiple service providers across different countries. This strategy helps them avoid the disadvantages of relying on one outsourcing service provider.

However, a multi-provider sourcing strategy needs efficient coordination among business units, such as the finance, legal, and operations departments. According to outsourcing consultancy firm TPI, the success of such a strategy relies on an apt structure, best practices on multiple-provider service delivery, flawless invoicing and allocation systems, and high levels of service.

TPI advises companies to consider the following questions:

How is a suitable commercial structure created? Among the key factors in considering the right commercial structure are cross-border taxes and cross-subsidization. Either a central agreement covering all countries or a Master Services Agreement (MSA) with country-specific agreements may be used in service deals, but keep in mind that any deal must include clauses covering service delivery, legal and financial that favor your company.

Can the service provider deliver across multiple countries? Choose service providers that can deliver services in flexible agreements, with billing in local currencies. Ensure, too, that providers have the managerial and legal skills to craft agreements in multiple countries.

How best do we manage multi-providers? The best managerial approach in handling multi-providers is based on your company's organizational culture, its internal capabilities, and the skill of its staff. There is no one �formula� that serves all. Even if providers are to be managed either through an outsourced service integrator (SI) or through a third party Governance-as-a-Service, ensure that your company strategy is included.

What is the best way to invoice across multiple countries? Issuing invoices across borders depends on your company structure. Several ways to issue invoices include a centralized system; by country to a single legal entity; by country to multiple legal entities; or a combination. Compare the cost of local invoicing and allocations against the impact of cross-border taxes and cross subsidization. It may be more advantageous to centrally issue invoices depending on the amount to be invoiced and the services delivered in-country.

How do we keep high levels of service? The best way to ensure high levels of service across multiple providers is to define service levels end-to-end across multiple providers. Domestic service levels is best managed locally, while service levels across borders can be globally managed, taking into account in-country service defaults and service credits. This combination may be the most flexible strategy in ensuring high levels of service across multiple service providers.

Managing multiple service providers does not need magic, but rather a disciplined approach in coordinating multiple providers across multiple countries and varying contexts. The key lies in having an efficient interaction among business units to ensure a smooth operation.

Shifting to the Cloud

Cloud services are being touted as an economical option in deploying assets and services. Cloud service providers present multiple choices for clients that can be further customized for specific needs. However, Cloud service providers have varying pricing structures, due in part to the nature of their companies and their services.

Interested in shifting to the Cloud? Take note of these tips from outsourcing consultancy firm TPI:

1. Existing contracts must contain clauses for penalty-free migration to the Cloud. Update the agreement to contain exit clauses that require your contractor to help facilitate the migration of data and applications to the Cloud.

2. Cloud hosting deals are different in terms and structure from outsourcing deals. According to TPI, there are three types of Cloud service providers:

�   Traditional service providers offering Cloud services, i.e. IBM, HPES, CSC, etc.
�   Newcomers who provide infrastructure as a service, i.e. Rackspace, Navisite, Terramark, SFDC, Workday, etc.
�   Traditional consumer companies entering the enterprise space such as Microsoft, Google and Amazon. Each has its own terms and subscription models due to their backgrounds.

3. Cloud migration also means shifting from capital expenses (CAPEX) to operating expense (OPEX). Assets will not depreciate anymore, since there are no assets to maintain. However, a company must plan well and forecast its budget to make sure that they operate within allocated costs.

4. Cloud services are more transparent, but pricing structures among cloud service providers tend to be inconsistent. Some Cloud services are public, others are private, and some offer hybrid options. One provider may offer fees by processors used, or costs by CPU hours used.

5. Pricing terms, such as total cost of ownership (TCO) and base services fees, must be clarified before any Cloud service deal is closed. Cloud computing models are usually difficult to contextualize in a formal business case analysis, since no standard pricing exists among service providers. Initial cost estimates do not cover expenses that may be incurred along the way. These costs may include:

Service and technical resources
Migration costs
Additional network bandwidth
Book value of stranded assets and software
Amortization of applications
Additional staff for new contracts
Minimum volume commitments
Cost of partial termination

Make sure to cover all your bases in shifting business processes to the Cloud. Terms and pricing schemes vary among service providers due to the differing nature of their businesses.

Outsourcing Opportunities in China

India-based outsourcing service providers only had a 1 percent share of the global sourcing market about ten years ago. At present, they command almost 20 percent of the sourcing market. China is also on the move to seize their fair share of the outsourcing market, as government bodies hasten development of the Chinese sourcing markets and service providers.

Outsourcing advisory firm TPI Inc. cites five trends in the outsourcing environment which may help and spur the growth of the Chinese market:

Global service is the new norm. According to TPI, two-thirds of all transactions involve delivery from offshore service centers.

Multisourcing arrangements are increasing among client-companies and service providers. The playing field is getting leveled by companies turning to multisourcing instead of relying on one outsourcing service provider.

A spotlight on risk management has driven companies to prefer multi-country service delivery options. TPI says more locations are developing specialized skills that are cost-effective for client-companies.

Outsourcing deals are increasingly becoming more cost-effective. TPI says clients are saving 33 percent more money compared to seven years ago.

Opportunities in China are too attractive to pass up. The rising importance of the burgeoning Chinese domestic market, coupled with the strong support of the Chinese government, is enough to convince global service providers, large captive centers, and organizations interested in penetrating the Chinese market that China will yield profitable results in the long run.

As with other countries, China presents challenges such as data privacy, intellectual property rights, language and cultural barriers, and labor relations. Nevertheless, the outsourcing industry has overcome these challenges through practical solutions that reflect the resourcefulness of the industry.

Study Shows Captive Operations Overcoming Challenges

A recent benchmarking study using the captive outsourcing model was recently completed among outsourcing service providers in India by outsourcing advisory firm TPI. Aside from including cost factors, the TPI study also added operations and processes into the mix in identifying and evaluating current industry trends. They have identified the following trends occurring among the captive operations of outsourcing service providers:

Increased use of global service delivery centers. Captive operations have crossed geographical boundaries, with outsourcing service providers opening service delivery centers in Tier 1 and Tier 2 cities. Usually, operations are based on the specific human resource offerings of a city. The number of large companies pursuing the multicountry/multiregion captive model is also on the rise.

Increased use of combined delivery models. Outsourcing service providers are also �outsourcing� services themselves by hiring third party service providers for their non-core processes. Captive models have shifted to using third-party service providers in delivery services to clients, maintaining supervisory control and project responsibility.

Meeting cost efficiency issues through innovative solutions. Attrition among entry-level BPO employees has evolved from being a problem to becoming a solution to meet costing challenges. Companies have turned to cloud computing and virtualization technologies to augment manpower, optimize costs, and streamline delivery operations.

Focus of core business on emerging local markets. Clients are leveraging their captive models to gain entry into emerging markets, such as the developing economies of India, the Philippines, and China. Captive operations are also used for domestic markets via localized services.

Talent pool for global operations. Captive operations have become a source of world-class workers for client companies. Personnel and staff are often shifted to other delivery centers to either start up pioneer centers or lead scaling-up operations.

Ways to Maximize Your Benchmark Statistics

In the world of outsourcing, the word benchmark basically means comparing data with those of the other players in the industry. This is done to regulate pricing schemes and methods, according to the market's criteria. Benchmarks don't only serve as points of reference, these are also used to study cost reduction practices, and in some cases, point out areas for improvement in operational structures.

TPI, an outsourcing consultancy firm, shared five ways on how an outsourcing company can maximize information from benchmarking practices, based on the article by Max Staines, President of Compass North America:

1. Plan. For example, results from benchmarking show that you are spending more than the usual on data storage. You learn that the factors that are causing the heightened expenditure are instigated by defunct and costly processes. It is highly suggested that rather than going for quick resolution, one should opt for a long-term solution that can fix the current situation, and then become an unceasing beneficial system.

2. Use it as leverage. Benchmarking can either make or break a company if not used properly. You can incorporate findings from benchmarking into your strategy and improve your company's weak areas. Also, findings from benchmarking do not always mean you have to adjust your prices, it means improving your core processes so that you are able to satisfy clients and improve practices.
3. Establish universal standards. All companies involved in data gathering should decide which factors should be considered in benchmarking.

4. Avoid misunderstandings by being transparent. Once the results have been collected, there will be times when data will be perceived by other parties as weak and unreliable. All questions should be entertained and doubts should be addressed immediately. Practice being open with one another, not only in the benchmarking process but also the data collected. Show that you are willing to participate instead of opposing other members.

5. Schedule your benchmark analysis properly. The study should be conducted before sourcing changes are applied to the participating companies. Data gathering done way after the contract term may result to unwanted conflicts.

Outsourcing Service Providers Competing for Key Trends

Cloud computing, multisourcing, restructuring � these are the key trends that are driving growth in the outsourcing industry, spurning service providers to be more competitive, as concluded by a new research report released by an outsourcing advisory firm.

Sourcing advisory firm TPI has just released TPI Momentum(SM) Market Trends & Insights 2010 Annual Report, which showed that last year, the outsourcing industry was hugely affected by the emergence of cloud computing, the surge of multisourcing contracts among clients, and the high volume of expiring service contracts.

"2010 was not a growth year for many segments of the industry," commented Paul Reynolds, TPI Momentum chief research officer. "For service providers to increase pipelines and improve profitability in 2011, they will need an accurate reading of current client preferences and market trends, an appropriate strategy to respond and disciplined execution in the face of strong competition. This report provides the information they need to understand the size and scope of opportunity in the global outsourcing market."

The TPI Momentum report sourced data from the TPI Index, reports and analyses of TPI advisors spread across the globe. The report said clients would adopt Cloud Computing in the near future, with provisions for the Cloud indicated in outsourcing agreements. Service providers would be adjusting their Cloud-based services in tune with the demands of the market, the report added.

Using Outsourcing as a Tool

Many companies have the mistaken notion that outsourcing is a solution - a panacea that will be able to shore up their savings, minimize inefficiencies, and maximize profits. If the outsourcing deal does not deliver its �magic�, they blame the whole outsourcing idea, conveniently forgetting that they form half of the outsourcing partnership.

Software entrepreneur Martin Zwilling says outsourcing is �a tool, not the problem or the solution.� He then goes on to draw up criteria for outsourcing - useful not only for software entrepreneurs like himself, but also for anyone who plans to rely on outsourcing for their products and services.

Keep your core services in-house. Restaurants do not give away their secret recipes - you should do the same for your company. Outsource services or processes that you don't consider as essential.

Secure your intellectual assets. Software piracy is rampant among developing nations. Zwilling says that 90% of computer users in China and Vietnam rely on pirated software. Secure your outsourcing contracts and have your outsourcing service provider sign off non-disclosure agreements.

Match technology with capacity. Zwilling says that outsourcing cannot deal with the �absolute latest in software technologies�, scalability to millions of users, and multi-system failover and recovery. He suggests relying on outsourcing for non-core software testing and maintenance.

Compute costs. Indeed, remote work reduces costs, explains Zwilling, but you also have to factor in indirect expenses such as increased costs in project management, travelling, and communications.

Products are easier to deliver than services. Software as a product is much easier to deliver compared to software as a service (SaaS). Zwilling says within the context of SaaS, software is customized for specific situations, making it more difficult to manage and deliver.

Creativity versus mundane tasks. According to Zwilling, mundane tasks, such as process automation or reservation systems, is easier to outsource compared to creative tasks such as chip design or consumer games. However, he points out that every outsourcing deal must have detailed specifications.

According to Zwilling, the best way to develop an outsourcing partnership is to initially build a strong relationship, carefully managing the project along the way. He warns potential outsourcing clients about staff training, turnover rates, production processes, and project management. Clients are also being chided for vague specifications, lack of an acceptance criteria, and �scope creep�.

Hurdling Corporate Barriers for Cloud Services

Cloud computing entered mainstream business last year, and industry experts are predicting that the technology will mature and become more pervasive this year. From small, family-owned companies to large, multinational corporations, the �cloud� is disrupting traditional models of conducting business.

Small companies have successfully migrated some of their processes, such as email, virtual servers, customer relationship management (CRM) systems, and customer support to cloud service providers. On the other hand, large corporations, by their very nature, have been lagging behind in tapping cloud computing for their operations.

Corporate barriers are challenges that can easily be hurdled through coordination, cooperation, and communication. David England, a managing consultant with outsourcing consultancy firm Alsbridge, Inc., tells the story of sales divisions delving into cloud-based services without consulting their own IT colleagues.

In the long run, England says, cloud initiatives taken without strong collaboration, coordination, and communication among business and IT executives can lead to an inefficient use of scarce company resources. Business processes shifted to the cloud need to be integrated into the company's IT infrastructure, and if this is not possible, then the shift to the cloud will have been in vain.

England recommends the use of a systemic methodology inspired by a company's specific business case. Relying on a process-based shift to the cloud enables collaboration, coordination, and communication among business and IT stakeholders and ensures that the preferred cloud service is specifically tailored for their company.

Before deciding to shift services to the cloud, a company should ensure that involved personnel all have a say in creating the cloud computing plan. At the minimum, all stakeholders must have a basic understanding of the advantages and disadvantages of using cloud computing. As much as possible, too, all executives must travel the same learning curve at the same pace, since a delay can cause unneeded frustration among participants.

As with any plan, a company shifting to cloud computing needs a clear vision of itself after being cloud-enabled. Do they plan to run entirely from the cloud? Do they shift legacy applications and services to the cloud? A paradigm shift can be strenuous and stressful for an individual - more so for a corporation involving several individuals. Focusing on building the fundamental blocks of a company's cloud computing plan facilitates a strong and smooth transition into the cloud.

Five Ways to Know a True SaaS

From a mere buzzword, cloud computing has been slowly maturing into a viable business tool in the global marketplace. Last year, cloud computing became mainstream as an increasing number of companies engaged with various cloud computing service providers to study how they can benefit from the �cloud�.

Consultancy firm TPI warns companies that in their rush to get to the �cloud�, more problems can crop up rather than solutions. Some companies are easily confused with the �Cloud� and Software-as-a-Service (SaaS). �These terms have become so pervasive that they are almost indistinguishable from the software itself,� comment TPI's Stanton Jones and Bobby Neil.

The duo says there are many applications that are being introduced into the market as SaaS. In truth, though, Jones and Neil opine that these are merely repackaged versions of old applications that have been morphed into hosted or �on-demand� software.

How do you know whether the app offered to your company is a true SaaS? They offer the following rules of thumb:

The service includes new features, and updates are delivered often. A true SaaS has one single code base designed to service multiple clients. The �multi-tenant� architecture means �you share the application software and hardware with other customers.� With one code base to manage, updates are rolled out in a span of weeks and months, compared to years for �traditional� software.

�Cloud� service means mobility. SaaS applications benefit from the newest Internet technologies, which have focused on easy and fast access, especially while on the move. A true SaaS application is ready to take on the hypergrowth in mobile computing and the consequent surge of a global, virtual workforce.

Pay only for what you use. Most SaaS applications are priced by usage - terms are negotiated as to the number of users and the amount of bandwidth and storage used. If you were to host your own server or deploy highly-customized software, you would be saddled by software, hardware, and maintenance costs - not to mention the technical staff that you'd need to employ. A true SaaS enables you to either ramp up your storage or rapidly scale down your use.

Standardized dashboard allows for configurations, not customizations. Most SaaS applications are controlled via a dashboard accessible through a Web browser. This dashboard is the same for all customers. Jones and Neil say that �it's important to make sure your requirements can be met via available configuration options rather than deep customization.� Some SaaS will definitely be unable to provide you the specific services you need.

Flexible price terms make for different service level agreements. Since majority of SaaS suppliers operate on the economies of scale, customizations are usually not part of sales packages. Subscription plans are anchored on different price terms that offer different benefits per price point. More expensive subscription plans usually offer more benefits and advantages over lower-priced subscription plans.

Detailed RFPs Set the Stage for the Best Negotiation

A multi-million RFP will definitely get service providers scrambling with their best offers, but companies looking to outsource some or most of their operations need to keep in mind that clear-cut, well-defined RFPs can set the stage for professional and detailed negotiations.

One of the world's leading outsourcing consultancy firms, TPI Inc., says a good RFP enables companies and service providers to �align their interests.� �When you issue an RFP, you're signaling that you are willing to pay for certain services. Lots of service providers will be interested, especially in the payment part. You're interested in the services part.�

TPI lists five guideposts that can help companies in getting the best RFP:

1. Outline exactly what you need in the RFP. A detailed RFP will go a long way in preparing an organized negotiation. Involve the departments in drafting the RFP. If the RFP will affect the marketing department, then they should have a say in it. Also, a vague RFP can be used as an excuse by a service provider in jacking up their bid.

2. Stick to a schedule in issuing an RFP. Asking for RFPs signals the onset of negotiations between a company and service providers. A well-defined schedule helps the company in controlling the whole RFP process. Keeping to the schedule in earnest shows that the company is �serious and organized� about the RFP.

3. Gather data as comprehensively as possible - and provide this with the RFP. TPI says, �you get what you pay for.� A high quality RFP can also expect high quality bids from service providers. Having clear, reliable data also helps to prevent service providers from making assumptions in their bids.

4. Enforce your rules: steer clear of service providers who do not toe the line. There are service providers that play mind games with company executives, spreading fear, uncertainty, and doubt to get another chance at bidding after being rejected. Executives must be able to deal professionally with such providers, walking away if they must.

5. Establish a structured decision process. TPI recommends creating a trustworthy team that will decide at pre-defined checkpoints in the process, such as downselecting bidders, negotiations, due diligence, etc. At the onset, involve the business, procurement, and legal departments. Stop other executives from being �tourists�, walking into meetings to offer their counsel. There's a difference between involvement and commitment.

Cost efficiency remains top factor in shifting IT work offshore

Cost efficiency remains the strongest factor in the decisions of most CIOs looking to shift IT work offshore, says leading outsourcing research firm Gartner in their list of top 30 countries for IT offshore outsourcing.

The 2011 list contains eight new entrants � developing countries that offer low-cost IT services and whose governments are improving their support for the industry � Mauritius off Africa; Bangladesh, Sri Lanka, and Turkey in Asia; Bulgaria in Europe; and Colombia, Panama, and Peru in South America.

"It's a reflection that most organizations are looking for countries that offer some cost advantage," explains Ian Marriott, Gartner vice president for research.

Among the developed countries not in the list include Australia, Canada, Ireland, Israel, New Zealand, Singapore, and Spain. "They will have benefits that they can leverage, but they won't be saying, we're cheaper than India, China, Brazil and so on," he comments.

Although these new entrants are definitely cheaper, these locations scored poorly against Gartner's criteria for data and intellectual property security. "It does take time to put protections into legislation and to get that legislation through the courts, so privacy and security protections remain a challenge," Marriott says.

Multinational companies that have chosen to establish operations in these locations "tend to wrap their own corporate standards around the location," he explains. �They manage security the same in the Ukraine as they do in the U.S."

Managing 'Overnight' Outsourcing Transition

The outsourcing industry is finding itself under intense pressure. Companies that have traditionally viewed outsourcing as something of a novelty are now scrambling to get their core processes shifted to outsourcing service providers that offer support for information systems, transaction processing, finance & accounting, and human resources.

These companies are also finding themselves under severe pressure to manage their 'overnight' involvement with outsourcing as a vital business tool. Some of them assume that roadmaps toward successful outsourcing management are very mature, that these roadmaps can be taken and followed in an hour or written in one page, figuratively speaking.

Leading outsourcing advisory firm TPI lists their Top 5 tips for companies which need to manage their �overnight' outsourcing agreements.

1. Guarantee that clear accountability can be determined at all levels of the outsourcing relationship. A matrix reporting structure creates confusion rather than clear accountability. Make sure that the service provider delivers, and that your company receives the service.

2. As early as possible, outline the roles and responsibilities in the outsourcing relationship. Corporate roles such as Procurement, Risk, Security, Legal, and Audit will be significantly impacted by an outsourcing deal. Define their roles and tasks immediately before beginning the outsourcing operation.

3. Automate management data and workflow. Traditional office processing software packages are not designed to manage outsourcing relationships. Software suites for management data and workflow systems are already in the market, and these can free your outsourcing management team from hours lost to designing macros for spreadsheets.

4. Seek advice from other companies which have successful outsourcing deals. TPI says, paraphrasing a quote, �Once upon a time I had five theories about outsourcing, but no outsourcing. Now I have five service providers and no theories.� Outsourcing is a major move, and you can learn a lot from others who have experienced it.

5. Implement an organizational change management that involves everyone. Outsourcing remains unpopular for some, so the need for transparency and an effective information drive is basic. Rapid transformation can be too rapid for an organization, leaving some employees lagging behind in the move towards change. Always check back, look back, evaluate and assess, then move forward.

Six Keys for Outsourcing Success

The global economic crisis has definitely affected last year's performance of BPO companies, but 2011 comes with a wave of change for the IT outsourcing industry as multinational companies re-consider their IT budgets and efficiencies.

The IT marketplace is a booming one, with the arrival of new services and technologies, such as software-as-a-service (SAAS) offerings, virtualization, and cloud and mobile computing. In a white paper published by IT Business Edge, they survey the market and found six factors that ensure outsourcing success despite the challenges posed by outsourcing itself.

Setting clear goals is evidently important for both outsourcing parties. Clear goals set the list of expectations of the company and the outsourcing service provider. Companies seeking to outsource some of their operations must create some criteria to rank and rate their own priorities and goals - the criteria can be used in evaluating an outsourcing service provider.

Knowing your strengths and weaknesses enables outsourcing parties to come to negotiation prepared with detailed reports of their companies - the IT assets involved, the dynamic relationships, and policies in place.

