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How should companies approach outsourcing in this economy?

Outsourcing clients have to think more smartly and strategically about creating an experience than can drive new growth, deliver business value to the top-line, and not just take out short-term costs from the bottom. If clients can engage outsourcing to become more competitive, it creates an entirely different paradigm than simply “shipping jobs offshore”.

In this tough economy, it’s easy for enterprises to jump at outsourcing opportunities, simply with the goal of shedding some cost from the bottom-line - as we recently discussed here. However, many enterprises have jumped at the lowest cost option in too many situations, and now live to regret their decision.

Outsourcing clients have to think more smartly and strategically about creating an experience than can drive new growth, deliver business value to the top-line, and not just take out short-term costs from the bottom. If clients can engage outsourcing to become more competitive, it creates an entirely different paradigm than simply “shipping jobs offshore”.

Believe it or not, many of the smart businesses that survive this economic hardship are going to emerge more nimble, more competitive, and more globally-integrated. Outsourcing alone is not the answer; it simply provides a vehicle for enterprises to gain access to new talent, better process acumen, new technology and global markets, provided they venture into an outsourcing engagement with the right objectives in mind. There is a proliferation of service providers eager for business, and most of them will offer attractive short-term cost savings. However, clients must focus on forging a partnership with a provider which will work with them to add a lot more competitive bite to their business over a multi-year contract.

Key decision-points companies must take onboard when approaching outsourcing opportunities

1. Think globally.  One of the core differences between the current economic recession and those of the past, is the fact that all of today’s financial markets and economies across the globe are so much more integrated than they used to be.  The Internet and global communications revolution have created unprecedented access to global talent, where you can have your mainframe computers managed in Brazil, your general ledger consolidated in Hungary and your logistics analytics performed in India.  The need to enter new global markets quickly has never been as pressing as it is in today markets, and the right service partners can help you grow your business globally.  Having a ready support infrastructure that can support foreign payrolls, accounting procedures, local regulations etc. can save your company months of painful work to set up shop in new markets.

2. Focus on common standards.  Engaging an outsourcing provider which can provide common processes around a solid ERP backbone is critical (see earlier discussion on bundling).  Smart enterprises are moving ever-closer to developing commons standards to support processes that can enable them to operate and compete as global entities, and this current economic predicament is accelerating this dynamic.  When you have rapid access to your global financial, HR, supply chain, customer and product information, you are in a position where you can make quicker informed decisions to enter new markets, sunset dwindling product or service lines and mobilize your resources and partners accordingly to respond to your existing and future customers.  ERP platforms are far more globally-integrated now than they were a decade ago.  These platforms provide a crucial backbone for supporting global business initiatives, and developing technology standards, such as XRBL and HR-XML, are helping firms re-use and optimize a lot of what they already have.  

3. Add discipline to your revenue cycle.  A good BPO provider can add discipline to your collections and speed up your cash-flow, eliminate bad debt and free up a more timely cash-supply. On the flip side, quality procurement processes help you keep the cash you currently have. This is critical in today’s tougher environment.

4. Approach cost-containment as an ongoing objective.   A good outsourcing partner should be able to help you sustain cost-savings over a long period, not simply at the onset of an engagement, through ongoing quality and process improvements.  For example, you may save $10 million in the first year or your engagement, but how about the subsequent years?  Those initial costs you saved will creep back if you don’t constantly refine your processes across your global supply chain. Mumbai

All-in-all, it’s really not a good time to go to your board and demand multiple millions of dollars to add a new service provider to your outsourced delivery infrastructure, or even rip up your current contract, if you rushed into an outsourcing situation without an eye on the medium-to-long term.  My advice to clients is to use this economic climate as an opportunity to drive more radical changes into their business and consider the decision-points above when they start engaging outsourcing providers.  I'll leave you with a more peaceful scence from Mumbai...