To outsource or not?

Picture this:Snazzy skyscrapers, the latest gizmos, flashy cars and highflying lifestyles in the so called developing or underdeveloped countries. On the other end, massive layoffs, extensive restructuring and angry protests in the UK and US. And Outsourcing is - depending on which part of the world you're in - the dashing hero or the mighty villain here. Expected to grow 10% a year to $618 billion by 2010, there's no doubt that outsourcing is in big time. But the euphoria, controversies, hype and bad blood surrounding it have to be seen to be believed. So where exactly does outsourcing stand? Is it to be hailed as the next best thing or banished out of sight? Let's get the facts right!

Offloading non-core activities performed in-house to specialists outside the company is the main premise of outsourcing. This helps an entrepreneur or business to focus on the core competencies, thereby improving performance standards. The growth and rewards of this practice are commendable, but then the stakes are equally daunting. So here's a look at the pros and cons of outsourcing.
If outsourcing has captured the imagination of the world, there must be some reason to it. And reasons there are plenty! Here are some of the benefits derived from outsourcing and BPO related activities:

• Savings in terms of costs and time
• Productivity improvements
• Opportunity to focus on core business
• Enhanced access to expertise
• Operational cost control
• Improved accountability
• Flexibility to reallocate resources and meet company goals
• Improved Human Relations management

As for the flip side of outsourcing, the list would include the creation of a dependency mentality, lack of innovation and integration, and loss of a competitive edge. Outsourcing spawns these ill-effects mainly when it is applied as a short term tool to reduce costs and boost production volumes. Outsourcing has to be planned out beyond mere cost control, with carefully thought-out strategies and logistics in place. A productive, nurturing culture is imperative, especially in the beginning. The BPO setup cannot be devised as a temporary 'sweatshop' with negligible possibilities of growth and innovation. If treated thus, issues of functionality and quality are sure to crop up.

How to make the most of outsourcing

Apart from reducing development time and costs, an outsourcing partnership should free up resources and orient them towards innovation. There must also be proactive communication, and systematic tracking and trending to facilitate results analysis. An outsourcing provider who is willing to learn and understand the values of the parent organization and who can provide the right kind of expertise and instrumentation can be a company's best asset. The right equation can make all the difference to an outsourcing partnership:

To the outsourcer

• Treat outsourcing as a strategic investment, clearly defining goals, strategies, objectives and time lines.
• Choose a firm that has goals you can identify with, and a track record that you can use productively.
• Devise a management strategy that has a patrollable border between your responsibilities and that of the outsourcing firm.
• Once you have outsourced a service or work, trust the service provider with the work. Unnecessary control or overt monitoring can only be detrimental to your cause. Strike a balance.
• Initiate a contract that has concrete objectives, performance measurement strategies and incentives in place. This will clarify things for the provider apart from providing sustained motivation.

To the provider

• As with the outsourcer, treat outsourcing as a strategic investment, clearly defining goals, strategies and objectives.
• Encourage a contract with the client that spells out performance measurements on the basis of concrete objectives. Use it as a benchmark to streamline processes
• Develop an open rapport with the client, building an equation that aligns the interests of the outsourcer, the provider and customers.
• Build a feasible system to measure and evaluate management processes. Use it to negotiate changes and upgrade performance responsibilities.

Interestingly enough, the resentment and paranoia surrounding outsourcing are slowly waning, replaced by a grudging acceptance and recognition of how both sides are benefiting. Reports that corroborate the value of outsourcing also add to the stability of the situation. According to a Global Insight study sponsored by the ITAA (Information Technology Association of America), the benefits of offshore IT outsourcing added $33.6 billion to real gross domestic product in the United States in 2003. By 2008, real GDP is expected to be $124.2 billion higher than it would be in an environment without IT software and services offshore outsourcing. Truly a give and take situation!

Vidhu Panicker
Outsourcenews.com network