Evangelizing the change among stakeholders is very vital, especially since outsourcing can directly affect the livelihood of employees. Companies venturing into outsourcing deals are more likely to succeed when they make transparent decisions and effectively market these decisions to their employees down the line.

Considering the intangible benefits aside from cost savings brings value to the outsourcing contract more than anything else. Outsourcing service providers have the expertise and the tools that client-companies can not just buy off the shelf.

Managing an outsourcing relationship requires a totally new perspective in managing resources, especially to managers who have to deal with outsourced experts and staff. Operations are more than just filing and evaluating SLA compliance reports. Large outsourcing advisory firms have developed industy-specific techniques in helping C-level executives manage outsourcing hierarchies.

Applying a structured transition is highly significant, since this is the most sensitive stage in an outsourcing deal that can spell success for the venture or doom it altogether to failure. Fifty-six recipients of the 2009 Outsourcing Excellence Awards said in the paper �Best Practices for Risk Mitigation in Outsourcing Transitions� (Outsourcing Center 2009) that �their transition phase was the point that either threatened to derail their relationship or that allowed for long-term success.�

These are the best practices that have been appearing in surveys among companies relying on outsourcing. The playing field has been leveled for both outsourcing start-ups and veterans, who can now offer better services to companies who see the competitive advantage of effectively deploying outsourcing in their global operations.

Facing Cloud Computing Challenges in 2011

Cloud computing is set to develop into a more mature business strategy this year, but as with any emergent technology, cloud computing has its share of challenges that stakeholders must face together and solve.

One of the world's leading outsourcing firms, Alsbridge, Inc., is currently sponsoring CIO Roundtable Summits this year to gather inputs from industry experts and participants and identify outsourcing challenges. The recent roundtable summit held in Dallas focused on cloud computing - the types of businesses that can thrive on the �cloud�; risk mitigation with respect to regulatory compliance and data security; and strategies that IT organizations can take to take advantage of cloud computing.

Challenge #1 � Tighter coordination among IT and business organizations

Business organizations still see IT executives as barriers to development, and take to �The Cloud� as the cure-all, be-all for their IT woes. Roundtable discussions began to focus on how to adjust this perception by creating better, more open communication channels between IT executives and their business counterparts in order to engage practical decisions on cloud computing.

IT executives can better help their respective organizations by writing position papers contextualizing cloud computing within their companies. A participant suggested employing the Keep It Short and Simple (KISS) principle in explaining the cloud to business leaders.

Some participants suggested that involving external resources, such as consulting firms, analyst research, organizations, and conferences, can help in clarifying the cloud to business leaders, and even IT executives, who find cloud computing unappealing.

Challenge #2 � Data Privacy and Security, plus Regulatory Compliance

For over a year now, Alsbridge has been busy compiling research data on cloud computing. Data privacy, security, and regulatory compliance are top concerns for more than 70 percent of IT executives surveyed. Roundtable participants say that conducting due diligence about IT requirements and mapping them accordingly can minimize the risks. On regulatory compliance, the group suggested that companies operating in multiple jurisdictions should design and develop their strategies around the requirements of the most strict locale in which they operate. On data privacy and security, a participant broached the idea of isolating sensitive data rather than securing the whole enterprise. There was definitely a need for thorough due diligence on cloud service providers, say the participants, in order for business to truly take advantage of cloud computing and related services.

Creating Better Deals out of Ending Contracts

Most outsourcing service providers see the upcoming end of a contract as the perfect time to adjust and improve existing rates and service offerings. More often than not, renegotiations become difficult meetings due to lack of preparation on the part of both parties. A vital meeting can become a waste of time and resources, and problems that are supposed to be solved are waylaid. Instead of reinforcing the client-service provider relationship, the ensuing confusion leads to a strained negotiation.

Leading consultancy firm TPI offers five tips that can help client-companies and outsourcing service providers get the most out of end-of-contract reviews.

Measure existing operations. Quantify all the data that can be gathered from existing operations to measure the impact of the outsourcing deal. Compare the operation's existing expenses and service levels to market standards - this will help in identifying problems and improve operations.

Focus on the specifics. Armed with the important numbers, you can now safely formulate objectives and expectations that can be derived from improving operations. A framework upon which both parties can work is much better than having a client-company dictate how the service provider works.

Rally support from the upper management. The support of senior management is vital in any outsourcing endeavor. Convince your colleagues that the strategy addresses the problems and delivers on the requirements.

Practice what you preach. Make sure that when you create the RFP, the playing field is level enough for all service providers to bid. Focus on your business strategy, not on how much you can save with a cheaper service provider.

Look inside. Evaluate your internal processes - this enables you to leverage what you already have against services from your outsourcing provider. An internal evaluation can help you identify the services that are truly needed, instead of having customized services from your incumbent provider.

Seeking Creativity in Outsourcing Deals

Outsourcing service providers may be able to deliver on time, work within reasonable rates, and maintain open, communicative, and flexible relationships, yet these positive factors may be insufficient to keep clients satisfied and willing to extend outsourcing agreements.

According to leading outsourcing consultancy firm Alsbridge, Inc., clients look for innovation from their service providers in the form of �fresh ideas which would have a radical impact on either the delivery of service and/or the client's general business performance.�

Innovation will lead to cutting-edge skills and services, and with that advantage, the value of the outsourcing relationship increases. Both the outsourcing service provider and the client-company benefit from the new techniques, new knowledge, and new insights gained from the outsourcing deal. The client-provider relationship thus goes beyond cost savings - creativity adds another vital dimension to value-added services.

Although Alsbridge explains that many outsourcing deals are more focused on cost reduction, client-companies can seek innovation from their service providers by simply requiring it at the onset of outsourcing negotiations. If a client-company is seeking for a specific transfer of knowledge, skills, or technologies, the request should be clearly stipulated and documented in the service level agreement. At the same time, if the inputs are clearly outlined, the expected outputs should also be as clearly indicated, too, as possible.

After documenting the required �innovation�, the client-company and the preferred outsourcing service provider must work together to enable the process of innovation, to ensure that the necessary inputs are met, and that expected outputs are documented and delivered.

Creativity can be �required� from the service provider, as long as �innovations� are included in the contract and both parties work together to produce those �innovations�.

Five Outsourcing Trends to Watch in 2011

As 2011 unfolds, outsourcing analysts are forecasting trends in the market that will shape the industry through the coming year. One of the outsourcing industry's leading outsourcing advisors, Technology Partners International (TPI), shares some insight with their Top 5 market trends for 2011.

Harvey Gluckman, TPI Partner and Managing Director, says he's �confident that we've weathered the 2010 global economic challenges that influenced many CIOs' IT operational and capital investment decisions.� Here are the five market trends that TPI believes will influence company sourcing agenda this year:

Cloud Computing - Still unproven. Cloud commercialization still lacks standards, and this lack prevents big businesses from fully integrating Cloud technologies and solutions into their processes. Gluckman says, �With the exception of a few Cloud point solutions, Service Providers will have to prove its business relevance or the Cloud theme will evaporate in a slow death.�

Service Integration. As companies widen their use of multi-sourcing delivery strategies within themselves, the �air traffic controller� will become more and more important, says Gluckman. He explains that as companies seek the best practices in integrating and managing services, they will have more time and the corresponding resources to create and achieve goals of innovation.

Social Platforms. Gluckman says companies will most likely set aside a fourth of their operating capital for social networking, investing in business intelligence and analytics to mix traditional data sources with data generated by social networks.

Increase of Rural Sourcing from Weak Dollar. Business requirements will drive companies to look for nearshore and onshore locations in rural settings. The reduced difference between the U.S. dollar and foreign currencies in offshore destinations will make nearshoring and onshoring attractive.

Management Widens in Scope. Gluckman predicts that the number of companies relying on outsourced management services will increase, driven by expert assistance and to maximize outsourcing deals. As technology improves, companies will be able to manage service provider relationships at the macro level.

Six Issues to Resolve in Creating an Effective Outsourcing Strategy

Outsourcing strategies are difficult to encase in an all-encompassing template since outsourcing providers offer varied business functions, says SearchCIO.com. To create an effective outsourcing strategy, the website, which caters to the needs of technology managers and executives, offers six questions that can be asked during deliberations in choosing an outsourcing provider.

Choosing an outsourcing provider is critical, says SearchCIO.com, since companies re-negotiate outsourcing deals with their current provider 70% of the time. The website based their figures on a research done by advisory firm Gartner, Inc.

SearchCIO.com created the six questions with the help of Gartner, outsourcing advisory firm Pace Harmon LLC, and IT consulting firm TPI, Inc.

1. Can IT services be delivered following set rules and procedures?
IT processes that are transactional, routine, and simple can be outsourced, says TPI. The advisory firm compares IT processes to the left-brain and right-brain functions - those that deal with simple, process-driven functions can be effectively outsourced, while complex, concept-driven processes should be retained in-house.

2. Will the application be retired or is it being shifted to a Software-as-a-Service (SaaS) provider?
Service providers profit on optimizing applications, from which they benefit during the contract's duration. Outsourcing legacy applications that are near retirement will require premium prices, says SearchCIO.com. These legacy applications are either phased out, or shifted to being an SaaS application.

3. Is the application or IT infrastructure functioning normally?
Unstable applications or IT infrastructure are prone to being outsourced to experts. Pace Harmon LLC advises firms not to. �If it is something that can be fixed internally, you should do that first. The reason is that you don't want to outsource an operation that is hugely sub-optimized. While you are getting the benefit of wage arbitrage, you are not getting the benefit of the optimization, which will inure to the outsourcer,� the firm says.

4. Is the application properly documented?
A properly documented application does not need to be reverse-engineered, so the outsourcing provider can maintain the application and do further development. Proper documentation reduces the overall costs of the outsourcing deal, advises Pace Harmon LLC.

5. Will the team evaluating the application be affected if the application is outsourced?
Most outsourcing deals result to job losses or loss of managerial control, says Pace Harmon LLC, so there needs to be a lot of due diligence about the application. TPI recommends that Chief Information Officers (CIO) be as frank as possible.

6. Can your company efficiently manage an outsourcing service provider?
Managing outsourcing service providers must not be outsourced, explains Gartner. Companies can either immediately learn how to manage service providers on their own or hire another provider to manage outsourced services, the firm advises.

Keeping Clear of Four Common Outsourcing Pitfalls

The continuing economic downturn is seeing an increasing reliance on outsourcing, yet companies are still making mistakes in their outsourcing deals, reports SearchCIO.com, a website for technology managers and executives.

SearchCIO.com senior news writer Linda Tucci reports that for 2010, companies that outsourced IT work spent 7.1% of their total budgets for outsourced IT services. From 3.8% in 2008 to 6.1% in 2009, the data from advisory firm Computer Economics, Inc., on which she based her figures, are simply impressive.

In her report, Tucci interviews Steve Martin, a partner at outsourcing advisory firm Pace Harmon LLC. Martin was a former partner with Deloitte Consulting, where he closed $7 billion worth of outsourcing deals. He lends his experience to provide an insight into the four common mistakes committed in outsourcing deals.

Mistake no. 1: Relying on a single outsourcing provider.
Martin says �it takes two outsourcing vendors to tango to a competitive deal, even if one of them has only a 10% chance of winning.� Never forego the bidding � there are benefits to having two competing outsourcing providers bidding for a deal. Sole-sourced deals, meaning deals that didn't go through bidding, are usually priced at 30% to 40% above market rates, says Martin.

Mistake no. 2: Too much focus on cost.
A deal that works for both the client-company and the provider needs a thorough understanding of the real costs for a successful operation. Martin says budgets that are too tight cannot be expected to perform well.

Mistake no. 3: Imbalance in sharing information.
Martin says that in any IT outsourcing deal, all IT assets, i.e. PCs, servers, routers, printers, and facilities, must be brought to the table. However, current performance levels must not be disclosed at all, advises Martin. An outsourcing provider is supposed to offer a cost-efficient deal for your operations, not to cancel some of your current costs.

Mistake no. 4: Hasty deals.
Martin advises companies to keep the �losing� bidder around, since early low odds are founded on unfamiliarity, and usually not on anything else. The tables can turn around, says Martin � a bidder with a 10% chance can suddenly have a 40% chance, or higher, as talks go on.

Keeping Watch for 11 Trends in 2011

This year, we saw the global economy greatly affected by the effects of the U.S. recession. Outsourcing, though, continued to mature and develop, with the Philippines getting the top spot as the preferred global destination for outsourcing.

For 2011, Network World reports that the outsourcing industry will witness massive changes, from undervalued contracts to cloud computing woes. The publication, a member of the International Data Group (IDG), supplies �information, intelligence and insight� for network and IT executives.

Stephanie Overby, Network World's chief information officer (CIO), cites 11 outsourcing trends to watch out for in 2011:

1. Outsourcing goes micro. New buyers, who sat on fences watching the 2010 downturn, will now sign small IT services deals with service providers. In these �small� deals, providers will use the classic �penetrate-and-radiate� strategy to �enlarge� these deals.

2. Search for savings. With the economic downturn, network and IT executives will seek savings from their current outsourcing deals. Existing contracts will undergo scrutiny for under-deliveries and over-payments.

3. Cloudsourcing surge. Outsourcing consultancy Alsbridge says the outsourcing market will merge with the developing cloud sourcing market to �drive the rebirth of outsourcing.� The company notes the effect of Amazon, Google, and Rackspace, reducing the profits of industry giants HP and IBM. Legacy providers may react to this fusion either by merging with other providers or by acquiring younger companies.

4. CIOs face risks with back-door deals. Business unit heads will leave out IT executives in discussing and deciding about cloud computing and its services, secure in the fact that CIOs can solve issues later on. This scenario can create problems, especially if the CIO is unequipped to solve them.

5. Rise of �vanilla� packages. Customized packages will slowly be phased out, as clients start to accept standard, � vanilla� services, and providers being standardizing their offerings. Outsourcing consultancy EquaTerra says standardization may also permeate processes, technologies, and even locations.

6. Stable prices. Outsourcing service providers will no longer market themselves with lower prices, but will instead sell the quality of their service and their varied offerings. Customers will choose their providers based on delivery models, agreements, and other advantages to maximize cost savings.

7. East-West mergers. We may witness an Indian acquisition of an American company this year, industry experts say. Indian service providers are ascending the value chain to differentiate from other providers. As India focuses on consulting and integration service deals, their labor force is adding more skills to their offerings.

8. Shift to emerging economies. Brazil, China, and Egypt � countries with improving economies � are becoming choice destinations for service providers. Aside from cheap, skilled labor, their citizens have strong purchasing power, something service providers can also profit from.

9. Growth despite protectionism. The unemployment rate in the U.S. stays high in spite of government efforts to curb the worsening downturn. U.S. legislators are proposing protectionist policies to stem the overseas shift of American jobs. Indian service providers may react by acquiring an American company to improve their onshore presence.

10. Enhanced mass automation. To maintain cost savings and profitability, service providers will turn to automation. Technology can enable optical character recognition to replace human data processors, and even lights-out, employee-free delivery centers can be established instead of facilities teeming with human operators.

11. Offshore work migration en masse. As more and more work are shifted offshore, the technologies and methodologies supporting such gargantuan shifts are improving by the minute. Large numbers of skilled employees can be activated almost immediately for offshore delivery centers.

Managing a Successful Transition to Outsourcing

Outsourcing, as a business process, has been recognized by industry experts as a viable and strategic tool for companies aiming to be globally competitive. However, governments have varying degrees of support for the outsourcing industry and public opinion is still divided on the merits of outsourcing. Due to the relative inexperience of client-companies and their outsourcing providers in ironing out an outsourcing agreement, many partnerships fall flat on their promises of cost savings.

Dr. Stephan Meixner, director at Technology Partners International, Inc. (TPI), shares five (5) critical factors in building a strong foundation for a successful outsourcing transition. US-based TPI is one of the world's leading outsourcing advisory firms.

He shares the following tips:

1. Draw support for a �burning platform�. When there is a financial crisis brewing within the company, the industry, or the economy, people are easier to rally towards change.

2. Lead the leaders in an alliance for change. When people are rallied towards change, the alliance must be organized and led. Those who need to be particularly convinced of the initiative for change are senior managers and, most importantly, the chief executive officer.

3. Accordingly adjust the rewards system for senior managers with the initiative. Shifting to an outsourcing system can be accelerated when the rewards system for the company leaders are integrated with the objectives of the transition.

4. Make senior management aware of the intricacies of outsourcing and its realities. Awareness of outsourcing's pros and cons among senior managers is important in having a successful transition. Sharing of notes and best practices among new and existing outsourcing initiatives can help in spreading outsourcing know-how. This contributes to better management of outsourcing challenges such as recruitment, methodologies, cultural barriers, etc.

5. Create a robust project plan. A plan must be robust enough to cover project status reports, timeline of deliverables and milestones, budget requirements, and the projected risks and benefits. As early as possible, all company operations must be engaged with the transition. A plan professionally implemented communicates to all stakeholders that all their combined efforts are needed for a successful transition.

In summary, Dr. Meixner writes that �a change programme is only as robust as the skills of the team managing the process.� It is thus important that both outsourcing parties - the client-company and the service provider - are fully aware of the risks and challenges of outsourcing.

The Benefits of having a Sourcing Advisor

Exploring the BPO market in search for a service provider can be a long and tedious process. Your end choice has too great an impact to your operational capacity to be taken lightly. This is precisely the reason why relying on the services of a sourcing advisor can be highly advantageous. They bring you years and years of experience in negotiating with providers in the BPO industry. Alsbridge Inc. came up with a list of ways a sourcing advisor can bring you leverage:

1. Level Playing Field

Your exposure on the intricacies of the outsourcing industry is very limited. All the more, negotiating with service providers is not something you do on a regular basis and chances are, coming out of the negotiation phase successful is highly unlikely if you're not fully equipped with information. Sourcing Advisors are heavily involved in the field of outsourcing and they are up-to-date when it comes to the latest trends. In order to really get the best deal, it would be nifty to make use of somebody else's knowledge and expertise.

2. Improved Cost Savings

Cost savings is usually the primary motivation for outsourcing work to a third party provider. Surprisingly, you can further lower down your costs by seeking help from a sourcing advisor because he/she allows you to land the most optimal and cost-effective deal.

3. Shorter Negotiations

As you observe caution and engage in time-consuming research before signing any official agreement with a service provider, you expend time and money in this lengthy negotiation. While you can reduce costs by outsourcing IT services, you continue to finance your in-house operations and lose on opportunity cost. Sourcing advisors have an extensive knowledge on the industry and standard market prices; research has shown that sourcing professionals can speed up negotiation by up to 70%.

4. Sustainable Outsourcing Relationships

Apart from service definition and price level, there are other high-value advantages to hiring a sourcing advisor. In particular, they can help you end up with a sustainable outsourcing set-up. What happens for most outsourcing agreements is that internal circumstances change for your company after a year or two, and the agreement turns out to be irrelevant and out-of-date. Sourcing advisors ensure that there is flexibility to the agreement which can keep the arrangement updated and valuable even from a long-term perspective.

While there are a lot more reasons behind working with outsourcing advisors, all you really need to remember is that they negotiate to achieve the best terms for a living. Their unparalleled expertise and knowledge of the industry will indubitably help you through sourcing, negotiation, and on-boarding.

The 7 Commandments of Sourcing Negotiations

The two categories that need to be dutifully reviewed in any negotiation are business terms and legal terms. Business terms cover the terms of service, including payment and the set deliverables agreed upon. Legal terms discuss regulations like liabilities, warranties, termination of the agreement and service definitions. More often than not, both business and legal terms are stipulated in the Services Agreement.

Patrick Garrett and John Kitchen of Alsbridge Inc. shared 7 commandments that will be very helpful in any negotiation. Keeping these commandments will help in speeding up the process and coming out of it with pleasing results. Now, the 7 commandments:

1. DO maintain open communication at every step of the process - It is highly probable that you will be dealing with your provider for quite a long period of time after the agreement is signed and made official. It will be helpful to remain transparent about your issues and concerns during the negotiation process. You will find that most providers will be willing to go the extra mile to accommodate your needs.

2. DO relay your budget - The initial bid is essential when shopping around for a provider. It is precisely for this reason that you should relay your budget before anything else. That way, providers will be able to offer the most suitable set-up for your requirements, given your resources.

3. DO NOT share deadlines - Providers can stall and manipulate the situation to their advantage if you share your deadline. You can set target dates and on the occasion that you really have a tight deadline to meet, communicate an earlier date to your provider. Alsbridge advises on allocating a 4-6 week allowance.

4. DO share expectations - You should have expectations on service levels that you picked up from your research. Also communicate expectations with pricing because these terms are settled during the negotiation process.

5. DO share the Market Services Agreement - Legal firms provide a standard Market Services Agreement and providers should be able to agree on working with this document. Adjust terms to make the services agreement specific to your requirements and send a copy to your provider for their review. You can then negotiate on terms that should be aligned and arrive at a compromise.

6. DO seek third party counsel - Outside help from parties with strong sourcing credentials can be helpful; though this has remained to be a widely debated opinion. The answer varies on a case-to-case basis, depending on the industry you're working on and the current situation. It's good to note that sourcing advisors have a good scope of the market and their knowledge can offer you some leverage.

7. DO avoid gaming - Gaming is defined as controlling the situation to benefit your position through deceit. It can also mean suddenly changing your preferred terms after the agreement has been finalized. It is always best to keep communication lines open. Be transparent and honest to the service provider that you are working with because they are technically considered your partners in delivering your core competencies.

