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January 2010 | Outsourcing Blog | BPO Industry Updates and Articles

Mistakes Companies Make in Outsourcing Deals

by: Karen Cayamanda

Tuesday, January 26, 2010 | Comments (0)

Category: Outsourcing Research / Trends

Outsourcing Mistakes to Avoid

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.


IT Outsourcing Trends 2010

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

by: Karen Cayamanda

Saturday, January 16, 2010 | Comments (0)

Category: Outsourcing News

Outsourcing in 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

by: Karen Cayamanda

Wednesday, January 13, 2010 | Comments (0)

Category: Outsourcing News

Finding the right Outsourcing Consultant

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".


What Happened in the Global Outsourcing Sector Last Year?

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.  
 


Outsourcing Destinations of 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”. 


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).

Outsourcing trends in 2010

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.