Learn how our Managed Operations model provides the perfect middle ground between outsourcing and incorporating.

talk expert
Talk to
an Expert

Explore the opportunities with us.

Contact Us

September 2010 | Outsourcing Blog | BPO Industry Updates and Articles

Why Outsourcing is a Popular Business Tool

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.

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.

Tips for achieving a profitable partnership with your service provider

Here are Top 5 tips from TPI Senior Advisor Rainer Blütling 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.

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.

Factors to impact IT outsourcing and the BPO industry

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.

What BPOs can Learn from ITOs

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.