Risk Factors in Outsourcing Today

The risks and disadvantages of an offshoring platform are critical factors that must be accounted for during the development and implementation of the operation. A wide range of delivery models, varying in terms of risk, control, and cost, have been developed by service providers all over the globe. The different outsourcing strategies in the industry landscape today, alongside different kinds of data security needs, increase a company's exposure to risk when it comes to operational failure. As such, organizations must exercise due diligence in evaluating the downside of multiple delivery channels.

Indy Banerjee, Partner, TPI Cloud Computing Business Solutions, lists the top 5 risks that organizations should prepare for in order to ensure the success of an offshore operation:

Organizational. It is important to look into a company's internal processes because it may be the case that these are not flexible enough to adapt efficiently in the business climate in other geographical locations. This can pose a threat since conflicts and procedural issues may arise if a company's internal processes are not customized for global operations.

Programmatic. Can you maintain current enterprise and customer servicing requirements in a dynamic and global environment? Services, people, supplies, and other requirements that allow any business to run smoothly can be sourced from different channels. In this environment, it is essential to the financial viability of the firm that programmatic details are ironed out.

Domain. This area of concern deals with a firm's dependence on outsourcing and its detrimental effects on technological capabilities, operations knowledge, and intellectual property.

Delivery model. Is the delivery model utilized for business processes strictly in place? Is it well-faceted and reliable to endure the risk of outsourcing to a single geographical area? Over reliance on a single service provider and delivery model can potentially burden you with 100% of the business risk.

Operational. Are contingency plans and business continuity plans in place to make sure operations run smoothly in the event that unexpected pandemics or destructive natural phenomena occur? Operational plans have to include the occurrence of unplanned events because of the current ever-changing environment.

Preparation to safeguard your business against these risks entails a constant and consistent effort to adapt. A complete model that takes different global sourcing options into consideration including a risk management program can make a difference in securing the success of a globally operating offshoring model.

Industry Issues Tackled at International Outsourcing Summit 2010

Global Market Leaders Addressing Global Issues: Last October 26-27, CEOs and business leaders of the outsourcing industry gathered at Sofitel Philippine Plaza for the International Outsourcing Summit 2010. This was organized by the Business Processing Association of the Philippines or BPAP, the umbrella organization for the industry that the Philippines considers as the "sunshine industry".

In this two-day summit, senior executives were able to tackle the issues concerning the global outsourcing industry, and the challenges they have to overcome. As the industry faces more complex challenges, the time has come to converge and talk about the things that need to be done so the industry will continue to succeed and flourish.

Challenges in the Global Outsourcing Industry
Major global issues in different areas such as health services, business development, banking and finance, marketing, and talent acquisition were discussed in the summit.

On the first day of the summit, I was able to attend the CEO panel on addressing the challenges of growth and I got these insights from the CEOs and senior executives from major outsourcing firms Genpact, Infosys, JP Morgan Chase & Co., and McTranz:

    * Growing complexity of work needs innovation.
    * Be more nimble, global, and agile to meet the global challenges.
    * A major cause of stress? Expecting results out of people not rightly skilled
    * Key areas of strategic focus include: talent management and development, improvement of the regulatory environment, united focus industry-side to remove challenges and roadblocks, and break stereotypes.

Another noteworthy session is the academe panel on specialized talent and language acquisition. Based from the presentations of notable speakers, it all comes down to one thing: having a huge pool of available talent will not suffice. What is more important is to make sure that the workers have the knowledge/expertise and skills which are suitable for BPO work.

As BPAP's Executive Director for Talent Development Atty. Jamea Garcia said, talent is what drives the global outsourcing industry, but there are many things to be done to ensure that the available talent can meet the demands of the industry.

7 Trends to Watch in F&A Outsourcing

Along with the advent of BPO came the popularity of Finance and Accounting (F&A) Outsourcing. This is usually the first choice of offshore service for people seeking to reduce cost in back office functions. However, word on the street is that most business owners who have outsourced F&A tasks are not pleased with the services they have received. Alsbridge Inc. argues against this as they foresee trends that will increase F&A Outsourcing activity.

Increasing penetration. F&A Outsourcing has not reached all industries and there are a lot of avenues where it can still prove to be useful. Untapped fields like retail and investment banks and SMEs have yet to be included in the targeted market segments of outsourcing providers.

Up the value chain. Finance activities that can be outsourced are becoming more and more complex. Gone are the days when only simple bookkeeping and data entry tasks can be accommodated. Strategic audits, reports, and analysis are now being outsourced and the list of services under F&A Outsourcing is continuously growing.

Harsher competition. There is an increasing number of high quality service providers that choose to specialize in F&A Outsourcing. New entrants in India are changing the landscape and a lot of companies follow suit in employing innovation in their service offerings. Alsbridge predicts alliances to be formed as the industry reaches maturity.

Offshore acceleration. The industry has been totally redefined by outsourcing. It has been found out that 60% of global players outsource to India. It is safe to assume that in today's business environment, it is the norm to outsource finance and accounting functions.

Buy-side sophistication. A big percentage of firms that outsource finance and accounting activities are on to their second F&A deal. This implies that they are more knowledgeable about the market and they have preferences when it comes to service delivery models. A more informed market in a very competitive landscape increases the bargaining power of consumers, further resulting to lowering prices. Flow of deals in finance and accounting outsourcing is generally slow, except for some providers who take advantage of the situation and offer below market rates to attract revenue growth.

More F&A captive sales. More and more companies choose to establish an entire F&A team offshore. Divestments, however, are becoming more common as companies take advantage of the flexibility offered by outsourcing.

SAAS. Software-as-a-Service and cloud-based solutions are gaining influence in the industry. Software programs for finance and accounting used to be unaffected by technological advancement. This is currently changing because a number of suppliers offer standardized platforms for F&A services.

It is clear that the face of Finance and Accounting Outsourcing is developing to a more competitive segment. These trends show that the industry has not become stagnant and a lot of opportunities will keep growth and advancement at a steady pace.

Every Company Needs a Cloud Computing Strategy

Cloud Computing is regarded as an innovation in the field of information technology. However, according to a survey conducted by TPI, only 5% of companies invested on and created a Cloud Computing strategy when 20% of companies have resources to develop one. The population surveyed consists of 140 global IT decision-makers.

Preparing for the foreseen technologies that can affect business should be prioritized. Cloud Computing is expected to have a great impact on business practices and TPI urges companies to come up with a strategic plan to maximize its advantages. What follows are the top five reasons companies should develop a strategy in dealing with the cloud.

1.    iPad Effect on Business - The iPad has become a popular gadget that infiltrated the world of business today. While this phenomenon reaped revenues for Apple, it also showed the multiple avenues wherein Cloud Computing can be used. To avoid confusion or improvised management systems on Cloud Computing, strategic steps have to be formed and implemented so as to facilitate its proper usage.

2.    Cost Control - While the recession has passed, companies do not see this as a reason to keep decreasing expenditures to a low minimum. The survey showed that the primary reason behind the massive support on Cloud Computing is cost savings in IT.

3.    Pricing Confusion - The pricing structure for Cloud Computing is seen as a pay-as-you-go setup. While this is the case theoretically, it doesn't occur strictly in practice. The truth is, pricing and terms of service are different for various cases and needs. As such, it is of prime importance that companies take time in selecting the most optimal solution, while involving and preparing the entire organization for the process.

4.    Changing Landscape - Service offerings have altered and increased in variety with mergers and acquisitions in the works. New innovations in cloud-based services are causing clutter in the current landscape. A set strategy will help an organization filter options and providers in order to arrive at the best vendor and service model.

5.    Only the Beginning - Cloud Computing will be successful if it is managed with a centralized IT system that coordinates demand, capacity, and other essential factors. What helps in creating this system is planning in advance and strategizing even before implementation.

Striking a Balance between the Risks and Rewards of Outsourcing

Majority of business owners think that the best outsourcing setup is one that covers the least amount of cost. Alsbridge cites that this is not exactly the case. Outsourcing should be focused on the long-term value of the contract and how it meets overall business objectives instead of solely on operational expenses. For this, Alsbridge shares five points that companies should keep in check in evaluating the coherence of an outsourcing setup with organizational goals and strategies.

1.    Contract Terms - An agreement in form of a contract is binding and enforceable. Thus, one should take the time to review and understand the terms of an agreement. The service definition, terms for payment and termination, and governance are some of the most essential areas in a contract. Due diligence in evaluating these details can go a long way.

2.    Statement of Work (SOW) - This is expected to provide a precise and transparent definition of service that can be expected from the service provider. As far as responsibilities and roles are concerned, SOW also applies to the client performing his end of the bargain. Specified market-based �towers� to organize the SOW was proposed by Alsbridge. For instance, these towers are Server Management, Contact Center Management, Applications Development, etc. This classification of services or SOWs allow for easier comparison of providers. Also, you will be able to easily determine the actual cost of services per contract term.

3.    Service Levels - The Service Level Agreement outlines the terms of service of your provider. The terms and clauses in this contract are directed to protect your interests by ensuring a commitment from your provider. This commitment covers the promised deliverables and the quality of output agreed upon.

4.    Transition and Transformation - A description of the transformation across goals and milestones should be clearly articulated in documents at the onset of the agreement. This should address concerns such as turnover, objectives, roles and responsibilities, change management, status reporting, contingency plans, and staff policies.

5.    Pricing - As you get accustomed to an outsourcing setup and as you reap its profitable benefits, the cost of outsourcing will generally decrease over time. When starting out with this business solution, it is best to contract a provider with quotations that are based on market prices. This conveys the idea that your deal with your provider is one that is safe and reliable.

On Legislations Set to Limit Outsourcing

There have been proposals raised within the US Congress that are aimed at controlling the advancement of offshoring because of its purported negative effects on the local economy. As the midterm election campaigns are coming up, it has been revealed that action plans on offshore outsourcing is an important issue to voters. According to the NBC News and Wall Street Journal Poll, 68% of the population think that most US companies outsource business to lower-wage countries.

Even with the public view on outsourcing and its vast influence as a disputed business trend, the bills that seek to limit offshoring are hardly ever successful in changing the way the industry stands. Patrick Thibodeau of Computerworld enumerates the primary reasons:

1.    Offshore teams can work their way around new laws. A bill that caused a $2,000 increase in the application fees of H-1B visas was recently approved. This increase applies for companies with visa holders comprising half of the total manpower pool. An Indian company denounced the bill and said that this mandate will not change their strategic plans, despite the additional expenses. The higher visa fees will cost the said company approximately $15-20 million and its management said that this expense is �manageable�.

2.    Congress is not expected to enforce the �50-50 rule�. The bill that offshoring companies fear the most is the bipartisan proposal from US Senators Grassley and Durbin. This legislation proposes that the H-1B or L-1 visa holders in a company should make up half the total number of employees in that company. Outsourcing firms take different sides on this issue - while some think that this will not affect offshoring activities, some companies expect to hire less employees from offshore locations. A number of firms see this mandate as an opportunity to increase the scale of hiring locally because of the cost savings on visa application, allowance, and transportation costs.

3.    Exports and trade matter. Ohio Governor Ted Strickland recently signed an agreement that would encourage the influx of offshoring firms and employment opportunities for non-locals. This agreement with an Indian firm is valued at $108,000 and promotes Ohio as a prime destination for foreign direct investment, according to the source of Computerworld. Strickland seems to be continuously shifting sides when it comes to his stand on offshoring, but when asked about his position on the matter, he said, �We are very well aware of the importance of trade and we highly value our trading partners. Ohio firms sold $381 million in goods, principally machinery, aircraft, and medical equipment, to Indian markets last year."

4.    The outsourcing trend is not likely to be changed by any legislation. A lot of offshoring companies are rapidly expanding in operational scale, boasting of double digit growth rates and continuous employment activities. It is safe to say that the trend on offshoring will not dwindle any time soon because the industry will always find a way to strategically adapt to legislations that causes a rise in its costs.

5.    Trade agreements are being worked out by the federal government. US and Indian negotiators are conceptualizing a totalization agreement that would exempt Indian firms from paying Social Security and Medicare taxes for temporary visa workers. This would reduce the expenses of H-1B workers by 14%. Any increase in the application fees of H-1B visas can be neutralized by this law that brings down the total cost of hiring offshore.

Offshore Outsourcing: A Popular Choice as Business Strategy

The recession that hit the global economy is increasingly putting pressure on companies to reduce costs without compromising high standards of quality and operational efficiency. This is the primary reason for the fast rise of offshore outsourcing as a solution to business needs. Among the advantages of outsourcing is the possibility of acquiring staff with technical skill levels and specializations for a lower cost compared to hiring someone domestically.

Harvey Nash, a UK-based staffing and managed services firm, conducted a global survey of Chief Information Officers (CIOs) that confirmed the growing demand for outsourcing. Close to 3,000 executives were surveyed and the findings are summarized below:

The vast majority of the CIOs surveyed, a whopping 90%, revealed that they are increasing their budget for outsourcing in 2010 and 2011. Thirty-six percent (36%) of CIOs explicitly stated that they are increasing their budgets for offshore outsourcing for year 2011.

On IT Outsourcing, 62% of the executives surveyed outsource software application development. The other services that are experiencing high demand are software maintenance and IT infrastructure services, both at 53%. Systems Integration services followed with 22% in demand, and the last two are BPO and HR BPO. What's interesting is that six percent of the population surveyed outsource their entire IT Department offshore.

Close to half of the CIOs surveyed, 48% to be exact, reported to be spending 10% of their total IT budget on outsourcing. This suggests the significant role of IT and its dominance in outsourcing.

While everyone thinks India is the top outsourcing destination in the world, their hold of the market is waning and Eastern Europe is making its way in hogging the spotlight. It has been revealed that more than one out of 10 CIOs outsource services to Eastern Europe. Vietnam, China, and the Philippines are also destinations that have made a well-regarded name for offshore outsourcing.

The top three issues that concern CIOs and IT executives are the following: operational efficiencies, cost savings, and improving business practices. Seventy percent (70%) of the surveyed executives ranked these factors as high priority.

Skills that observe the highest demand are closely tied between 35% to 44%. These are: business analysis, project management, business relationship management, and architecture. Between 21% to 28% are IT strategy, development, testing, and services management skills.

Service models are also growing in variety as companies seek to improve the dynamics between onshore and offshore operations. As this trend continuously takes over business practices around the globe, a very important undertaking is maintaining open communication lines and a healthy relationship between service provider and client company. Despite the benefits of offshore outsourcing, a shortcoming on this end can lead to higher costs incurred or even monetary loss due to ineffective efforts.

Top 5 Tips to Have a Healthy Relationship with your Service Provider

Outsourcing can only be an effective business solution if you select the right service provider who can offer the appropriate service delivery models for your needs. Contracts and services agreements between you and your provider cannot take the place of a healthy relationship where you see eye-to-eye and understand each other's concerns. Here are Top 5 tips from TPI Senior Advisor Rainer Bl�tling that can help you achieve a profitable partnership with your service provider:

Communication should be consistent. Ease of communication is one of the most important criteria that will help make a healthy relationship. This will allow your provider to have a clear understanding of your needs. It might be useful to appoint someone who will be constantly in touch with your provider and who will remain updated throughout the entire outsourcing process.

Effectiveness in maintaining relationships should be supported with training and organizational development. Business practices and processes are constantly changing. Companies should keep on their toes in terms of staying up-to-date in order to understand and positively relate with their service providers. Learning how to be effective in relationship management can lead to significant change in your interaction with your third party partners.

Build a trust-based framework for addressing future challenges and opportunities. A relationship typically goes through road bumps and in maintaining a buyer-supplier relationship; thus, it will be good to set a framework that will allow you to handle challenges that can cause inefficiencies and losses.

Develop effective measurements to establish a balance between mutual behaviours and benefits. It is far easier and more efficient to manage a relationship based on objective standards, rather than going by feel or perception. Status updates and service reports should be timely delivered so expectations are set straight. Also, a �balanced scorecard� approach should be implemented to support a healthy exchange.

Assess, plan, and manage risks. Anticipating and evaluating risks will be beneficial to you and your service provider. Bringing this to the table early on will allow both parties to address the concern to avoid risk and threats, as well as prepare for �damage control� in case it ensues.

Top 10 Forces that will Impact the Future of BPO and IT Outsourcing

Gartner Inc., one of the most prestigious IT research and consulting firms in the world, recently came out with their analysis on the factors that set the course of the IT services and outsourcing industry. Gartner Research Vice President Benjaming Pring says that there exists one common set of technological forces and market principles that all players and parties in the IT services market deal with. These technological forces have been said to continuously change the industry landscape:

1. Hyperdigitization - This can be seen as the growing influence of digitization in the global economy. Digitization is the representation of products and services that are digital in form. This has made information easily transferable regardless of geographical location; thus, it is expected to develop rapidly and in 10 years, constitute 25 percent of the global gross domestic product.

2. Globalization - Globalization has changed the business practices and service delivery models within the IT industry. This force has changed the lives of the global business sector and everything else they interact with. Anyone who does not want to stagnate and get left behind should acknowledge, embrace, and take part in globalization. IT ought to see the world from this perspective so technologies can be used for greater efficiency and the global workforce can be tapped into for innovation in products, services, and processes.

3. Consumerization - �Consumerization will dictate IT access standards.� Consumer-oriented technologies have altered the lifestyle and behaviour of consumers. The effects of consumer behaviour can heavily impact and ultimately reshape the development of enterprise IT. As such, enterprise IT strategies should be aligned with the buying behaviour of consumers in order to create technologies, products, and services that address their needs and adapt to their lifestyle.

4. The Cloud - Cloud computing, according to Gartner, is "a style of computing where scalable and elastic IT-enabled capabilities are provided 'as a service' to external customers using Internet technologies." Specialized needs in IT can now be supplied by third party providers in a manner that is standardized and less costly in terms of capital investments. The main advantage here is that buyers can focus on the services that are provided to them, instead of the support and management of physical infrastructure.

5. Intelligence Technology - IT should be developed and utilized to advance business operations, to acquire opportunities for growth, and to improve the service and procedures within an enterprise. The current focus of IT is in �business intelligence, analytics, pattern recognition, and smart solutions.�

6. Security and Privacy - The availability of information and rapid digitization has led to increasing cases of privacy infringement and likewise, the need for security against hacking activities and identity theft. Levels of security within Internet activity should be improved in order to further maximize the advantages of IT and to ensure the development of its use.

7. Compentization - IT has allowed for the conception of �reusable objects�, also termed as �prebuilt IT components�, that people can access and use instead of starting from a clean slate.

8. Hypercompetition - Hypercompetition occurs because technology has allowed vast information access and a lot of other factors that influence buyer decision-making. While competition drives better quality at lower costs, the downside for suppliers is that the differentiating factor they create can be easily outperformed. This creates a fast-changing buyer market and an ongoing challenge for suppliers.

9. Value Chain - The delivery of IT services is directly impacted by service value chains. Gartner recommends business owners (and the rest of the IT outsourcing consumer market) to evaluate their service provider's value chain. Providers themselves should examine the value chain of other industries to come up with innovation.

10. Hyperverticalization - Movement towards further specialization of vertical service processes is said to be inevitable in the IT industry. While this may cause market fragmentation, this is also likely to lead to �vendor-led innovation� and improved services for consumers.

Allie Young, vice president and analyst at Gartner, says business owners should take advantage of the opportunities for innovation and service line growth that can be brought about by these forces.

Six BPO Lessons from IT Outsourcing

IT outsourcing has developed into a comprehensive field, offering a wide array of services to cater to the different needs of today's business world. With the growth experienced by this field, Gartner says BPO can learn a thing or two from IT outsourcing. Ian Mariott of Gartner cites six things IT outsourcing can pass on to BPO:

1. Look at BPO from a long-term perspective. Outsourcing has become a worldwide phenomenon that most business owners resort to because of the supposed cost savings that outsourcing provides. While reductions in operational costs are attractive, you should take account of more important factors such as client-provider match and the long-term effects of outsourcing. Before you dive into the waters, Gartner suggests that you take time to assess your outsourcing objectives and consider drafting a long-term plan. This will maximize the advantages you can get out of outsourcing as your offshore team grows with your organization.

2. Communicate requirements clearly. You should always make sure that goals and expectations are crystal clear because miscommunication with your provider in this regard can cause irreversible problems and lost investments. To facilitate better understanding, it will also be helpful to communicate all your concerns including the objectives of your company on a whole.

3. Consider different providers and delivery models. Do not limit your options to the service delivery models that you know or to the local service providers that you think will be more convenient. Take time to research on delivery models, and explore your options with different providers from different parts of the globe. Know that you have plenty of possible routes to take in reaching your desired outcome.

4. Choose deals that are flexible and can respond to the market's changing demands. The world business environment is rapidly changing and your needs are likely to shift with it. When securing a deal with your provider, check on the duration of the contract and ensure that it allows for flexibility. The article proposes an action plan that can help in this issue: assess your requirements regularly (on a specified time interval) and craft the next steps while accounting for pricing flexibility.

5. Business Process Sourcing Management - Sourcing Management Techniques always reference to the current needs of your existing team, and the factors considered for IT outsourcing should be identified from those of BPO. Identifying these factors will make sure that the sourcing process results to a spot-on solution for your needs. Sourcing management should be made in light of the needs of BPO and Gartner deems it would be helpful to involve all interested parties in the sourcing strategies through the duration of the project to keep interests and goals intact.

6. Build a partnership based on trust. You should consider your service provider not only as a means to cut costs but as a partner in your efforts to maintain and develop your business. A high degree of trust is required in this partnership and keeping your relationship strictly formal can cause problems that will make outsourcing difficult and eventually unmanageable. When seeking to venture into BPO, Gartner says that determining the importance of trust and control factors with all the parties involved - your company, your service provider - would greatly contribute to the success of outsourcing to service providers.

