Outsourcing sounds great: cost savings, flexible scalability, and access to the most capable staff. Unfortunately, the reality can differ.
For example, Asian companies are finding that the cost savings involved in "offshoring" (outsourcing to another country) may not be as compelling as they are for businesses located elsewhere, says Girija Pande, regional director, Asia-Pacific, at Tata Consultancy Services.
"They tend to view outsourcing as only a cost issue. The cost comparisons are not as much as what you have from Europe and North America, so people are saying: 'What's the point of outsourcing to India', for example," says Pande.
If companies get past issues of cost, the ability to provide services on an appropriate scale is often the next concern. Whether it is running a call center, accounting functions, human resources, or some other business process, size does matter. Companies may find hiring, staffing and expanding these capabilities to be a major challenge as the company grows. Outsourcing can be a way to ensure these business processes do not suffer as thecompany grows.
Additionally, improved skills and capabilities can be one of the strongest points of outsourcing, says Pande. A small, non-IT company, for example, may not be able to attract the most skilled staff. Even if it does, providing staff with continuing training is a challenge. An outsourcing vendor can attract good staff, keep them up-to-date, meaning more and better staff is available.
Staying out of trouble
Outsourcing, especially outsourcing business processes, such as HR, payroll, accounts, contact centers, and other functions, can put your company at great risk, says Andrew Heard, CEO of the Singapore office of Mellon, a multinational firm that provides human resources and investor relations services.
"I've seen small payroll outsourcing vendors in this market with very little capital backing, and all they would need to do is one bad payroll run and their capital wouldn't cover the errors. Or they leave the market half-way through the year, and the client is faced with having to produce the end-of-year statutory returns themselves because there vendor's gone bottom up," says Heard.
"I've seen small payroll outsourcing vendors in this market with very little capital backing, and all they would need to do is one bad payroll run and their capital wouldn't cover the errors."
Andrew Heard, CEO of Mellon Singapore
Considering the potential for problems, one would expect companies to take great care in selecting their outsourcing vendors, but Heard says that is often not the case. Mellon has conducted research over the last several years and the results are worrisome. Among the 220 companies surveyed in Hong Kong, Singapore, and Malaysia last year, 68 percent relied on the recommendations of friends and colleagues to choose an outsourcing provider, rather than relying on a formal tendering process.
There is nothing wrong with recommendations, says Heard, but they should be used in conjunction with a more formal tender. On the plus side, the number of companies doing tenders has been increasing over the years of the survey.
The short list
Ensuring that the outsourcing of business processes is trouble-free is relatively simple, say our experts. A few simple tips can maximize benefits and ensure that quality does not suffer:
- Identify the processes to outsource. If a process is stable, based on well-understood standards, and running smoothly, it's a good candidate for outsourcing. However, if it is a process that is consistently troublesome and costing you business or alienating customers, it may also be a good idea to look at outsourcing.
- Ensure your provider understands your business needs. An outsourcing deal will last for several years and you need to ensure your provider can support your plans for growth in addition to your needs today.
- Involve affected staff and departments in creating specifications and selecting a vendor. They know the job and will help ensure you do not overlook anything.
- Assess your vendor's business performance. Are they committed to your region? Are they financially stable? Are they hiring or retrenching staff?
- Ensure you have someone with the technical skills and business savvy to manage your vendor after the outsourcing is complete.
Once you've identified your vendor and determined your needs, you can create a service level agreement (SLA), which sets out what is expected from each party and the rewards and penalties for excellent or substandard service. Kevin Taylor, Asia-Pacific vice-president of solutions, propositions, and outsourcing for BT Global Services, cautions against putting all your faith in an SLA, as it only comes into play if the vendor is failing to deliver. If that's the case, your business has already been damaged. "Of course, we have to do SLAs, but I see SLAs as very much an operational thing, not a future 'this is how we're going to work together'," says Taylor.
The key to maintaining--or even improving--the quality of your business processes, is forethought. Like any other business decision, planning and research now means fewer problems later.
Bill Clark is a freelance journalist based in Singapore.