IT Offshoring Losing Pace

A new survey by Everest Research indicates that global IT outsourcing and offshoring may not quite be at full recovery yet. The study showed that after a growth spike in the fourth quarter, the pace of global outsourcing has been slipping.

The quarterly survey by Everest Research uncovered a contraction in the value of new IT outsourcing and offshoring contracts, having returned to their normal pace in June after experiencing a growth peak in the previous quarter. The total value of new IT outsourcing deals is down from $2.8 billion in the March quarter to $1.5 billion in June.

Despite performing weaker than expected, analysts believe that the signing of new deals is perceived as a positive forecast to revenue growth in the remaining quarters. Last quarter's performance saw some of the highest rates in terms of new contract addition which was followed by a healthy performance in June.

The survey reveals a declining value for purely IT contracts having gone down 46%. A 25% decline can be seen even when comparing this year's performance to the same quarter last year in which the recession was reaching its heights. At the time, the value of global IT outsourcing and offshoring contracts was at $2 billion and dipped to just $1.3 billion in the December quarter.

Although India accounts for 60-65% of the global IT outsourcing market share, the study indicates that the decline was owed to a large extent to the depreciation of European IT and BPO (business process outsourcing) deals. The total value fell 41% during the June quarter compared to the same period last year. Rounding the top 8 firms with the most number of deals signed last quarter are Infosys, TCS, and Wipro.

�IT outsourcing is more dependent on discretionary spending by companies; for example, to expand their operations; but BPO tends to be more basic,� commented Everest Group vice president Amneet Singh. He further explained that the growth in BPO outsourcing has become directly affected by the need for recession-impacted companies to cut costs throughout the last two years.

�If you want to show an immediate reduction in costs, in two quarters or so, it is easier to do it by outsourcing business processes,� Singh said.

Global outsourcing and offshoring in June saw a third consecutive decline in the size of new contracts. BPO contracts slipped to an average of $3 billion between April and June compared to about $4 billion in new IT contracts in December.

10 Steps for Successful Web Development Offshoring

Don't have an in-house web development team that you can count on to build that perfect website? Whether you're looking to improve an existing online endeavor or build a new one, prices can be high and skills hard to find. Offshoring web development is an ideal solution to gain access to experienced web development experts at low costs. Here are some tips to get you started:

1.)    Research beforehand � It is always a good idea to first evaluate your options. This will allow you to accurately define your requirements. Take the time to learn about what works and what doesn't and the technology available that will help you achieve your goals.

2.)    Be specific � The more details you outline regarding what you want and what your expectations are, the more time and money you will save in your offshoring venture. Take time to figure aspects regarding design, functionality, marketing, and maintenance.

3.)    Look around � The web development offshoring industry is littered with providers and freelancers offering their services. Gather a comprehensive list of quotes that offer both affordability and service quality.

4.)    Evaluate their work � It's always a good idea to look through the portfolios of your prospective offshoring providers. Be on the lookout for the quality of the backend functionalities of some of their websites.

5.)    Clearly define the goals and costs � It is important that your offshoring project runs on a clearly defined schedule from the start of operations to project sign-off.

6.)    Inquire about customer support � Many are quick to overlook the importance of the ability of an offshore web development firm to provide customer support. This involves training you to update web content on your own and providing a point person that you can contact if problems occur.

7.)    Plan your marketing approach � A good site is not very useful if it doesn't draw any traffic. You need to make sure that your site is created with search engines in mind which, in most cases, can cost you more than you thought.

8.)    Establish the owner � A common mistake is not securing the intellectual property rights of your project before offshoring. It is important that you outline who owns the domain name and your control over the backend.

9.)    Document the project � Every step of the project that is taken towards completing the set goals under the set timeline should be documented for monitoring.

10.)    Be prepared for obstacles and delays � Always be ready for the unexpected as complex development projects will always come across technical problems or bugs.

RP BPO Execs Share Optimistic Outlook

A recent study by BPAP (Business Processing Association of the Philippines) and Outsource2Philippines reveals that companies in the Philippines' offshoring industry are optimistic regarding growth patterns for the coming months. The companies surveyed indicated that they believe their business will grow substantially. The study also indicates that the industry's suppliers are continuously shifting from voice-based offshoring to more knowledge-intensive services. The survey conjured by BPAP and O2P showed that among the only concerns from the otherwise bright outlook is the shortage of qualified resources in the nation's labor pool. The issue has proven as the main concern for companies in previous surveys that BPAP has conducted as well.

According to the study, the Philippine outsourcing industry's top decision-makers are upbeat regarding its political environment. This comes on the back of successfully held national elections in May which respondents claimed had a positive impact on the confidence of clients and investors (more than 80% of respondents indicated that the smooth transition had a positive effect on investor perception). Following the successes of the former president in developing the local BPO (business process outsourcing) industry, the majority of respondents are anticipating an even more successful working relationship under the helm of President Benigno Aquino III.

Among the offshoring companies surveyed, 65% of them stated that they expect their company will grow by six to 50% during the next 12 months. Meanwhile, another 15% indicated that they expect their companies will grow across a range of different sectors - likely a sign of the continued growth of the offshoring industry outside of contact center services.

The Philippines faces a growing list of competing offshore outsourcing destinations. Forty percent of respondents of BPAP's survey believe that increasing competition is a major concern. Among the nations posing an increased threat to the Philippines' market share is Central and South America, Egypt, China, as well as eastern European entities such as Poland.

Despite developments in competing locations, the majority of the industry's representatives feel that the Philippines' main threat lies within its own borders. Close to half of the total respondents listed the shortage of knowledge workers as their biggest concern.� Currently, only 5-10% of applicants of open positions in the industry are considered for hiring - a trend that executives hope will change.

The next concern for offshoring companies is the ability to retain middle managers with over half of survey respondents listing it on their top three biggest issues affecting their growth.� Resolving both the middle managers and labor pool issues will prove critical as the industry wants to grow in providing more complex services.

Asia-Pacific Outsourcing Lagging Behind on Mega Deals

It seems that Asia-Pacific will need to acquire contracts that are worth at least USD 8.7 billion in outsourcing deals in the second half of this year in order to eclipse last year's performance. Asia-Pacific recorded just USD 2.3 billion at the end of the first half according to a recent report. The lack of outsourcing and offshoring deals known as mega deals that are worth over USD 200 million has resulted in a reduced TCV (total contract value) for the region for 2010.

TPI Index Asia-Pacific reports that the $2.3 billion worth of contracts in 2010 thus far is down from the $3.1 billion reported at the same point in 2008, and the $5.5 billion reported in 2009. The total is also below the average of $3.79 billion during the last 10 years.

According to the report, the cause of the decline can be traced to the unusually sluggish performances of vertical markets in financial services, manufacturing, telecom, and media. Only one deal valued over $200 million was signed in the region during the period.

TPI predicts that the region faces a steep climb in order to make it to $11 billion and be at par with last year's performance. This will require attaining contracts worth more than $200 million. According to partner and director of TPI North Asia, Michael Rehkopf, its offshoring industry needs to produce a record US$8.7 billion TCV in the second half of 2010.

The report indicates that 83% of the contracts awarded during the period were valued at less than $100 million - up sharply from the 71% in 2009, 72% in 2008, and just 64% in 2007. IT outsourcing saw the biggest decline with a $6.6 billion deficit in TCV compared to levels in 2009.

TPI reports that 18 business process outsourcing (BPO) deals were inked throughout the first half of this year, which represents close to 80% of last year's total. Despite the number of small contracts, the region is ten deals away from a record number of BPO contracts.

Telecommunications contracts have continued to contribute to the rapidly growing outsourcing and offshoring market in China and India.

�Australia and India were reported as the top two in terms of TCV market share with India accounting for 32% of the overall TCV (excluding mega deals). Australia topped India having recorded a 42% market share. TPI's study shows that businesses are looking to solutions such as cloud computing with 140 IT executives globally claiming they had plans to implement it in the future.

Study Suggests Outsourcing is still in its Infancy

In a recent global study by ESI International on the effectiveness and best practices in risk management by companies involved in outsourcing and offshoring, the results reveal that most companies in the industry are unaware of how to effectively manage the risks involved in outsourcing/offshoring projects. Of the 95% of the organizations found to be engaged in outsourcing activities, less than half utilize effective risk management practices.

According to a survey in the report, 70% of respondents indicated that product management or service quality is the top risk to organizations involved in outsourcing and offshoring. The survey gathered responses from decision makers in the outsourcing industry and governments in major outsourcing locations (South America, UK/Europe, Asia/Pacific, the Middle East, and India).

�The ubiquity of project outsourcing creates opportunities for, and demands on, organizations to better develop and refine their outsourcing competencies,� commented ESI International's vice president of product strategy and management, J. LeRoy Ward. �The results of ESI's global survey indicate areas for greater performance, productivity, and competitive advantages through better risk management.�

The results reveal a need in the industry for organizations to rethink risk management approaches in order to capitalize more effectively on the profit margins to be had by outsourcing projects. With close to two-thirds of organizations spending almost half of their budgets on outsourcing, it is clearly something that merits closer scrutiny.

Of the organizations surveyed, 19% claimed that their organization is not very effective at assessing the risks of outsourced projects and another 36% said that they were only somewhat effective. Of the respondents, only 39% of the respondents were confident that their organization had a strong risk management culture.

Managing outsourcing risks is a critical part of ensuring successful outsourcing partnerships - especially in locations where IT infrastructure is not up to par and with service providers that are not 100% transparent about prices and contract agreements. As such, shortfalls in effective requirements management and development must be addressed.

According to the study, 75% of organizations don't always clearly define requirements of outsourced projects. Clearly defining your requirements is always the first step of the outsourcing process and thus serves as the foundation for successful project management. Despite this, only a third stated that their organization clearly articulates and defines financial goals to their outsourcing partners.

With over half of the organizations acknowledging a need for improvement in their outsourcing capabilities, there is clearly much more growth to be had in the industry should these pitfalls be addressed.

IT Offshoring: the Risks and the Alternatives

The offshoring of IT operations has become a trend among companies worldwide in both the public and private sector. Offshoring is a process that, if done right, can yield maximum returns on investment for both the client and service provider. As with any corporate endeavor, however, there are pitfalls that companies need to be aware of and avoid in the process of establishing a successful outsourcing operation.

IT outsourcing has long been a way to cut costs - especially so given the financial limitations in struggling economies undergoing a downturn. Businesses of all scales worldwide are searching for a means to cut costs. Offshoring has become a means to not just reduce costs, but maintain a high level of service - if not higher - than was established beforehand.

�In-house IT management is complicated, time-consuming and requires the finance, resource, and capacity that businesses, especially following the recession, simply don't have - something which is not set to change any time soon,� commented Onyx Group CEO, Neil Stephenson.

A company that removes a process that unnecessarily consumes such an amount of time and resources can stand to steer the course of the company towards core goals. However, before such a direction can be taken, all risks and the alternatives need to be analyzed.

Assessing the risks and considering the alternatives are, according to outsourcing expert, Iain Monaghan, inevitably linked together: �Some organizations looking to outsource give their existing in-house departments the opportunity to put forward a competing bid, while others conclude that the benefits available from outsourcing could be obtained more economically by changes in internal processes; for example, increased standardization.�

IT outsourcing is still a rapidly growing trend in major offshoring countries such as the UK despite the many traps that companies tend to fall into during the process. Analysts predict that outsourcing has yet to experience its �golden age�. With figures indicating that approximately �80 billion of public sector services in the UK are currently outsourced - a figure that could well exceed �140 billion by 2015 - the prediction holds much weight.

According to Monaghan, the success of an IT outsourcing partnership can be measured by business value and customer satisfaction. He further adds that customers expect improvements in both the quality of services and its costs.

The popularity of IT management outsourcing has far-reaching implications and presents small-to-medium businesses an opportunity to purchase high-end services at minimum costs.

Offshoring Companies Expand as Economies Recover

As the global economy recovers from last year's recession, the outsourcing and offshoring market has witnessed increased activity as indicated by the latest report from the Everest Research Institute.� According to Everest research director Anand Ramesh, where once the growth of offshoring slowed down due to financial reasons or a lack of management focus, it is showing signs of total recovery.

Throughout the course of the recession, offshoring clients in the U.S and other major locations became much more focused on cutting costs.� According to Ramesh, this remains true in today's context as more companies look to offshore work that was once being outsourced to local suppliers.

However, according to Ramesh, more companies that were once alien to the industry are looking at offshoring as a viable option in locations such as the Philippines and India. This has coincided with what Ramesh perceives as an increase in the credibility and scale of offshore suppliers in major offshoring destinations such as India.�

The report by Everest group reveals that many of the Business Process Outsourcing (BPO) industry's current buyers have plans of expanding aggressively. This claim was backed by data showing that 75% of small and medium-sized companies engaged in offshoring plan to expand their offshore outsourcing operations by over 500 full-time employees in a span of two years. This trend is also seen in large offshoring companies with 90% of the population claiming they had plans of expanding operations by over 500 FTEs as well over the next two years.

Everest defines small adopters in the offshoring industry as organizations that have less than 500 FTEs working offshore. Medium adopters refer to organizations that have 500 to 2,500 FTEs offshore whereas large adopters are organizations with offshore FTEs that already number at over 2,500.

According to the report, India remains the number one offshore location for outsourcing with over 70 percent of buyers in the industry revealing plans to expand in the country. The report also indicates that while India is the top choice, companies are showing a tendency to spread risks by not sending all their work to a single location. The Philippines and China are two alternate locations with a good portion of companies showing interests in expanding to them as well. However, according to Ramesh, China mainly offers BPO services to neighbors such as South Korea and Japan. Meanwhile, Malaysia, Brazil, and Mexico are three other locations that have invited a significant amount of interest from companies looking to expand offshore.

BPO Sectors Suffering from Stressful Working Conditions

Offshoring in the Business Process Outsourcing (BPO) industry has been the focal point of economies of many Third World countries. India alone employs one million people in its BPO sector. While they may be able to pay a reasonably good amount to locals in such economies, the industry has much to do in order to improve stressful working conditions. Such was the verdict of a study which was recently released by the International Labor Organization (ILO).

Among the advantages of offshoring work, particularly to cost-effective locations such as India and the Philippines, is the ability to set up a 24/7 operation due to the time zone differences. Companies from the US and the UK have outsourced services that have allowed for much higher paying jobs for these locations. Indian BPO workers, for instance, receive a salary that is close to double the amount in other sectors of their economy. Meanwhile, the BPO employees in the Philippines have salaries that are higher than that of other sectors by 53%. However, the survey by ILO has given truth to concerns over stressful working conditions from trade unions and social workers in India.

According to the study, workers in the offshoring industry are faced with heavy workloads, strict procedures enforced through electronic monitoring, and for customer service agents, difficult clients. According to Anna Fos, head researcher at the Trade Union Congress of the Philippines, efforts by trade unions in both the Philippines and India to introduce collective bargaining have proved fruitless.

"We have not had any success in introducing collective bargaining in call centers and other BPO companies in the Philippines," Fos said. She added that one of the main reasons for this is the ease of which BPO workers are able to switch from one employer to the next should problems with their current employer occur: "They will not come to us, if there is a problem, as there are lots of jobs available", she commented.

Despite the working conditions of such offshoring outfits, analysts believe that employers have generally shown a lack of interest with regards to joining trade unions due, among other things, to fear of reprisals from their employers.

ILO's study, which has shown high rates of staff turnover in the BPO industry, suggests that the working conditions endured by BPO employees represent a �tailor-made recipe� for hazards related to stress. Turnover rates have peaked at 100% annually in certain offshoring companies - representing one of the industry's major concerns.

NFFAA Speaks Out Against Schumer Bill

A recently proposed anti-offshoring bill by US Senator Charles Schumer has recently come under criticism by the Filipino-American community. The Schumer Bill, which enforces taxes on businesses that practice offshoring, could hinder what's been known in the Philippines as its sunshine industry. Filipino-American community members recently visited the capital in an effort to voice their opinions regarding the bill.

The Schumer Bill, which puts a 25-cent tax on every call made to a contact center based outside the US, was proposed with hopes that offshoring customer calls to offshore agents will ultimately cease to become the most cost-effective option. Should a call be answered offshore, the bill mandates that the agent state the location from which the call is serviced. India and the Philippines, which enjoy the majority of the global contact center outsourcing pie, have players in their respective economies that will stand to lose most should the bill be enacted.

NaFFAA (National Federation of Filipino American Associations) member Loida Lewis reportedly told the Asian Journal that Sen. Gillibrand has agreed to speak to Sen. Schumer in an effort to convince him of the negative impact of such an act. The NaFFAA reportedly sent a letter to the senator claiming that the bill was not in the best interests of the long-standing mutual relationship between the US and its former colony.

Philippine Trade Commissioner and California resident Josephine Romero was quoted as saying that American citizens are �fighting the highest unemployment rate in California�. The decision regarding the anti-offshoring petition, she added, should be left to the companies themselves because they are accountable for their shareholders. The companies, she continued, have a duty to examine the effect of a tariff on customer service and its effects on a company's ability to provide quality customer care services.

Outsourcing companies based in the US have also opposed the bill, claiming it is an act of protectionism. Hit Rate Solutions operations director Adam Shore commented that the bill showed �no clear understanding of outsourcing or business operations�. He further added that it can potentially hurt global firms not just in the US but around the globe as more and more outsourcing locations have developed following the rapid growth of the contact center outsourcing and offshoring industry.

According to Shore, Schumer may not be aware of just how dependent companies small and large have become on offshore service providers that can now offer a seamless customer service experience at significantly lower costs.

Trends Shaping the Offshoring Industry Today

A continuously maturing global sourcing arena has caused the creation of a dynamic marketplace with changes in buyers' needs and demands. These changes can have a severe impact on the need for next generation characteristics in today's global service delivery models. These are furthermore marked by globalized approaches, industrialized delivery, and a growing global talent pool, reported Everest Group, a major global outsourcing and offshoring research firm.

Companies that have invested in offshoring have, over the years, realized that actual savings were not as high as initially projected. Costs can come great from cultural gaps and communication issues that directly impact the turnaround time as well as the quality of the end products. Furthermore, the synergy between the offshore team and the company can be lost due to management deficiencies.

Following the evolution of the offshoring industry into a more complex and sophisticated space, its service providers are required to look for a means of servicing the progressively higher professional needs of buyers that have gone far beyond mere labor arbitrage. Emerging as key factors on offshoring delivery redesigns worldwide are things such as operating model, talent management, and a good location portfolio.

These are the topics of a new global outsourcing and offshoring study conducted by research giant Everest, entitled Global Sourcing 2.0 - Evolving Global Delivery Imperatives for Outsourcing Service Providers.

The research group's report on global sourcing gathers analyses on global delivery trends of all leading global service providers involved in offshoring. This is further supplemented with discussions with India's buyers, services providers, and the group's experience in serving the global sourcing industry.

�The evolution of the supplier delivery models is evident; more so with the industry dynamics to remain high on growth requirements, even when faced with an extreme competitive environment. As the buyers' sourcing strategies and engagements mature, service providers are re-thinking their global delivery models to meet evolving buyer requirements related to location risk diversification, location-agnostic & consistent delivery experience, faster and lower cost transitions and deep domain expertise,� commented Everest Group Vice President of Research Amneet Signh.

Meanwhile, Guarav Gupta, Principal & Country Head of Everst Group, believes that understanding such trends �holds importance for service providers and buyers alike�.

�While it is critical for service providers to be aware of these imperatives and prepare to compete with the changing market paradigm, buyers need to incorporate and leverage these next-generation global delivery characteristics in their decision making to drive improved value from their sourcing programs�, said Gupta.

The Benefits of Bookkeeping Offshoring

Bookkeeping can sometimes be hectic and can be very demanding mentally. The level of expertise is always high when it comes to putting in timely and accurate work in various types of account books for an organization. It is therefore an ideal solution to seek the assistance of experienced professionals who know how to consistently deliver the right results. However, the procurement of reliable specialized services is not only hard to find, it's not kind to your bank account.

Technological advancements have made it possible to offshore bookkeeping work. Advancements in the service delivery capabilities of service providers have made it possible to do so without compromising the quality of work. Bookkeeping offshoring now yields many benefits to businesses across the globe.

The main benefit for bookkeeping offshoring, as with any service in the offshoring industry, is still related to cost. On top of that, a marginal amount of time is saved. Today, services such as employer tax expense, worker's compensation, insurance, liability, and health insurance can be rendered in offshore locations where labor arbitrage is favorable to the client.

Client companies that are looking at offshoring as an option would do well to be reminded that because bookkeeping service providers are already adept at the craft, no interviews, recruitment or training process will need to be conducted in-house. In addition to that, there is no investment needed in operating infrastructure such as software, hardware, and office space as the service provider will have already secured the necessary workstations - allowing for a fast ramp-up time.

Bookkeeping offshoring opens client companies up to a host of options for updating their books. This, in turn, creates flexibility in which they are able to acquire services according to their requirements and corporate context. There are just as many choices in offshore locations as the actual processes to be transferred offshore.

The delegation of a task as burdensome as bookkeeping will allow the company to streamline existing processes. In effect, the company can return to activities that are crucial to its strategic direction and competitive edge. These can include services that can directly impact the revenue generation of a company such as customer relationship management and after sale services.

The benefits of outsourcing bookkeeping has been a proven strategy for large corporations as well as SMEs and start-ups - allowing significant cost savings, process optimization, and flexibility to divert time and energy where it counts: the core of the company.

Evolution of the Knowledge Process Outsourcing Industry

A look into the history of knowledge process outsourcing indicates that the first outsourcing activities focused on acquiring support for technology implementation. This involved offshoring application development to cheap labor countries such as India. Following this move were other processes mostly in ITO (Information Technology outsourcing), making offshoring a means for 24/7 support. During the late 80's to early 90's, offshoring companies began to realize that this not only yielded significant cost savings, but also helped to mitigate risks, avoid capital outlays, and expand skill sets.

What naturally followed was the application of offshoring and its benefits to other areas besides IT. From IT, business processes were outsourced, now known as BPO (business process outsourcing). This initially involved tasks such as accounts payable or customer care. This later developed to include more knowledge-intensive processes such as treasury or industry-specific such as underwriting support for life insurance companies. Companies engaged in offshoring realized that utilizing third party services was a good strategy for cost, quality, and flexibility.

Outsourcing is now adopted as a business model for even the largest companies. Firms can now look to offshoring to not only deliver cost savings, but as having the potential to even handle processes that were once considered �core� to the company. Today's providers are not only equipped to provide complex problem-solving skill sets, but can offer the necessary privacy, security and IP standards to effectively and safely handle sensitive data.

These developments have laid a foundation for the strategic partnership that can be created in what is known as KPO (knowledge process outsourcing). The size of the industry is estimated to range from $10 to $17 billion this year. The KPO market is expected to grow 50% to 70% annually. This is a stark comparison to the traditional BPO industry which has shown compounded annual growth rates of 34% over the last five years with a 24% growth rate expected for the next five years.

KPO service providers today are fully capable of supporting offshoring clients in the process of becoming complete knowledge competitors. They would, in the past, only provide horizontal services such as research and analytics (and at a discrete level). Today, KPO service providers offer highly publicized, comprehensive, domain-targeted knowledge services in a wide range of industries. These are services that cannot easily be found in-house or in the client's domestic labor pool. Given these developments, the future looks bright for a KPO industry that is vertically specialized.

8 Rules for a Quick and Successful Offshore Transition

The process of offshoring a business takes a lot of careful planning and can sometimes take a year or more to move into the implementation phase. Global business process outsourcing company WNS lists 8 simple rules in order to make offshoring a success:

1.)    Ensure that BPO is the CEO priority - Sponsorship of an initiative that is as critical as BPO must come from the very top. If there is no other option to keep the business afloat, the CEO must be the one to deliver such a message in order for it to be taken as seriously as it should.

2.)    Approach outsourcing with an open mind - There are a lot of myths and generalizations that are made regarding the outsourcing industry. Businesses should be open-minded to the possibilities that outsourcing holds and that it extends way beyond just call center work.

3.)    Keep it simple - Do not make the transition of sending work offshore a time for making radical changes to your business processes. Offshoring should instead be simply about cost reduction without compromising quality.

4.)    Move fast - BPO will not achieve the results desired if it is not seen by the company as critical. Companies can encourage timely results by implementing aggressive timelines across the board.

5.)    Empower an internal outsourcing czar, and put top talent on the case - The czar here is referred to someone at the center of the organization who is fully committed and accountable to the success of the transition. WNS states that �survival programs are always led from the top and the center�.

6.)    Develop a realistic deployment plan - As crude as it sounds, sometimes being slow and steady wins the race. The offshoring deal must be well-measured and meet objectives without being disruptive to the business. Companies need to be wary of buying into unrealistic transitions in the midst of hurrying to cut costs.

7.)    Insist on alignment - It is critical to partner with an offshoring provider that is willing to align its strategies with the client rather than impose its way of working. This means understanding the provider's values, customizing deliverables to meet its needs, and understanding the scope of work.

8.)    Debit budgets in advance - When offshoring and outsourcing companies implement a BPO budget into the savings in advance, it leaves managers with no choice but to commit themselves to the cause, or find a new way to cut costs fast.

7 Tips for Peace, Profit, and Productivity in Outsourcing

Dr. Oliver Williamson, Professor Emeritus of business, economics, and law at the University of California-Berkeley, outlines �7 Tips for Peace, Profit and Productivity�. Although it does not look dissimilar to a lot of lists that we have encountered regarding the outsourcing and offshoring industry in the past, Dr. Williamson did win the Nobel Prize in Economics in 2009. Here is the gist on the seven tips:

1.)    Build cooperation into the contract -Williamson believes that the partnership can be much more rewarding if both customer and supplier implement measures to preserve cooperation throughout the deal. Williamson writes that "efficiency gains from trade go back to when our ancestors traded nuts for berries on the edge of the forest, [in] which exchanges were both transparent and simple."

2.)    Factor in hidden transaction costs - This is due to the well-known fact that many offshoring projects never cost the same as initially written in the contract. It is therefore essential to figure out the long-term cost beforehand, as difficult as that may be.

3.)    Use the contract as a framework, not a weapon - Outsourcing customers who may have been victimized have a tendency to create overly detailed contracts to prevent any possibility of contingency, which is a mistake.

4.)    Make end-of-life arrangements early - Many forget that outsourcing and offshoring deals don't last forever. The proactive approach would be to plan for defection early on and figure out how to mitigate its effects. After all, changes in a business relationship are most assuredly subject to change as the market changes. Contracts, therefore, need an exit management plan that is well-thought out and fair for both sides.

5.)    Create a shared vision statement - Having strategic points that align with your outsourcer will always minimize additional transaction costs throughout the deal.

6.)    Play nice (but not too nice) - You can gain the upper hand on your supplier, or let the supplier gain the upper hand on you. Either way, you are in for what Williamson refers to as �one-sided muscular contracting� which will only yield short-term gains.

7.)    Always leave money on the table - Many are quick to dismiss this strategy as foolish. However, working towards getting the cheapest price can, according to Williamson, cost both parties in the long-run. Leaving money on the table can instead be a �signal of constructive intent to work cooperatively�, which in turn minimizes �concerns over relentlessly calculative strategic behavior�.

Top CIOs Shifting Focus on Value and Innovation

A new survey has revealed that today's CIOs are looking at outsourcing and offshoring to pack a bigger punch with money spent down to the last penny. However, the survey also indicates they also want to focus on using IT to transform the business through innovation and productivity.

The report, entitled �From cost to value: 2010 Global Survey on the CIO Agenda�, was published by advisory firm KMPG as part of the 2010 World Congress on IT in the Netherlands. The survey was based on KPMG's technology data and was distributed to 4500 CIOs around the world.

As well as probing into possible offshoring approaches of high-profile CIOs, the survey categorized eight priorities for them to rate: IT value, the CIO profile, the value of people, process improvement, risk and compliance, sourcing, collaboration, and optimism.

The survey announced that �organizations wishing to create sustainable value need to get a grip on the way all information is produced, collected, and used, and they need to use IT to respond rapidly to the changing market and society.�

The survey also deduced that: �To a large extent, the daily focus of any CIO depends on the sector in which he or she operates. CIOs in the financial sector are comparatively more involved with daily operations, while CIOs in the manufacturing sector are looking more at ways to innovate and transform with the help of IT.�

The survey showed that 56% of respondents said cost optimization should always be a part of the organization's IT strategy as it is a competitive weapon.

Given the strong growth of online services in the offshoring landscape, CIOs expect use of collaboration tooling to increase significantly over the next five years. Cloud computing is receiving a marginal 72% of CIOs, claiming this practice was a good way of outsourcing IT functionality.

The concepts raised in the survey could prove substantial in the global offshoring industry as Ian Hancock, KPMG's national IT advisory in Australia, claims. After all, about 16 CIOs who took the survey represent the top 200 companies in the world.

According to Hancock, staffing, sourcing, compliance, and cloud computing are the top priorities of CIOs locally.

�Retaining people is a challenge for everyone and my view is to retain good people you need to be able to give them ways to develop new capabilities,� Hancock stated. �The message in the report is about innovation and the challenge for CIOs is to enable a career path.�

�The real challenge of previous outsourcing was predicated on cost, but CIOs lost control of the environment they need to create value in. How do I continue to create value in environment that I've outsourced to a third party?�

UK Outsourcing Facing Budget Issues

Following the demand for more effective use of resources, increased talk is being seen in the UK about the efficiencies and cost savings that can be achieved through offshoring and outsourcing.

While there was already a lot of tension over jobs being lost among employees in the public sector in the UK, media sources have published reports that millions of private sector jobs are also at risk to offshoring. However, such predictions are likely formed from a lack of substantiation and from inflated figures. The emergency budget's direct impact on the UK's unemployment rate remains to be seen.

Outsourcing has been in practice in the country's government for about 20 years. Although it is effective in many areas with the legal process offshoring industry experiencing increased growth, it has been troubled in terms of managing offshoring relationships.

�The bad press that surrounds the cost-effectiveness of some past public outsourcing projects notwithstanding, I would expect a well thought through outsourcing contract to provide effective and cost-effective delivery of services,� said Danny Jones, partner in charge of UK public sector at advisory firm TPI.

This may be due to the increase in outsourcing contracts that have been given, causing a host of new jobs in the outsourcing community. However, according to Jones, the outsourcing industry could also be negatively impacted: �Suppliers are already feeling the squeeze particularly when it comes to negotiating contract extensions; and they expect this to continue.�

The recent report by KPMG confirms this as it discovered that outsourcing is not as high on the CIO agenda as some may have anticipated.

Although this may look bleak to proponents of offshoring and outsourcing, industry players will maintain that there are still more opportunities than there are drawbacks to be had regarding the announcement. Although the government is in need of cost-saving solutions, it also needs solutions that produce results fast. This is something that offshoring industry is proven capable of doing.

It now comes down to just how fast outsourcing will deliver such solutions while still paying regard to semantics. After all, it will typically take 18 months and sometimes two years for an outsourcing project to being producing significant earnings from the time of signing. This could prove to be a significant issue unless the government changes its outsourcing model to resemble that of the private sector.

�Typically, the government has awarded large contracts to a single supplier, but we will see a shift to a model where government breaks large projects into manageable blocks which are then awarded to suppliers according to expertise/service required. This will increase the effectiveness of delivery if it is well managed,� says Jones.

Outsourcing Market Trends Signalling Global Recovery

A recent report by global consulting and research firm, Everest, proves an ongoing theory that the growth of the global sourcing market is indicative of a recovering global economy. The IT outsourcing and offshoring industry has experienced particularly high growth � climbing 43 percent from the last quarter of 2009 to the first quarter of this year. In addition to that, transaction volumes are valued at US $3.9 billion, maintaining its stride for its third straight quarter.

According to Everest's quarterly report on the outsourcing and offshoring industry, activity in North America for Q1 of 2010 is up 18% while the ACV increased 36% in the fourth quarter of last year. Also reported was a 6% climb in transaction volumes in Q1 2010 from Q4 2009. The quarter featured four more mega deals of contract values over US $1 billion compared to last quarter.

With 35 new captive centers officially announced in Q1, the captive market remained on a steady growth path - a quarter of the 35 located in Asia and the remaining 11 in India. Outsourcing and offshoring suppliers in India revealed plans of aggressive hiring in order to meet the rise in demand, with leading IT providers Infosys, Cognizant, and TCS already annoucing a 50-60 thousand increase in staff throughout this year. Similar plans were announced by global-centric providers Capgemini, IBM, and CSC. The trend has begun affecting attrition rates as well as wage inflation in India, the leading offshore services location.

Compared to the fourth quarter of 2009, Business Process Outsourcing (BPO) accounted for 32% of deals signed with transaction volume increases of as much as 30%. Transaction activity in Europe experienced a marginal volume largely owed to a 33% growth in transaction volumes in the United Kingdom.

The Philippines joins Brazil, China, and India as locations that saw a notable increase in offshore activity, with 44 new delivery centers having been created. A significant amount of activity was recorded in Asia in Q1 2010 with its Tier 1 cities reporting more activity than its Tier 2 cities. Supplier transaction activity volumes remained steady overall.

�Outsourcing market activity during the last quarter was largely led by renewals and restructuring of existing contracts�, stated Everest Group Principal and Country Head India, Gaurav Gupta. Amneet Singh, Vice-President-Global Sourcing, Everest Group commented, �It is encouraging to see demand side momentum translate into 44 new supplier delivery centers in Q1 with activity continuing to be concentrated in Asia.�

Web Design Offshoring

Whether it's a large or a small business, offshoring web designing work has been a long-standing practice that has proven to hold many benefits � particularly among Internet-based enterprises. Outsourcing web design work in general is particularly effective for smaller business owners who now realize the importance of an online identity for success.

An online corporate identity needs to reflect the core values of the organization as well as project standards of excellence and professionalism. These are typically the characteristics of websites that are produced by experts in the field. Users often judge a website based on the quality of its design and a good balance between eye-candy and effectiveness. By effectiveness, this means navigability and its ability to draw traffic and achieve its purpose. Outsourcing web design work offshore requires choosing a service provider that is experienced in delivering such results.

The field of website creation and design is a challenging one that is constantly changing and developing new technologies. Creating your own website requires that you know the skills necessary to create them. Often, hiring your own staff will prove not only costly, but difficult in terms of finding experienced and skilled professionals who are up-to-date on the latest web design trends. Outsourcing website creation to professional web design providers will allow you to gain access to a high degree of expertise at much lower costs. This would have been much more costly and time-consuming to achieve in-house.

Offshoring your website needs means acquiring the assistance of a web design organizaion that has the resources and expertise necessary to deliver outsanding results. It is for this main reason that offshoring web design work has become common among small companies as well as start-ups that otherwise would not have been able to create such a powerful online presence domestically. Many small firms and start-ups that create corporate websites online feel the need to communicate to their customers that they are not as small as they seem � even though in many cases, there are only a handful of employees involved in the enterprise. A professional and cutting-edge website will serve this purpose perfectly.

Statistics show that web-based commerce moves seven times faster than the rest of the business world. As such, it is always something that one should consider investing in as the returns are well worth it. Outsourcing to an offshore service provider that will give you maximum returns on investment has proven for many businesses as the ideal move to capitalize on this trend.

Offshoring's New Threat: The Schumer Bill

For all the cost savings that it still promises, the offshore outsourcing industry has braved much opposition this year - beginning with the cease in tax breaks to offshoring companies promised by President Obama in his State of the Union Address. The threat has recently been embodied in the form of a new legislative attack proposed by Sen. Charles Schumer on the offshore call center industry.

Schumer announced that the plans are to introduce legislation that will require firms to publicly disclose available reports of their offshore call center operations. In addition to that, said firms will be required to pay a tax on every call sent offshore. A closer look reveals that this new legislation has three main clauses:

Firstly, a 25-cent excise tax will be imposed on any customer service call that orignates in the US and is transferred to a customer service personnel in a foreign location (commonly known as contact center outsourcing).

Secondly, companies will have to inform their customers of where their call is answered.

Finally, the bill requires companies to publicly disclose quarterly and annually the amount of customer calls received and how many of which were sent offshore - submitted to the Securities and Exchange Commission.

Schumer said that he plans to introduce legislation requiring that firms disclose in publicly available reports their offshore call center practices, and to pay a tax on every call sent offshore.

�If we want to put a stop to the outsourcing of American jobs, then we need to provide incentives for American companies to keep American jobs here,� stated Schumer. �This bill will not only serve to maintain call center jobs currently in the United States, but also provide a reason for companies that have already outsourced jobs to bring them back.�

It is certain that large outsourcing organizations that utilize offshore call centers will oppose the bill � as was the case with a bill that threatened to keep multinationals from keeping profits offshore in low-tax jurisdictions and delay paying taxes on overseas earnings. It was clear then that elimination of tax breaks for outsourcing companies was not enough to halt the offshore outsourcing freight train. Should Schumer's bill come into law, it may just mark a significant step in the direction of ceasing the transfer of jobs to offshore locations � at least in the contact center sector. Where other bills have failed in the past, this one may just succeed and speed up the growth of a recovering US economy.

Designing Flexible Outsourcing Contracts

There are many outsourcing and offshoring buyers that will lock a deal with a service provider and fail to account for the changes that are bound to occur throughout the partnership. Throughout its development, the outsourcing industry has gone through a variety of different phases. The first phase was typified by long-term IT outsourcing. As the industry aged, however, these �mega deals� are now replaced by best-of-breed, multi-sourcing, and offshoring. Throughout its life span, however, the factors that can create changes in an outsourcing partnership remain the same: economic, social, technological, environmental, and legal.

Whereas the scope of contracts once reached as much as 10 years, business decision cycles nowadays are much shorter. There are budget cycles subject to mid-year revisions, and strategic plans are revised for quarterly reporting. Tactical plans can change monthly, weekly, and even daily. As such, it is critical, now more than ever, that an outsourcing/offshoring contract is flexible enough to adhere to such changes.

So how do we identify a non-flexible contract? The main reason for the inflexibility of an outsourcing contract today is the discomfort that surrounds an ambiguous business partnership on both sides. The customer wants to receive a specified outcome, while the supplier wants to set in stone exactly what is to be delivered and it will generate profit. It is therefore not enough that a contract be flexible, but it must also be able to guarantee that the partnership is mutually beneficial.

So how is a flexible outsourcing contract designed? There are many things that service providers can do to incorporate flexibilty in their contracts. If, for instance, a large contract is involved, it can be split into multiple elements, allowing each to be addressed and modified separately. With the proliferation of global-centric offshoring providers, it is also possible to use more than one supplier - creating an opportunity to benchmark. You could also shorten contract terms, or provide break clauses, enabling services to be retendered more frequently.

Among the key elements of successful outsourcing and offshoring contracts are effective governance, gain-sharing, market testing and benchmarking, and break-clauses. Another area that may be overlooked at times is the contract's ability to factor in publicity. There are many publicly held views that hold outsourcing and offshoring in a cynical light. This can adversely harm a buyer's reputation with its customers. At the same time, the service provider's ability to prove itself capable of delivering maximum return on investment to other prospective customers requires such disclosure of the buyer-supplier relationship.

The Philippines as Emerging KPO Hub

The Philippines has long been established as an ideal destination for voice outsourcing, due to the country's large pool of English-speaking workers, affinity with Western culture, IT infrastructure, government support, and lower operational costs. The call center sector is rapidly growing - call centers are being established not only in greater Manila area but also in other cities and provinces considered as emerging locations which are suitable for voice-based BPO work. Also, it was reported that the call center sector posted US$5 billion in revenues in 2009.

After securing a place in the world of voice outsourcing, the Philippines is poised to tap the knowledge process outsourcing (KPO) sector and become an excellent alternative for KPO tasks. As recent trends suggest, the country is now emerging as an ideal destination for business processes that require specialized skills. In a research report published by outsourceportfolio.com, it is expected that revenues of the Philippine BPO sector would reach US$9 billion this year - from US$7.3 billion posted in 2009.

The report also shows that 52 percent of survey respondents think that it is safer to outsource to the Philippines compared to India. Eighty-one percent (81%) said KPO is a �high growth prospect�, although 54 percent feel that the lack of enough workers suitable for higher-value outsourcing tasks is a major problem.

It is a known fact that the outsourcing industry is one of the key drivers of the Philippine economy, especially during the recession, which is why the government is taking steps to make the country suitable for outsourcing work - both BPO and KPO. For instance, BPAP, the umbrella organization for outsourcing players in the country, recently launched a competency test designed for college students and applicants who wish to enter the outsourcing workforce, streamlining the recruitment process in the industry. Various locations outside Metro Manila are also being considered ideal outsourcing destinations due to better IT infrastructure, lower costs, and availability of skilled workers.

While the country produces a lot of graduates annually, many individuals usually do not have the skills needed in higher-value business processes. This will be a major stumbling block for the Philippines if it aims to be an ideal KPO hub. The results of the May elections may also have an impact on the state of the outsourcing industry.

There may be obstacles, but with the current growth rate and initiatives from the government, it is likely that the Philippines will be able to establish a strong hold in the global KPO sector.

BPO vs. Captive Center: Five Decision Factors

Business process outsourcing (BPO) refers to the process of transferring the management and/or execution of a specific business process to a service provider. On the other hand, captive center refers to the extension of business operations on a low-cost offshore location, with the parent company maintaining full control over the business processes.

As with all other things, both BPO and captive center have their own share of advantages and disadvantages. These solutions will enable companies to reduce costs and focus on core competencies, but what are the things to take into account to ensure that you have chosen the right outsourcing solution?

Steve Kopp, Partner and Managing Director, CFO Services - Americas of TPI, the world's largest sourcing data and advisory firm, enumerated five key decision factors when it comes to choosing between business process outsourcing and captive center.

1.    Internal bias - According to the report, highly customized processes, type of industry, and cultural aversion are factors that make companies avoid outsourcing business processes. TPI said that it is necessary to determine the level of internal bias by conducting an internal change readiness assessment.

2.    Scale to build a global service delivery model that rivals outsourcing providers' cost and delivery structure

3.    Availability of capital - A company which is considering to put up a captive center needs capital for buying or renting office space, infrastructure, consulting fees, tax fees, and human resources. On the other hand, there's a transition fee involved when the company chooses to outsource. This is about 10 to 20 percent of the outsourcing fees for the first year.

4.    Time and patience - Establishing a captive center obviously takes a longer time than BPO. Financial payback will take about 24-30 months in setting up a captive center, unlike in BPO where you can expect payback in 15-18 months.

5.    Talent retention - In BPO, employees work for the service provider, whereas employees in a captive center are your own personnel. Employee retention is a business concern and must be taken into account to ensure that the company can still meet its goals and adapt to changes in the economy.

These five decision factors can be really helpful for companies that are looking at two different processes - BPO and setting up a captive center. Keep these in mind and seek help from people who have captive centers or outsourced processes.

Procurement Outsourcing Market to Grow this Year

Procurement outsourcing (PO), in simple terms, means transferring procurement (acquisition of goods and services) tasks to a service provider or third party to cut costs and/or enable the buyer to focus on its core competencies.

This year, it looks like IT outsourcing is not the only one that is likely to see improvement in outsourcing market activity. According to the Procurement Outsourcing Annual Report 2010 by global consulting and research firm Everest, PO activity will increase by more than 20 percent this year. The annual contract value (ACV) is expected to reach almost US$1.3 billion. This can be attributed to the increase in new contract signings and extensions this year, as well as the improvement in global economic conditions.

Here are Everest's projections on the PO market:

�    End-of-term activity will pick up over the next three years involving a book of business valued at US$2.2 billion.

�    The small/medium-sized business (SMB) segment will see higher adoption levels of single-process PO contracts but will be targeted by suppliers offering new platform-based offerings, including Software as a Service (SaaS) as a delivery model.

�    Buyers will favor PO contracts that are either transaction-focused or sourcing-focused engagements, and most buyers will follow a phased approach with an end vision of source-to-pay (S2P).

�Buyers are now poised to expand sourcing-focused contracts into transactional services. Contracts that exploit the synergies between Finance and Accounting Outsourcing (FAO) and PO, especially in the procure-to-pay areas, will see increased market traction,� said Katrina Menzigian, Vice President, BPO Research.

As the economy recovers from the crisis, 2010 is likely to be a better year for the global outsourcing industry. Let's just hope that recovery will continue and significant results will be seen throughout the year.

Outsourcing Spending to Increase as Economy Recovers

Results from the recent Gartner survey show that 85 percent of organizations expect that their outsourcing spending, specifically on IT services, will increase or stay the same this year as the economy bounces back from the crisis. Of the 1073 survey participants from different companies and organizations across the US, Europe, and Asia-Pacific, 76 percent are confident that the economic conditions will improve in 2010.

Gartner added that the overall mean outsourcing spending is estimated to increase by 7.13 percent, though it may differ in other countries. For instance, India expects a 17.4 percent increase, while Japan predicts a 1.5 percent decrease.

According to Gartner vice-president Allie Young, the economic crisis had an effect on the decision-making process of companies. "The impact of the global economic recession in 2008 through 2009 has been significant, in some cases radically changing a vertical market or a company's competitive position. Buyers of services have been impacted in many areas, making them more cautious regarding IT spending," Young said. While the economic uptick will result to an increase in outsourcing spending, Young noted that service providers must remain flexible in adapting to economic changes and focus on cost-effectiveness.

This is definitely good news for service providers. In the Philippines, the business process outsourcing industry expects rapid growth in the first six months of 2010 as companies plan to expand their operations. BPO firm StarTek, for instance, is planning to hire 1000 workers as part of their expansion plans in the country.

Moreover, this growth is seen not only on voice-based work but also back-office functions and higher-value outsourcing services. It is reported that the Philippine outsourcing industry is now tapping services that require managerial skills, analysis, and decision-making functions. With the way things are going, companies are confident that the impact of recession will eventually be a thing of the past and continuous growth will be seen in the global outsourcing market.

CSR Becoming more Important in Outsourcing Contracts

Wikipedia defines corporate social responsibility (CSR) as "a form of corporate self-regulation integrated into a business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its adherence to law, ethical standards, and international norms". In other words, it refers to how companies manage business processes to maximize positive impact and reduce risks to society and the environment.

In a recent electronic survey by the International Association of Outsourcing Professionals (IAOP), 71 percent of respondents think that CSR is becoming more important in outsourcing contracts. The study further shows that small and medium-sized service providers aim to increase CSR activity, and 70 percent of outsourcing buyers and providers said they will increase their CSR efforts in the next three years. According to IAOP Chairman Michael Corbett, "If companies want to win in outsourcing deals, they have to be focusing on CSR practices that are good for people, the community, and the environment."

Here are other key findings of the IAOP survey:

Many service providers focus on corporate social responsibility encompassing activities in HR, community involvement, and environment.
A significant number of buyers may take the CSR capability of a service provider into account when it comes to making an outsourcing decision.
For buyers, employee practices, specifically fair operating practices and human rights, are more important CSR criteria than consumer, environmental, and community involvement.
India was considered as the world's most popular developing region that buyers outsource to as a social responsibility.

Much has already been said about CSR. Some may say that part of it is philanthropy, while others may see it as something done to make a better impression. While businesses from different parts of the world have varying perceptions of CSR, it all comes down to implementing work and employee practices that are not only good for business but also lead to positive effects to humankind and the environment.

Virtual Captives: an Emerging Sourcing Strategy

A lot of buzz has been created about virtual captives sourcing model (also known as �hybrid captive and �synthetic captive�). For those unfamiliar, a �captive� operation is generally known as a subsidiary company, typically set up offshore to reduce risks and minimize operational costs. The virtual captive model seeks to bridge the world of third party outsourcing with the benefits of a captive operation � but does it succeed?

Among the main benefits, and yet, what is strangely argued by some as the main pitfall of virtual captives, is the sharing of responsibility between the client and the third party provider:

�In the virtual captive space, which is one of the hybrid models---one clear issue which has not been resolved in the market, is the division of accountability between a buyer and the supplier. If it is a pure third party contract, supplier will have the mandate not just to deliver the process, but to also make improvements in the process,� comments Everest Group Research Director, H. Karthik.

Karthik may have a point, but this also means that all that must be done in order to remedy this pitfall is to simply establish a clear foundation on the division of accountability prior to the deal � as is done in any outsourcing contract. Among the most popular examples of the model is the seven-year deal Wachovia made with Genpact in 2005. By personally training its staff and ensuring that their offshore employees had a solid grasp of company culture and its standards for excellence, Wachovia was able to minimize retention and help ensure production efficiency. This was possible because of another main selling point of virtual captive models - the level of control that a client company is given in a addition to the responsibility that the third party has over process improvement. Hence, the name �hybrid captive� - because it seeks to combine the best of both worlds. Karthik's argument is valid insofar as the initiative on both sides to define accountability is not taken. Is not the point of wanting to set up a captive operation negated if the added level of control a virtual captive offers goes unutilized?

Ensuring Successful Sole Sourcing

Sole sourcing gives outsourcing buyers the opportunity to negotiate, define, and purchase services from a single provider � thereby making it easier to keep track of performance metrics and mitigate risks. This has become more than a viable option as outsourcing providers expand their service capabilities across multiple platforms and, in many cases multiple offshore outsourcing locations � eliminating the need for multi-vendor approaches.

While sole sourcing can potentially decrease costs and enable a more efficient decision-making process, like any sourcing model, it comes with its own challenges. Outsourcing giant, Everest Group, outlines 3 steps that a buyer can take in order to ensure a successful sole sourcing partnership.

The first is to carefully define the buyer's objectives and the services required. This is also a critical step in ensuring outsourcing creates value and that strategies are aligned to help the client business grow.

Second on the list is establishing a framework that helps both parties know when the proposed solution is acceptable. Although process improvement and innovation are big factors that can potentially be the difference between a good contract and a highly successful one, cost-efficiency still rules the industry. As such, the framework will almost always come down to financial feasibility and profit margins.

Lastly, a foundation must be laid for the two organizations to productively govern the implementation and ongoing execution of the solution. This will help ensure that both the buyer and supplier not only possess the drive to produce increased performance, but know exactly how to forge a productive working relationship.

F&A Outsourcing Poised to Regain Traction after Recession

According to the Finance & Accounting Outsourcing Annual Report 2010 by global consulting and research firm Everest Group, 2010 will be a stronger year for F&A outsourcing (FAO) compared to the previous year.

It is predicted that the annual contract value (ACV) this year will reach about US$3.7 billion - a 20 percent increase from US$3.1 billion posted in 2009. This increase in global expenses is taken as a sign that the low activity in FAO, which involves outsourcing capital budget and internal audit, processing of payroll, and general accounting, is now over.

Compared to 20 percent annual increase from 2006 to 2008, FAO had seen a slow growth rate of only 11 percent in total value of contracts in 2009. However, Katrina Menzigian, Vice President, Research, said FAO is expected to regain traction this year as the economy bounces back from the crisis, with new contracts and scope expansions. �We foresee increased adoption across industries and geographies to continue. Beyond the United States, we expect contract signings in the domestic Asia-Pacific market as well as Rest of Europe to rise.�

Here are other key findings in the report:

FAO market growth continues to see strong adoption across manufacturing, consumer packaged goods, retail and high-tech sectors. Telecom and pharma are emerging sectors with the highest growth rates.
The financial services sector saw stronger activity than expected last year, and pent up demand will contribute to growth in 2010.
Asia Pacific started to emerge last year, capturing 35 percent of new contracts.
Adoption by the mid-market was unable to sustain momentum garnered from 2006 to 2007 primarily due to the economic climate and lack of proven, successful FAO solutions.

New deals, contract renewals, and scope expansion show that 2010 is bound to be a much better year for the FAO market than 2009. As the economy continues to recover from the economic turmoil, it is with high hopes that FAO will register a growth rate which is similar to the rate seen before companies felt the impact of recession.

Common Mistakes of New IT Outsourcing Buyers

Contract negotiator Julian Millstein enumerates the five most common reasons why novices in IT outsourcing fail to get it right in the article �The pitfalls of outsourcing� published at computing.co.uk:

Outsourcing is an easy endeavor. There is more to it than just paying a service provider to take on some of your IT processes. Time and effort are needed in order to have a better understanding of how the entire outsourcing process works, what to do in case security concerns come up, and how it affects your overall operations.

The outsourcing provider will fix everything. It's wrong to say that the service provider will fix your �mess� without affecting or having to change how you do business. As Millstein points out, �... although they [IT outsourcing providers] are generally better at the given function than you are, the way they solve your particular problem, the solution they bring to the table, will by its very nature change the way you do business.�

The buyer fails to provide a baseline. Performance metrics must be established during the contract negotiation. Providing a baseline will enable you to accurately measure or review performance.

The only reason to outsource is to save money. While cost reduction remains to be the top reason why companies opt to outsource, problems may still arise even if you're satisfied with cost savings. What you think you have saved now may mean nothing after several years as salaries increase and turnover takes a toll on the outsourcing process.

It's easy to manage the outsourcing relationship. Outsourcing means, in its simplest form, transferring business processes to a service provider. However, this does not mean that it is a one-way street - the buyer transfers tasks to another company to reduce costs as the latter does the work. It is important to establish a good and efficient relationship so both parties will reap the benefits of outsourcing.

To increase your chances of achieving a successful IT outsourcing deal, avoid these pitfalls and seek advice from those who have extensive knowledge and experience about the process.

Warning Signs that Mean Trouble in your Outsourcing Deal

During the global financial crisis, many companies put outsourcing contracts on hold to focus primarily on ways to keep the business going, while some opted for contract renegotiations. With all the factors to take into account when it comes to closing or renegotiating outsourcing deals, how would you know that you are on the right track?

In the article �A dozen danger signs that your outsourcing contract is on the rocks�, Linda Tucci brings together some insights of different experts on the mistakes commonly committed as well as misconceptions in outsourcing deals.

Lack of innovation and productivity gains - According to Thomas Young, partner and managing director with the CIO Services-Infrastructure at IT consulting firm TPI, documentation is the key to a successful outsourcing contract. When it comes to continuous improvement, Young said that productivity gains which are greater than 3-4 percent need investment from both buyer and vendor, and it should be explicitly stated in the outsourcing contract.

Cultural differences - Culture clashes may not result to a good, long-lasting relationship between buyer and vendor.

Optimizing price but failing to focus on quantity - When a company aims to reduce costs, it usually tends to ignore the quantity / consumption of services. According to Young, "when I tell clients to take costs out, I tell them to focus on the Qs [quantity]."

Neglecting governance and contract �maintenance� - Young said that failing to create a good contract that is flexible enough to adapt to changes in business and technology is a big mistake committed by companies. In a constantly evolving industry such as outsourcing, it is crucial to have a well-written contract that provides room for any changes.

The Shift Towards Outcome-Based Outsourcing

The global outsourcing industry has been typified by outsourcing deals based on quick-fix cost-cutting solutions that don't always consider long-term process improvement. As the economies of major outsourcing players recover, buyers and vendors are presented with an opportunity to divert focus on ways to create value instead; writes Kathleen Goolsby of the Outsourcing Journal.

The key factor towards maintaining a successful relationship, both personal and professional, is trust. Attaining that trust depends on a healthy system of communication. For the outsourcing industry, this means increasing the level of transparency and information-sharing are key catalysts in attaining an outcome-based approach. The shift towards outcome-based outsourcing is described by Genpact's Mohammed Haque as �a journey that can take at least 18-24 months to implement� due to the requirement of a complete data assessment of the buyer's landscape.

Advancements toward value-creating platforms require attaining a more in-depth understanding of a customer's industry. Haque explains that it is "extremely important that the buyer understand the level of risk the provider must take to help the customer achieve the desired business outcome. This will only work if it is a complete partnership type of relationship and if there is strong governance and relationship management. And senior leaders on both sides must work together."

Upon getting a good grasp on the needs of a buyer's business context, it then remains to align service level agreements (SLAs) to meet desired strategic goals. To further solidify the commitment of both parties to a value-adding partnership, industry experts advocate employing a model in which the responsibilities for risk mitigation and maximizing returns on investment are shared.

According to Haque, only 5 to 10 percent of outsourcing arrangements today utilize outcome-based pricing � the other 90 to 95 percent of outsourcing arrangements are based on time, materials, or a fixed fee. However, he predicts that within the next five years, outcome-based outsourcing contracts will grow to 40 to 50 percent.

RP's Game Development Sector and the Lack of Enough Manpower

The Philippines has long been known as a location of choice for voice-based work. Call centers abound not only in Greater Manila area but also in nearby cities and towns. The outsourcing industry soon expanded, including non-voice BPO work in its service offerings. Even during the tough financial crisis, the Philippine outsourcing industry had showed resiliency and it was one of the few industries which raked in revenues that greatly helped the economy.

There's no doubt that outsourcing has become a major income generator for the country, and it doesn't stop at call center functions, IT services, and medical transcription. Another promising field is game development, the youngest branch of the industry.

The different factors that make the Philippines an ideal BPO location still apply when it comes to the game development sector. There is no question about talent. Filipino game developers are creative, highly skilled, and innovative. Aside from English proficiency and low operational costs, the immersion with the Western culture is advantageous for game developers in the sense that cultural compatibility makes it easier for them to appreciate and comprehend the games from the West.

What keeps the country from tapping a large part of the game development outsourcing market is the lack of enough trained game developers to meet the demand. In an article entitled "Philippine game developers ready for big players?" by Nestor Arellano, Ranulf Goss, President of the Game Developers Association of the Philippines, said there were about 50 employees in the sector back in 2004. Five years later, more than 600 comprised the game development workforce. "We're the fastest growing industry in outsourcing right now, but definitely we need more manpower."

While there are game development courses being offered in the Philippines, there is no formal training available. For the country to become a game development outsourcing hub, it is crucial to provide the necessary training for those who want to work as game developers.

The country must find ways to beef up the workforce for the game development sector and make BPO players aware that Filipino game developers have the right skills and talent. If the country has enough manpower to meet the demand, this young sector may soon put the Philippines on the map of global game development outsourcing industry.

Factors towards a Successful Sole Sourcing Approach

In a nutshell, sole sourcing refers to the process or practice of working with only one supplier or service provider. This is an option for buyers wishing to achieve their goals faster without having to deal with a multi-supplier process.

In an Everest Group Whitepaper entitled �Sole Source Outsourcing: Ensuring a Successful One�, the global research firm cites these seven factors that will lead to successful sole-source approach to outsourcing.

1.    Develop the relationship. This is important even in multi-supplier approaches. Since both parties will be investing a lot of time and money in the outsourcing deal, it is crucial to establish a healthy and effective relationship in which both the supplier and buyer know each other's goals and are committed to make the relationship work.

2.    Engage senior leadership. A sole sourcing approach relies on the trust and goodwill at senior executives of the company. People at the highest levels of the organization should be the ones to carry out the decision-making process, specifically when it comes to service delivery and terms of the agreement.

3.    Involve the board. For many board members who are used to a multi-supplier approach, presenting a sole-source situation may raise some concerns such as whether it is the best and most cost-effective solution for the company or not. Do not leave the board of directors in the shadows. Present the sole-source approach early in the process to give the board some time to evaluate it.

4.    Don't boil the ocean. Before signing any outsourcing deal, make sure you have an accurate and robust business case, reasonable pricing and achievable scope, and a Masters Services Agreement (MSA) that focuses negotiations on terms which are most relevant to outsourcing.

5.    Develop a robust business case. Have a well-structured business case that can be easily explained and understood. Aside from stating the base case model, the business case must be clear and comprehensive. It must also take direct cost and business impacts, as well as strategic risks into account.

6.    Compare to ensure value. To have a successful sole sourcing approach, �parties must adopt a sophisticated external comparative analysis process to ensure fairness of value sharing.� The buyer must make sure that the supplier has the capabilities to match the scope of services to be delivered.

7.    Focus the contract and negotiations on truly important factors. The buyer must set specific milestones and end goals. The contract will also include scope targets and metrics in measuring the success of the proposed solution and the outsourcing relationship.

While a sole-source approach may not be suitable for every organization, Everest notes that if it is well-designed and executed carefully, the sole-source approach can be the most cost-effective and time-saving solution for many companies.

Global Outsourcing Shows Signs of Recovery

Results from the Market Vista: Q4 2009 report by global consulting and research firm Everest indicate that the global outsourcing market is seeing signs of recovery.

Everest's study findings include the following (compared to the Q3 market report):

Twenty-six percent of deals signed in fourth quarter were held by business process outsourcing (BPO).
IT outsourcing (ITO) comprised 71 percent of transaction activity.
The annual contract value (ACV) increased 72 percent to about US$4 billion, mainly due to mega-deals with ITO and BPO components.
About one-third of deals signed in fourth quarter came from BFSI (banking, financial services, insurance) and MDR (manufacturing, distribution, retail) verticals.
The BFSI vertical comprised one-sixth of the overall market ACV, while ACV from the MDR vertical increased 44 percent.
Buyers in the United States and Europe increased global transaction activity, making up 75 percent of total transaction deals signed in fourth quarter.
Significant increase in ACV was seen in the United Kingdom.
Captive activity sets two-year high mark, with deals from MDR and BFSI verticals, and 40 new announcements, led by India (14) and remaining parts of Asia (18).
Tier-I and Tier-II locations contributed equally towards overall offshore delivery.
Ten acquisitions and 39 new alliances were reported in M&A.

While several mega-deals resulted to significant increase in ACV, Eric Simonson, Managing Principal of Research, said there are still companies that enter small deals.

These evidences show that things are looking up for the global outsourcing market. It may be a slow start, but what's important is that we are seeing steady growth across the world - from US and European buyers to emerging trends and outsourcing locations.

Top 5 Tips for Effective Renewal of Outsourcing Contracts

When it comes to renewal of outsourcing contracts, Debora Card, Associate Partner at outsourcing advisory firm TPI, said the key is to be prepared before negotiating with the supplier. �Effective contract negotiations leverage comes from developing viable alternatives that are financially, technically, and tactically feasible and desirable; and from being ready, willing and able to execute against them.�

Here are Card's top five tips to get the most out of contract renewal:

1.    Start early. If you start renewal planning early, you will have ample time to think about whether to outsource to a different service provider or move business process/es back in-house. For single-process transactions, Card said you need to work on renewal planning about a year before the contract expires. For multi-process transactions, start 24-36 months before expiration.

2.    Do your homework. Take a closer look at the current market and see if the relationship you have with your service provider is at par with industry standards when it comes to pricing and service level agreement. Know what alternative suppliers can offer and find out which can provide a better and more efficient solution for your business.

3.    Realign with reality. It is likely that there are expectations which are not met. This can happen to both parties. In renewing the contract, make sure to realign expectations and responsibilities. These can involve changes in pricing structure and services offered.

4.    Remove the fog. Have a crystal clear agreement. According to Card, parties commonly disagree on two primary areas: scope of services and management or governance. Be clear on your expectations so you will get what you contract for and avoid conflict in the future.

5.    Play out your hand. After analyzing the current market, evaluating the alternative providers, and determining your expectations, it's time to communicate with your supplier. Make sure to document what you want to get in terms of pricing structure, scope of service, and management. It is also important to let the supplier know about your timeline for service delivery.

Don't wait until the last minute. Be fully equipped with the right information about the existing environment and viable options before your existing contract expires.

Diversification of the RP BPO competitive landscape

As new outsourcing locations and technologies emerge, the competitive landscape of the outsourcing industry is becoming more and more diversified. With an increasing amount of countries realizing the benefits of outsourcing on both the buyer and vendor front, it's hard to keep track of who the Philippines is competing with; as a survey by PricewaterhouseCoopers showed.

The survey lists the locations that have stepped up to the plate to rival the Philippines' sunshine industry and the respective outsourcing services they specialize in. Just to give you an idea of how diversified the competitive landscape is, here is what has become quite an exotic list of rival outsourcing locations:

For contact center outsourcing services, Makati Manila and Cebu are challenged by Bangalore, Chennai and Mumbai in India; Beijing, Dalian and Shanghai in China; Sofia in Bulgaria and Budapest in Hungary; Barcelona and Madrid in Spain; as well as Bogota in Colombia, Buenos Aires in Argentina, and Lima in Peru.

For Finance and Accounting Outsourcing (FAO), Makati and Manila will have to contend with Bangalore, Chennai and Mumbai; Beijing, Dailan and Shanghai; Sydney, Australia; Munich, Germany; Zurich, Switzerland; as well as Bogota and Buenos Aires.

For Human Resources Outsourcing (HRO), Makati and Manila stand against Bangalore, Mumbai and Hyderabad, India; Beijing, Shanghai and Guangzhou, China; Taipei; Singapore; Munich; as well as Bogota, Buenos Aires and Sao Paulo (Brazil).

For marketing and sales outsourcing, Manila competes with Bangalore, Chennai and Nashik, India; Dalian, Shanghai and Shenzhen; Kuala Lumpur, Malaysia; Taipei; Munich and Frankfurt in Germany; as well as Bogota and Sofia.

For legal services or Legal Process Outsourcing (LPO), Manila faces Bangalore and Chennai; Sri Lanka; Bogota and Medellin, Colombia; London, UK; and Prague, Czech Republic.

There are outsourcing services on the PwC survey in which the Philippines has yet to make a competitive bid; such as procurement outsourcing in which Bangalore, Chennai and Delhi; Dalian, Shanghai and Shenzhen; Munich; as well as Bogota and Sofia dominate.

The survey reveals that India is the only location to offer the full spectrum of outsourcing services. The Philippines joins India and China as the only outsourcing nations that have developed multiple �most popular� cities; the ones in the Philippines being Manila, Makati and Cebu.

Mistakes Companies Make in Outsourcing Deals

In a study on different outsourcing deals, researchers at the University of Tennessee learned several mistakes that companies make when it comes to outsourcing deals. Kate Vitasek, UT lead researcher and supply chain consultant, said buyers will only get what they contract for, and service providers will only do what is indicated in the legal agreement.

UT researchers identified ten mistakes that are commonly committed by companies in making outsourcing deals:

1.    Penny wise and pound foolish - Having a perception that outsourcing is purely a cost-cutting measure may lead to two end results. According to Vitasek, it can be that "providers will get tired of constant bidding exercises and will decline to compete for the contract�, or "a low-cost bidder will encounter serious operating losses that curtail services and eventually force termination of the contract."

2.    Precise to a fault - The problem with placing precise and clearly defined requirements is that it does not allow enough room for creativity. The statement of work may even become unrealistic, resulting in waste.

3.    Hangers-on - �When employees suspect that outsourcing is on the table, they stake their claim to work that's likely to stay in-house, like managing the IT service provider.�

4.    Transaction trap - An outsourcing deal that is purely transactional has its downside - opportunities for improvement on the part of service provider will be overlooked.

5.    Counterproductive incentives - Giving incentives to achieve a certain level of performance from service provider may be contradicting to what you actually want to get. The provider may end up improving just a little in order to gain the incentive. "Rather than establish the highest level of savings achievable, the provider will offer up savings in small increments over time."

6.    Honeymoon effect - Both parties put their best foot forward at the start of the outsourcing relationship. As time progresses, productivity levels decline.

7.    Ruthless negotiator - It is important to think that outsourcing can be beneficial for both parties. It is also crucial to overcome the perception that the service provider is the only one that gets the good part of the deal.

8.    Rudderless deal - According to Vitasek, outsourcing relationships eventually do not succeed due to lack of metrics to keep track of the service provider's performance.

9.    Measurement minutiae - Placing metrics to monitor everything is not good either, as companies usually fail to keep track of their own metrics.

10.    Hands-off management - "If you don't use the measures you have to make improvements, you should not expect [positive] results," Vitasek said.

Outsourcing Technology: Trends Shaping the Future

There are several innovations in outsourcing technology that experts predict will dramatically change the landscape of the outsourcing industry; as Beth Ellyn Rosenthal writes in her article, �Changes in BPO: How Technology Is Changing the Landscape�.

The article gathers insights from executives of major outsourcing providers, resulting in a list of several technology-dependent trends that are set to have a significant impact on BPO partnerships in the next 5 years:

Emergence of end-to-end solutions

This is made possible by the fusion of IT and BPO. Abid Ali, Vice President of Tata Consultancy Services (TCS), refers to this as "IT/BPO synergy", which some say could far exceed the savings from labor arbitrage.

Use of analytics

According to F&A IBM General Manager, Don Schulman, the advancement of analytics will enable buyers "to leverage insights into their suppliers and customers that they've never had before, allowing them to better align business decisions to their overall strategies at a much faster pace."

Platform/process as a service

Process optimization as a service is something that Abid says �meets the customer's need to upscale processes to industry best-in-class norms in preparation for growth�.

Verticalization and globalization

According to Abid, the economic recession is peaking the interests of buyers in �vertical solutions� - the outsourcing of core processes and not just non-core.

New supplier selection criteria

IBM's Schulman believes that service level agreements will become much simpler due to consolidation of the BPO industry with buyers already having built relationships with outsourcing providers.

Changes in process ownership

Schulman refers to this as the increased focus on end-to-end processes that will more effectively improve business performance in contrast to focusing solely on cost savings from labor arbitrage.

Outsourcing and the Publishing Industry

Outsourcing is not a new phase in the publishing industry, but many publishing companies are still not open to the idea of transferring some of their operations to external providers. After all, outsourcing is a risky business. It can be the ideal solution for companies that want to stay competitive and cut costs. However, for many publishers, there is usually a need to check the quality of outsourced processes in-house. Also, in an industry that follows tight schedules, rework and/or delay in meeting the requirements will have an impact on the overall process of the company. These are some of the reasons why outsourcing is not always favored by the industry.

To know more about the situation and the challenges being faced by the industry, ValueNotes, a leading provider of business intelligence and research, conducted the Publishing Survey 2009-2010 among buyers and vendors in the publishing industry. Specifically, the survey aims to determine the publishers' perception of outsourcing, publishing operations that they outsource, and their satisfaction levels.

Key findings include:

� Cost pressures and lack of in-house capabilities are drivers for outsourcing.
� Sixty-four percent (64%) of respondents said they still have faith in their service providers and they will continue outsourcing.
� Content and production are the publishing operations that are usually outsourced/in demand.
� Sixty-six percent (66%) of buyers choose India as the outsourcing location.
� When it comes to cost savings, buyers achieve/are aiming to get 15-25 percent, while providers perceive 25-40 percent.
� More than 75 percent of buyers think considerable improvement is required in outsourcing, while 16 percent do not approve of outsourcing.

Shifting work to a service provider results to reduced costs and allows publishers to focus on core competencies and experiment with new products and offerings, but like what the survey findings indicate, the entire outsourcing process must first be improved before it can be considered a crucial strategy for the industry.

Tips for Selecting an Outsourcing Advisor

The outsourcing industry is huge, complex, and constantly evolving, so the steps to take in order to have a successful outsourcing operation usually entail a lot of research, time, and effort. Bear in mind that companies are more cautious now more than ever when it comes to entering outsourcing contracts. In times like this, having a legitimate third party that will prod you in the right outsourcing direction is very crucial when establishing and maintaining a relationship with other BPO players.

There are a lot of outsourcing advisors nowadays, claiming that they will guide you in every step of the way, but what do you need to look for in an outsourcing advisor? In the article �Outsourcing Advisors: 6 Tips for Selecting Right One�, Stephanie Overby enumerates six tips to keep in mind when choosing an outsourcing advisor or consultant:

1. Identify what you want to achieve. �Select an advisor that will help you achieve that goal. Some advisors excel at holding vendors' feet to the fire on prices, while others specialize in other areas,� said Richard Matlus, research advisor for Gartner IT Services and Sourcing.

2. Bigger is not always better. Hiring a large and popular advisory firm may come with a hefty price, and it does not necessarily mean that it will be able to get the job done. Do not choose an advisor based mainly on how large or well-known the firm is.

3. Get personal. Establish a good relationship with your outsourcing advisor.

4. Take a good look at the references. Knowing what clients say about the outsourcing advisor you're considering will give you some insights on the kind of service/advice the firm can give.

5. Test the tools / methods used. The outsourcing advisor must be able to apply their tried-and-tested approaches to what your business needs. These must also be flexible enough to accommodate specific requirements.

6. Determine where their interests lie. You and the outsourcing advisor must be on the same page in every step of the process. According to Phil Fersht, former AMR analyst, "[outsourcing advisors] must be focused on your best interests, not theirs".

Outsourcing 2009: A Global Retrospective

Outsourcing in 2009 will be remembered as having among the most compelling stories and most significant game-changing trends. As we welcome 2010 and the challenges ahead, it is important that we also review the preceding year and highlight some of the twists and turns that contributed to the maturity of the ever-complex outsourcing and offshoring industry.

2009 will be most remembered for what has littered the content of almost every business-related blog that was posted throughout the year: you guessed it, the global recession. Prior to the low season that hit in around Christmas of '08, the outsourcing industry had been developing initiatives geared towards innovation and quality high-end services. At the time, the Philippine BPO industry had established itself as the fastest growing in the world � with its Knowledge Process Outsourcing subsector experiencing 200% growth. The weight of the recession meant that affected businesses needed to have more for much less - as a result, cost-effectiveness came marching back to the forefront as the main driver for prospective buyers in the industry.

The stagnation in growth was aggravated by the billion-dollar Satyam scandal early in the year which delivered a huge blow to global confidence in the outsourcing industry. It also signaled rival outsourcing destinations to start closing the gap on India's position as the leading outsourcing destination.

The environment of uncertainty and hardship caused existing outsourcing relationships to either downsize or become severed altogether. At the same time however, the industry saw new entrants that had previously not considered outsourcing an option. CPG, retail, logistics and media and entertainment are examples of industries previously alien to outsourcing.

2009 saw captive centers wane as businesses realized the benefits of third party services, its low costs, and administrative capabilities. The demand for a higher level of control and risk management resulted in innovations on the part of providers in both service delivery models and technology. A product of this is the development of Software as a Service (SaaS) which has caught the industry by storm.

Service providers and governments rose to the challenge in 2009 as businesses began to see the benefits of outsourcing in both good and bad times. This resulted in the births of new locations in tier 2 cities worldwide as well as the geographic expansion of providers to meet the globalized agendas of outsourcing buyers.

In a nutshell, we could say that the recession and barrage of challenges in 2009 (not the least being anti-outsourcing initiatives in the US and Europe) necessitated many new innovations that has provided an exciting new platform for growth in 2010.

Six outsourcing hotspots for 2010

A tumultuous year in outsourcing in 2009 concludes and a new year in the form of 2010 will see a host of emerging developments from the previous year bear full fruit. 2009 marked a year in which leading service providers transitioned towards being global-centric outsourcing providers. As each major outsourcing city has its own specializations, we will increasingly see buyers packaging services to multiple locations or supplementing existing relationships with new ones in emerging markets. Here is a list of six offshore destinations to look out for this year:

China

According to Equaterra consultant, Vibhash Ranjan, China will likely be the favorite outsourcing destination of neighboring Asian countries � particularly in Japan, if it can improve on language skills. Although a promising IT services location, China is plagued by a lack of English proficiency and IP protection concerns among others.

India

India's heritage companies will likely aggressively expand to offshore locations, notably in the US and UK. Look for providers to continue to relocate work to tier 2 cities such as Pune and Chennai. India's share of the outsourcing market will continue to be dominant in 2010.

Africa and the Middle East

South Africa and Egypt are both locations to look out for here as they work together to market their outsourcing services. IT developments that connect East and West Africa with the rest of the world will make way for developing markets like Ghana and Kenya.

Latin America

This continent will likely garner deals from large multinationals this year (namely from nearshoring in the US) as service providers expand � making acquisitions in Mexico, Argentina and Brazil.

The Philippines

TPI Momentum managing director, Melany Williams believes the Philippines will surpass India in terms of outsourcing growth rate. However, it will face fierce competition from Singapore and Malaysia for IT and BPO services.

The United States

This is a strange inclusion as it is not traditionally an offshore outsourcing destination, but it remains a competitor to the aforementioned locations. Analysts predict an increased interest in prospective BPO or IT centers in low-cost locations in the US. Alsbridge consultancy CEO, Ben Trowbridge, believes that given the unemployment rate (over 10 percent), �qualified resources are willing to work for lower wages�.

IAOP: Top 10 Outsourcing Trends to Watch Out for in 2010

Despite the impact of the global recession that companies are still facing today, this new year brings forth a new wave of anticipation for companies willing to outsource and those that expect a higher BPO demand.

A lot of countries are joining the BPO bandwagon, and buyers opt to outsource for reasons beyond cost savings. At the onset of 2010, it is interesting to determine and predict the different factors that may set the trends in the world of outsourcing for this year. In an industry such as outsourcing which is constantly evolving, companies can certainly look forward to a year with new names in the list of outsourcing locations, advanced technological tools, and an increase in social awareness and responsibility, as predicted by the International Association of Outsourcing Professionals (IAOP).

Here's the list of the top 10 outsourcing trends that companies can watch out for this year:

1.    Delayed deals get the green light - Last year, the global economic downturn had compelled many companies to halt outsourcing deals. IAOP predicts that these will push through this year.

2.    Desperately seeking value - In an attempt to recover from the financial crisis, it is predicted that outsourcing players will aim for better relationships, innovation, and flexibility in order to improve total business value.

3.    Flexibility to get out of contracts - Companies will seek shorter-term contracts versus long-term deals.

4.    Uncertainty leads to consolidation - Service providers all over the world will go for consolidation or acquisitions to keep the business going in these uncertain times.

5.    Outsourcing hiring return - IAOP predicts an increase in the number of new graduates who will enter the BPO workforce.

6.    New outsourcing destinations emerge - What used to be an industry with the usual locations such as India, the Philippines, and China will now see the emergence of other outsourcing hubs such as Central and South America.

7.    New destinations differentiate themselves - In relation to no. 6, there will be stiff competition in the outsourcing industry. That is why players must innovate and think of ways to set them apart.

8.    Tooling up with technology - Cloud computing is one of the technological advances to watch out for this year.

9.    Social responsibility - It is predicted that outsourcing companies will strive to be socially responsible and will evaluate the effects of outsourcing to people and the environment.

10.    Political shifts - Service providers and buyers will have to comply with government regulations in an effort to build better relationships.

New year, new things to look forward to. It is with high hopes that this year will be more fruitful and interesting for outsourcing companies all over the world.

Outsourcing may have biggest year ever in 2010

As a result of the global economic slowdown, the outsourcing sector's growth was not as brisk compared to the previous years. Earlier in the year, the CICT pegged industry growth at a cautious 35% this year, conservative considering that the local outsourcing industry was averaging an annual growth clip of well above 40% in the past.

And with customers and locators feeling the pinch of decreased customer demand, the economic pinch put a damper on growth in 2009. However, industry expert and the author of award winning outsourcing blog Phil Fersht of www.fersht.typepad.com says the industry is poised for a huge comeback in 2010. This is because appetite for BPO services will undoubtedly rise and will rise strongly through the recession.

In a blog entry titled 2010 Predictions for the Outsourcing Industry, Fersht outlined some of the outsourcing areas that may see a marked improvement next year.

�BPO will have its strongest year ever. As our soon-to-be released new survey is revealing, transactional finance and accounting BPO will have a resurgence in 2010, with additional interest in management reporting, and we'll also see a fresh wave or HR outsourcing, which has been quiet for a couple of years now, with new uptake in payroll, benefits admin and recruiting outsourcing. Procure-to-pay outsourcing is poised to accelerate, together with renewed focus in the analytics space across several verticals and horizontal areas,� he said.

As an emerging and preferred outsourcing hub, Philippine based BPOs may yet see a resurgence of demand for their services, and may also see opportunities within the new growth areas within the realm of outsourcing.

Fersht counsels companies to take a first mover stance and come out of the gates blazing to take advantage of opportunities in 2010.

�It's time to roll-out the new corporate agenda: quickly and aggressively. 2010 will not be a year for the timid, and we'll have a lot of frantic people trying to grapple with outsourcing - we'll see more political pressure, more negativity, more case-studies, more value propositions, more momentum and more energy than we've seen yet in this crazy industry,� he said.

This prediction from a well respected resource within the outsourcing industry bodes well for BPOs, and will be much felt in the Philippines, where outsourcing remains a sunrise industry. The country's highly qualified and skilled labor will be a good leverage to gain more contracts within the specialized realms Fersht mentioned above, leading to more job generation and the fast tracking of critical infrastructure projects critical to the outsourcing industry.

Virtual relationships becoming key for outsourcing projects

As more and more people turn to social networking sites and other online communications tools, the concept of project management is fast evolving with it. From a business perspective, the value proposition of free utilities is enormous, and companies are realizing that having an online presence is not merely a marketing tool but also an effective way of managing your relationships.

This trend is best illustrated by the outsourcing process. As companies find that it is cheaper and more cost effective to outsource non-core functions, new media tools are stepping up to fill that last mental barrier keeping companies from fully embracing an outsourcing strategy for growth: the absence of tactile, face to face communications. Now, with Twitter, Facebook, Skype, and Base Camp, collaborators from all over the world can converge on one project and do it more efficiently than shuttling between airports or burning the phone lines.

The beauty of the emergence of new media is that it gives companies who outsource non core functions control over how a project proceeds; in fact, it can be argued that new media gives people the ability to affect changes mid stream and in real time, a luxury that was absent a mere decade ago. For outsourcing companies, it also gives them access to a whole new set of potential customers, companies that have seen the wisdom of maintaining an online presence themselves.

Having said this, the increased reliance on new media to facilitate outsourced operations means companies and individuals must now forge and maintain relationships in the digital world. With the increased use of social networks, this 'virtual life' can also be fully harnessed for business purposes as catch basins for increased interaction between team members. With these new tools, no longer will a manager in the US constantly worry about not getting through to his foreign outsourced partner; new media has made communications a mere mouse click away, and this bodes well for the outsourcing industry because it gives potential customers a new comfort level when dealing with people they have never personally met.

Establishing a Good Governance Process

Although outsourcing is widely considered a cost-cutting measure, it is the ability of an outsourcing provider to work within the interests of their clients - and not just their own - that separates moderately successful partnerships from highly successful ones. It is for this reason that there is an increasing need for outsourcing to involve a framework within which the outsourcing partner must perform. This is what is called the �governance framework� and it is this that determines whether or not many outsourcing relationships succeed or fail.

Given the main goal of a governance process as one that ensures value-adding services and the preservation of the end-user experience, the governance structure should be built on the principles and guidelines behind the rules � and not just the rules themselves. The following are a few tactical aspects of good governance espoused by ERP management outsourcing firm, OneNeck:

Service Level Agreements (SLAs) � as this is the foundation of your services package, it should clearly define process, service levels, checks and balances, and the reporting mechanism for your outsourcing agreement.

Quality of Service reporting (QoS) � ideally you will be able to define your own metrics for QoS allowing you to establish the standards of which your agreement will be measured against. This will also involve time frames, the reporting process, and problem resolution structures.

Face-to-face meetings � as rapid as developments have been for online communication, it will never really be able to substitute frequent meetings in person. Paying a visit to the outsourcing partners offices and assessing the quality of the workplace and infrastructure can go a long way for fostering the trust and transparency that successful outsourcing relationships demand.

Flexibility � unforeseen changes and difficulties are often the downfall of outsourcing partnerships. The outsourcing vendor must therefore be flexible enough to keep up with the changing needs of customers, especially with regard to expansion of services. Flexibility is the main factor involved in the longevity of an outsourcing relationship.

Benefits of Having a Sourcing Advisor

Outsourcing is constantly changing and evolving. As more companies discover its potential and what it can do for their businesses, the entire concept of what outsourcing is sometimes becomes a tangled web of information. For companies which are just testing the waters, information overload on what to do and what to avoid can be confusing. They may even end up shying away from it.

So what can companies do to ensure they are on the right track? They can do their own research or hire a competent outsourcing or sourcing advisor, a consultant/guide who helps companies in developing the right outsourcing deal. In an industry that involves an increasingly complex landscape of service providers, someone who has adequate knowledge and experience in the industry will prod you in the right direction.

Sourcing advisors play an integral part of your outsourcing endeavors. They can provide insights and present market analyses that will help you in making decisions. Sourcing advisors will be there in every step of the way. Whether you are a service buyer or provider, a sourcing advisor has the right capabilities that will help you establish a good outsourcing relationship.

In an article entitled �7 Ways an Outsourcing Advisor Can Save You Money� by Stephanie Overby, she said that while joining the outsourcing bandwagon without external help will already enable you to reduce costs, having a sourcing advisor may save you money in any or all steps of the outsourcing process. She enumerates the seven ways a sourcing advisor can do for you that will let you cut costs:

1. Rigorous and relevant Requests for Proposal (RFPs)
2. Pricing intelligence
3. Access to innovation
4. Vendor knowledge
5. Focus
6. Presence of an upper hand in negotiations
7. Preparedness in transition and governance

It is a good thing to work with someone who is knowledgeable on the industry that you want to venture into. With the help of a good sourcing advisor, not only can you reduce costs - you will also be able to create the right outsourcing deal for your company.

A Look at Project Based Outsourcing

The rapid development of the outsourcing industry has given rise to multiple variations of service providers � offering end-to-end services within multiple disciplines delivered across varying parts of the globe. Selecting a service provider increasingly depends on the service delivery method or the sourcing model that is appropriate for the buyer's outsourcing needs. In an article regarding such, Infosys expressed that each model will offer a host of advantages that will be applicable only to specific situations. Let us have a closer look at one such situation in which service providers are given full responsibility for an outsourced project: Project Based Outsourcing

Project based outsourcing is an increasingly popular sourcing model among clients as more and more buyer organizations develop sourcing maturity � efficiently assessing needs, setting expectations, and applying outsourcing as a tool for strategic enterprise-wide improvement. Project based outsourcing dictates that the service provider manage all tasks involved in an outsourced project until the agreed upon outcome is achieved or a certain deliverable is received. Such will require that the service provider possesses the manpower with necessary skills to accomplish tasks involved. The service provider will also provide project management expertise in order to run the project. The client will thus not need to be involved in day-to-day operations but will rather focus on the final outcome of the project.

Vendor management mechanisms in this case are reliant on end-to-end project outcomes and ensuring quality levels in each task. The vendor/buyer relationship is the cornerstone of project based outsourcing. The buyer will only need to benchmark and monitor outcomes as the responsibility of the project rests solely on the vendor.

The client's loss of control over day-to-day operations can be both a pro and a con in project based outsourcing. This will require a better understanding of the offshore model on the part of the client and a assurance of operational management capabilities from the part of the vendor.

Overall, project outsourcing highly depends on clearly defining requirements and specifications of the project from the start. When successful, project outsourcing can provide a high level of productivity at lower costs. Documentation, programming, testing, quality assurance and detailed design are all entrusted to the vendor � requiring advanced skills and a high level of expertise in the relative field of the project being outsourced.

Factors to Consider in Choosing a Service Provider

With the rising number of companies discovering the advantages of outsourcing, and as the current global recession compels affected companies to outsource in order to stay afloat, the number of countries that offer outsourcing services increases. In the Global Services-Tholons study entitled �Top 50 Emerging Global Outsourcing Cities�, there's India at the forefront, followed closely by the Philippines in the list of Top 5 offshore nations. Countries from different parts of the world are also emerging as great outsourcing destinations. This makes selection of the right service provider more difficult and time-consuming.

Do not fall into the trap of many outsourcing vendors promising way more than what they can actually do. In an article �How to Choose an Outsourcing Provider�, Randy Vetter, Director from Alsbridge, Inc., discusses the factors buyers can bear in mind when it comes to finding the right service provider for them:

Take a closer look at the company profile. The provider's experience in the world of outsourcing will give you insights on the company's industry knowledge and capabilities. Also, know the clients that utilize its services.

The service provider's management style must be aligned with the buyer's requirements. Also, it should be flexible enough in such a way that it can deliver by adapting to the buyer's working environment.

Buyers which are looking for outsourcing partners may also want to consider these factors:

deep delivery capability
length of the provider's experience
relevant and positive references
financial stability
innovation
investments in research and development
quality achievement

Establishing a good outsourcing relationship and maintaining it will always be a challenge. The first step would be to find a service provider that understands the buyer's business goals and has the capability to meet them. Finding the most suitable provider may be difficult, but once the buyer has created an effective working relationship with its outsourcing partner, the set goals will soon be met and the advantages of outsourcing will be realized.

Crowd Sourcing as a Key Business Trend in the Future

In a nutshell, crowd sourcing is a type of outsourcing that involves transferring a certain business task or process to a group of people (crowd). What makes it different from the usual form of outsourcing is the fact that the company makes use of the service/s of an unknown group of people, or even an individual. A typical crowd sourcing process goes something like this: a company informs the public online about a problem, people will submit their solutions, the company will choose the best and most suitable proposition, then gives incentive to whoever had formulated the chosen solution.

According to Alexandra Cain in her article�Outsourcing on Steriods�, crowd sourcing is �revolutionizing the economics of doing business�. What used to be done in-house can be outsourced to a company or someone else from any part of the world. Obviously, this form of outsourcing has become popular because it allows companies to cut costs and focus on their core competencies, but there's more to crowd sourcing than cost reduction and having more time to take on core functions. Since the company presents what it needs online for everyone to see, it can have access to a vast group of people with varying talents and capabilities. Also, crowd sourcing enables companies to gain feedback and suggestions straight from the public. In this way, companies will have insights on which products/services would appeal to consumers.

Of course, crowd sourcing has its own share of drawbacks. For one, it is not applicable for every company. This is usually a great solution for those looking for ideas on creative projects - a website design, logo, slogan, name of a new product or service, etc. Another pitfall of crowd sourcing is difficulty in coordinating with supplier/s throughout the entire process. Language barriers and time difference are some of the factors that can affect the smooth flow of the project.

As crowd sourcing becomes a useful process for an increasing number of companies, it is poised to emerge as a major business trend in the future. The key is to weigh the pros and cons before venturing into crowd sourcing. It is also crucial to bear in mind that cost reduction is and should not be the sole factor on deciding whether to crowd source or not.

Top 5 Tips for Successful Offshore Outsourcing

Outsourcing any range of services to offshore service providers is a risky process for a number of reasons. It is always important that a prospective outsourcing buyer consider the best methodologies and make decisions that consider their in-house context, the net cost savings, and whether or not a certain process can indeed be outsourced. According to outsourcing consultation firm, TPI, a 15 to 25 percent in net cost savings is enough for an organization to agree to outsource offshore. To maximize that window, however, will require careful planning and risk mitigation. Here are five tips to consider applying in order to ensure your outsourcing operation is a success.

1. Start small � This is especially true if this is your first time. Starting small will limit risks and allow for easier quality control. Be sure to start with services that are easily manageable, well-known, and not critical to the business' well-being.

2. Clearly define your goals and reasons - There are many service providers online that will tout that outsourcing will allow you to save 30 to 40 percent and will allow you to focus on 'core competencies'. By knowing exactly why outsourcing is necessary, and by having a specific set of goals, buyers are able to assess how well service providers can help realize those goals.

3. Monitor the results � In order to do this, it is important to establish objective metrics and measure results against goals. These will determine performance results upon project completion.

4. Build an offshore team � services like MicroSourcing's offshore teams staff leasing model allow you to build an offshore team with the specific set of skills to automate one or more processes within your firm. This will involve training your offshore outsourcing staff and maybe even coordinating offshore visits.

5. Establish a clear engagement model � It is essential that a buyer knows exactly how both parties will work together and define the different roles and responsibilities to get the results needed. This will involve defining escalation paths, detailing a communication model, and establishing executive level relationships.

From Print to Web: Challenges Faced by the Publishing Industry

At this age when almost everything goes digital, more and more people prefer making transactions online instead of the conventional method of pen and paper, and as it shows no signs of stopping, even the publishing industry is now compelled to go with this digital flow. However, the transition to digitized content proves to be very challenging for an industry that depends for the longest time on print.

As the publishing industry forays into the digital world, publishers need to provide better content and offer something unique that will help them establish their brand online and eventually get steady revenues from the Web. The impact of the global economic crisis also adds up to the challenges being faced by the publishers. According to the paper entitled �Publishing: Driven by digital trends� from ValueNotes Outsourcing Weekly, the publishers have tried the trial and error method to overcome these challenges, and the way things are going, it is not clear if the industry can adapt to the transition.

To resolve existing problems, publishers can outsource in order to cut costs and/or increase revenues. The author of the paper explains that there is a difference in outsourcing as a cost-cutting measure and choosing to outsource due to inability of the publisher to sustain. This means good news for service providers which offer a variety of services that publishers need - copywriting, editing, proofreading, graphic design, etc. However, there are also challenges on their end. For instance, content can obviously be outsourced, but can service providers meet the content influx? Another factor to consider is the vendors' sustainability. Unfortunately, most say they can deliver way more than what they are capable of. Can they keep up to the demand of the industry?

Overcoming the challenges faced by the publishing industry will depend on sustainability of the publisher and of the service provider should the former decides to outsource some of its business processes. If both parties manage to keep up then the dilemma of the industry will be resolved.

Philippine Outsourcing: Growth Amid No-Growth Times

During the height of the economic crisis, outsourcing industry experts, analysts, and service providers projected a boost in outsourcing and offshoring activity; and with good reason. An offshore worker can be hired 24/7 for the equivalent of barely a living wage in Western countries. The difference was simply too great to ignore and the global outsourcing market became littered with large BPO buyers that were willing to sacrifice a bit of quality (arguably) for the cost-effective offers that so many service providers flaunted. However, almost a year since the beginning of the crisis, the global outsourcing and offshoring industry does not seem to be growing any faster than experts predicted. Where is the growth that so many anticipated?

Top Indian outsourcing body, Nasscom (National Association of Software and Service Companies), predicted 4 to 7 percent growth this year � far below the initially predicted 16% from last year, and the 30% rise it posted regularly in the past. According to CIO analyst, Aprit Kaushik, 20 to 40% of the revenues of offshore outsourcing firms are tied to the financial services industry. Following its demise, companies have had to look for alternate vertical markets. Furthermore, buyers must now, more than ever, focus on not just output (e.g. large BPO deals highly reliant on process expertise), but the quality of that output and the �hidden costs� factor involved in each deal.

The shift towards downsizing traditional BPO deals such as IT and contact center work that revolve around large production volumes is one of the factors causing the slowdown of the outsourcing industry. Buyers have begun considering higher-end services like finance and accounting, and outsourcing smaller projects with lower risks; but require quality domain expertise. This is perhaps one of the main reasons, if not the reason that amid �no growth� times, the Philippines is posting double digit growth.

On a survey conducted by the Business Process Outsourcing Association of the Philippines (BPA/P), 65% of outsourcing clients indicated that prospects for their non-voice operations in the Philippines for 2009 are excellent to outstanding. A total of 188 respondents answered the survey. XMG Global predicts that the Philippines will close out the year at 21.7% growth; due mainly to the growth of the Philippines' Knowledge Process Outsourcing industry; which currently encompasses animation and graphics, finance and accounting, and HR-related services.

A Look at IT Outsourcing

Outsourcing has become a solution for many Western companies affected by global recession in order to keep the business going. Aside from reducing costs, outsourcing enables companies to focus on core competencies. Non-core functions are then transferred to developing countries that offer services at lower costs. In Paul Ingevaldson's article entitled �IT is Not the Mailroom�, IT is considered as a support department, and does not directly contribute in reaching the company's goals. Therefore, it is a �perfect candidate for outsourcing�.

Almost all business processes go through IT systems, and the company will not be able to meet its goals without IT. This may be the case, but for some companies, they opt to outsource IT processes in order to cut costs. Bear in mind that IT entails technically-skilled workers. If IT processes are outsourced, there is no need for IT people in-house. As a result, the company will have a hard time figuring out how the system works if something goes wrong.

According to Ingevaldson, companies which chose IT outsourcing to deal with the impact of global recession will be underperformers when the global economy bounces back.

It goes without saying that to outsource or not to outsource IT is a major business decision. While it does not have a direct contribution in meeting business objectives, the company will not be able to function effectively without it.

If the company chooses to outsource IT, be aware of communication problems that may arise especially due to the huge time difference. Also, make sure that IT is outsourced to a reputable service provider. This is the most important thing to consider. Take note that many providers tend to promise more than what they can actually accomplish, and the end result will not be in the buyer's favor. The vendor must be able to provide IT security credentials before signing the outsourcing contract. Compromising security just for the purpose of reducing operational costs will not do any good to the business.

Unforseen Costs and Flexible Outsourcing Contracts

Outsourcing any function to a foreign component always implies a loss of control; control over quality output, security, but also - due to unforeseen expenses - cost. Cost effectiveness, to date, remains the number one reason for companies to outsource. The Philippines, for example has earned the majority of its outsourcing contracts from recession-plagued Western countries such as the US. BPAP (Business Process Association of the Philippines) cited mergers, disruptions, corporate restructuring, cost containment needs, and business changes as the main factors contributing to investments in the Philippine outsourcing sector.

Many service providers will boast that the use of IT-enabled services and outsourcing is not just a cost-cutting measure, but the purchase of expertise at the highest standards in the process of achieving global competitiveness. This may well be true, but the numbers clearly indicate that contracts earned by offshore service providers have been primarily caused by companies either trying to weather a financial storm, or simply looking for lowered costs. Sourcing advisory firm, EquaTerra, for instance, indicated in their study on �Advisor and Business/IT Service Providers Pulse Survey� that 68% predicted the market trend for IT outsourcing will continue to rise due to �defensive� action plans of outsourcing companies:

"The bulk of outsourcing demand is still defensive, aimed at short-term cost-cutting and cost-containment strategies," said Stan Lepeak, managing director of global research.

Yet another study, this one from a YouGov survey commissioned by the NCC group, indicates that participants in IT outsourcing believe that they are exposing themselves to more risks (with 20% indicating as such). Yet the continued domination of IT outsourcing in the global outsourcing market is proof that perhaps buyers are willing to overlook these risks in favor of lowering costs.

In an uncertain environment, flexibility is a key factor; especially with regards to newcomers to the outsourcing market. As there are simply too many unforeseen costs that can come from technical difficulties, manpower changes, and communication barriers; buyers are increasingly looking at flexibility in outsourcing partnerships. A study by Olswang cites some of the well-established mechanisms for flexible outsourcing contracts: effective governance and change control, gain-sharing, market testing and benchmarking, break-clauses and other levers to retender and/or renegotiate.

The Philippines in �Top 50 Emerging Global Outsourcing Cities� Study

There is no stopping the outsourcing industry in the Philippines, not even the global financial crisis.

In the Global Services-Tholons study entitled �Top 50 Emerging Global Outsourcing Cities�, the Philippines has been ranked second, next to India, in the list of Top 5 Offshore Nations. China, Ireland, and Brazil also made it to the list.

The country first made its presence known in the global outsourcing scene as an ideal destination for voice-based services. Through the years, it has evolved into a hub not only for contact centers but also for non-voice BPO services including IT, back-office functions, as well as medical, legal, finance and accounting, and human resources outsourcing. Also, Western companies which are struggling to stay afloat during these rough times feel compelled to outsource business tasks as a cost-cutting measure, and are discovering the country as the ideal offshoring destination. That is why there is an ever increasing demand in the outsourcing industry.

In 2008, the BPO industry in the country had registered a total of US$6 billion in revenues, and employed more than 250,000 people. With an estimated revenue of US$7.3 billion by the end of 2009, it is predicted that the Philippine outsourcing industry will see continuous growth and will remain resilient in the current global economic downturn.

However, the report revealed that three cities in the Philippines - Pasig City, Quezon City, and Mandaluyong City - were removed from the list of top emerging outsourcing cities. This may be the case, but Manila-NCR is still included in the Top 8 Global Outsourcing Cities (ranked no. 4). When it comes to the Top 50 Emerging Global Outsourcing Cities, Cebu City reigns supreme for the second year running.

The Philippines' large pool of English-speaking and highly skilled individuals, affinity with Western culture, low labor and operational costs, and continuous support from the government are all major factors that make the country an ideal outsourcing destination. By looking at the findings of this study, there is no doubt that the outsourcing industry in the country will continue to flourish in the years to come.

Outsourcing and its Changing Pros and Cons

In a given discussion regarding the outsourcing industry, cities like Manila, Bangalore, and Malaysia would typically be under the microscope. The fact that such a discussion two to three years ago would be completely different today is testament to the speed at which the industry advances and the number of variables it involves. The debates regarding advantages and risks of outsourcing to one city or the other, for instance, is changing for two main reasons: the arrival of new outsourcing locations such as Cebu, and the development of multi-location strategies. Whether it be call center outsourcing, medical transcription, or content moderation, the effects of outsourcing jobs to foreign countries involve new innovations that are shaping the landscape of cities across the globe.

As the current economic crisis extends its blight throughout Asia, it has provided a catalyst to measures undertaken by affected nations to fortify outsourcing capabilities. Given the interdependence of today's global community amid an economic downturn, this has directly influenced decision-makers that weigh the pros and cons of outsourcing. Tier-2 and tier-3 cities within Asia are abuzz as outsourcing jobs to foreign countries continues to prove as the solution for many struggling businesses, namely in the US. Though many analysts have pinned outsourcing as a solution to uplift the standard of living, many who have lost their jobs to foreign countries wonder, how does outsourcing help America?

The negative effects of outsourcing jobs is displayed in Forrester Research's dim forecast of 3.3 million service jobs in America going offshore by 2015. As nations under pressure struggle, new cities are emerging to heed the calls for offshore services at lower costs; as displayed in Tholon's survey of the �Top 50 Emerging Global Outsourcing Cities�. China, which is among the Asian nations suffering the most from the global recession, has begun to provide tax breaks and subsidies to maximize the advantages of outsourcing to foreign countries. Shangai, Beijing, and Ho Chi Minh City all occupy spots in the top five on Tholon's survey. Meanwhile, plagued with terrorists attacks and scandals, India is under pressure to maintain its place as the top destination for outsourcing. Leading the emerging destinations list is Cebu � a city that, only three years ago, had but a few highrise buildings dedicated to call center outsourcing in its central IT hub. Boasting a significantly more affordable labor force, quality graduates, and a relatively relaxed coastal environment, Cebu is currently an outsourcing hotspot with advantages that cannot be ignored.

With more and more quality outsourcing destinations arriving on the scene, the advantages and disadvantages of outsourcing depend highly on what service is to be outsourced. Where once outsourcing jobs to foreign countries meant packaging all services to one city, service providers are now realizing the advantages of utilizing a multi-city model in which specific service lines are assigned to the most suitable locations. Upon weighing the pros and cons, the multi-city model may prove to be far more efficient. This means that there are now �global Business Process Outsourcing providers� that clients can consider, and, more importantly, local providers need to be able to contend with.

Six Warning Signs that a Service Provider is in Trouble

Twenty-five percent of existing BPO service providers will cease to operate in 2012. This is based on a recently published Gartner research which is part of the Special Report entitled �Assess and Manage Vendor Risks to Protect Your Business�. This can be attributed to the current economic downturn, lapses in outsourcing contracts, and not being able to adapt to standardized delivery models.

With these factors in mind, Gartner noted that BPO buyers must take caution before venturing into any new outsourcing contract, and should be aware of the six warning signs indicating that a service provider is not stable enough to maintain a long-term outsourcing relationship:

1. Unprofitable outsourcing deals - According to the research, �Some BPO providers are carrying unprofitable contract portfolios, largely stemming from too-much, too-soon pursuit of deals, without much thought as to how to transition them to a standardized, rationalized, profitable state of ongoing operations.�

2. Inability to get new projects - It is a good sign if the service provider has the ability to constantly take on diverse requirements of different clients.

3. Loss of major contracts to other service providers - Losing a �marquee� deal spells trouble on the part of the vendor. �It will always be prudent due diligence to seek and gain a reference from any current anchor clients to understand how committed they are to the vendor and their experiences in dealing with them.�

4. Inability to bid on new BPO deals because of lack of enough funds - Some service providers cannot take on new BPO contracts because of lack of enough capital. Moreover, the so-called �lift and shift� strategy in which a business process is moved offshore to reduce costs because of lower salaries will eventually create problems for service providers that rely on it because they still need capital for the resources required to do that outsourced task.

5. Exposure to banking / finance sector - With the current financial crisis, those service providers with revenues coming from the finance or banking sector will be in a tight spot. If the outsourcing partner has more than 85 percent of revenue from the banking sector, the buyer should know if this will affect their business operations.

6. Increasing levels of contract cancellation and insourcing - Gartner says that before signing an outsourcing contract, buyers must come up with a plan on what to do when contract ends. Moreover, contracts must be crystal clear, tackling not only the issues that may arise for the first year but also the steps to take in case the buyer decides to expand or have a new project.

During these tough times when outsourcing has become an avenue for companies primarily to cut costs, it is essential to pay close attention to your outsourcing partner. Know the warning signs and be constantly aware of what is happening in the BPO industry. Have a clear picture of what you want to achieve before signing any outsourcing contract.

Study Reveals Communication Problems and Best Practices in Outsourcing

Effective communication plays a major role in the world of outsourcing where people with different nationalities, culture, and interests work together to achieve their business goals. While it is now easy and convenient to talk to people overseas, thanks to advanced technology, problems are still being encountered because communication best practices are often neglected. This eventually hinders BPO players to establish and maintain long-term outsourcing relationships.

In the first of four-part Best Practices Series 2009 published by Outsourcing Center entitled �Four Communication Best Practices Often Overlooked in Outsourcing Relationships�, 56 buyers who participated in the study noted that communication problems arise from:

1. root cause analysis
2. not being able to understand the buyer's priorities
3. agreeing (or not) on the importance of �noise� or customer's feedback/complaints
4. service provider's failure to listen to the buyer

The key to having a successful outsourcing relationship is to reach a shared understanding of each other's goals. To achieve this, service providers and buyers must adhere to the four communication best practices that are often overlooked in outsourcing:

1. Service providers must take the �noise� into account. They pay so much attention on meeting the requirements that they fail to look into what customers think about the deliverables, so it is the buyer who ends up dealing with customers' complaints. Providers must understand that �noise� is significant in establishing an outsourcing relationship.

2. Create a communication plan for the period after the transition phase. The relationship usually runs smoothly at the start of the project when both parties understand each other's goals. The problem arises after the transition when the business operation expands and/or venture into new projects. Participating buyers said that providers are not able to identify which tasks are critical for the project and in accordance to the buyer's objectives. The best practice to overcome this is to develop a communication plan for the period after the transition phase so the service provider can determine which should be prioritized.

3. Outsourcing contract should be �crystal clear�. To avoid conflicts, there must be no room for vagueness or ambiguity when it comes to the outsourcing contract. If an issue arises, both parties must identify the cause of the problem and resolve it.

4. Mutual trust must be established. Buyer and service provider need to demonstrate that they truly listen and understand each other. For service providers, pay attention to the buyer's issues and make sure to resolve them. The same goes to buyers. Communication entails two or more parties, and having mutual trust is important to overcome the problem.

This study is a clear indication that communication is more than just talking to the service buyer or provider. It is about understanding each other's issues and concerns and coming up with solutions that will work for both parties. Culture and interests may vary, but shared understanding of objectives must be established in order to develop an outsourcing relationship that is both long-lasting and beneficial to service buyer and provider. The important thing is for buyers and service providers to keep the best practices in communication in mind to avoid problems.