Home > Exclusive Articles, Leadership > BPO for the Rest of Us: Outsourcing and Offshoring for Smaller Businesses

BPO for the Rest of Us: Outsourcing and Offshoring for Smaller Businesses

By Matthew Regan
Principal, Predictis LLC

Read more about this author on the HR Perfomance Site website

worldOutsourcing for the Small to Mid sized Business
Outsourcing and off-shoring have become buzz words in the business world over the past 10 years, as one large business after another chooses to place certain operations, often IT functions, into the hands of competent offshore partners in India, China, the Philippines, or increasingly, a number of Eastern European countries. The broad acceptance of this strategy, along with the overall maturation and improvement of the quality of offshore solutions has created a thriving worldwide industry and brought this once atypical approach into the mainstream. The general impression is that a true “outsourced” solution is meant for a large organization, one that has thousands of employees spread all over the globe. We feel strongly that this is not the case, and that the small to mid sized company can be ideally suited to an outsourced solution, if that solution is targeted, focused and organized around those unique requirements. In this discussion, we will focus on two specific deliverables that are particularly applicable to the small to mid sized business, IT infrastructure support and business process outsourcing, which provide excellent examples of offshore or outsourced opportunities.

IT Infrastructure Management
The decision to outsource any of the responsibilities of your IT department to an offshore or onshore partner begins with the goal of cutting costs in your organization. Reduced costs is a powerful incentive on its own, but the decision to seek an outsource partner can bring other important improvements to your organization, and should not be overlooked. While we begin with the reduction of costs across the organization, we will see that the tangential benefits can make a compelling case for considering the outsourced solution on their own.

Reduced Infrastructure Costs
Many of the costs associated with the IT department in a typical small to mid-sized business emanate from the misallocation of human resources. IT infrastructure operations is usually the stepchild of the IT department in these organizations. Often, companies attempt to underpay for infrastructure managers and overpay for application developers, under the logic that developers are more strategic and valuable to the firm. While this may be true, the result is that in most cases the infrastructure management is non-existent, and the high priced application developers are thrust into the role of crisis management when systems inevitably fail. Effective project management and delivery of IT infrastructure is a luxury that these firms don’t feel that they can afford. An outsourced solution provides the smaller organization a shared resource for quality project management, allowing the smaller company improved skill levels at a lower cost. Over time, Over time, a forward looking infrastructure outsource relationship can move your organization away from a reactive position to a proactive one. Most good IT infrastructure managers know that 80% of system failures are due to recent changes or updates to the system. Effective change management is the key to improving uptime and lowering the overall cost of operations, as downtime requires the deployment of expensive resources. Your outsource partner should commit to producing a strategic plan with detailed suggestions for workforce training, hardware replacement, network connectivity improvements and software purchases that will serve to drive down infrastructure costs. Further, when benefits of scale are available to be passed along to their clients, they should be happy to do so. The overall costs of running a network have decreased dramatically over the past decade, as hardware and software prices reflect the general commoditization of the industry. If your infrastructure costs have not declined along that same time period, it may be because no strategic plan has been created that focuses specifically on infrastructure optimization.

As we begin to investigate the tangential benefits of an outsourced solution that go beyond direct cost savings, we start with increased productivity a benefit that moves far beyond the IT department. A predictive approach to network infrastructure maintenance and service will lead to improved uptime, leading to far fewer instances of interruption of productive labor, certainly. But beyond that, underutilized resources in the technology group can focus on their strengths, and not spend a considerable amount of their time
on tasks for which they are overqualified. In a well functioning organization, technology and business strategy should be closely aligned, so that strategic decision making can
be done in concert with your key technical resources. Unfortunately, in many small to mid-sized businesses, IT departments have little time for strategic plans and find themselves bogged down in the tactical issues in maintaining the IT infrastructure. There may be no greater benefit to your organization then an optimized use of your valuable resources.

Lower Costs for Vendor Services
The typical small to mid-sized business supports a technology infrastructure that has been put in place over time, with myriad vendors, contracts and agreements in place in a piecemeal fashion. Very few IT organizations have the bandwidth to audit, catalogue and review all of their vendor agreements and service contracts in a proactive way. Even fewer have the ability to leverage shared services in order to receive favored status in those negotiations. An outsource partner is organized around the idea of shared services, and can take advantage of scale in order to achieve preferred treatment in hardware, software, services pricing and delivery, sourcing of telecom, database and security services, advantages that should also be passed along to their clients.

Expert Networks
Choosing an outsource partner means choosing an expert network. Competencies outside of your existing technical staff’s knowledge base, emerging best practices, and rapidly changing areas of IT are made available to your organization through an outsourced partnership. Just as services are leveraged, industry knowledge is everaged in order to bring the latest developments in the rapidly changing world of information technology. Storage, security, virus protection, compliance and audit requirements and new hardware and software are constantly being updated and improved, and your decision to tap into an expert partner allows a small to mid-sized business to access the latest developments in the IT industry. Overall, the choice of an effective outsourced partner can provide benefits throughout the small to mid-sized business. Unfortunately, until recently, outsourced solutions were not designed at an appropriate size for these businesses. The typical outsourced IT solution was a vast and expensive proposition, which was targeted at the largest companies with thousands of users. At the lower end, IT consulting firms that focused on smaller companies  exclusively worked on the highest margin application development business and did not bother to establish relationships with credible outsourced partners. Changes in delivery along with then general acceptance of the practice throughout industry have made the delivery of appropriately sized solutions to the small and mid-sized business community a reality.

Business Process Outsourcing
The most common outsourced solution, software application development, has evolved to the point where a cost effective solution is available to any sized organization, and even smaller businesses have begun to avail themselves of the arbitrage in salaries that make an offshore solution a money saving approach. At the largest companies, however, a much more significant development is underway, as they take the evolutionary step of standardizing and optimizing many of their day to day operations and tasks with an eye towards moving those processes offshore. The genesis of Business Process Outsourcing, or BPO, is one that most small to mid sized businesses may find harder to get up and running in a satisfactory manner. For the smaller business, while software development outsourcing has made inroads, the movement towards outsourcing particular business processes has not taken root. This is interesting, as a software development project can be an extremely complicated undertaking, and it would seem counterintuitive that this would be the task most commonly off-shored. The reason is that these projects can be isolated and clearly defined, while business processes and operations are more tightly woven into the firm, and often those responsible for operations processes have multiple roles to play within
the organization.

The true value of off-shoring particular business processes goes beyond the cost savings that may first come to mind when considering such an approach. The evaluating, standardizing and optimizing of processes and operations, combined with a tactical delivery and measurable metrics is the special sauce that moves the solution from the realm of simple cost savings to one that provides improved performance and delivery at a reduced expense. Key to the success of an outsourced process solution is the movement away from the notion of replacing employees with cheaper offshore resources, but instead identifying tasks that can be effectively delivered as transactions offshore.

In many cases it provides the ability to deliver services that were previously considered uneconomical or deliver current services at a quality level that may have been uneconomical. This includes the ability to provide certain services like technical drawing or legal review overnight or even in real time. In other cases it can include sales support, in the form of proposal writing or background research on the prospect Large organizations have realized cost savings along with operational improvements across the board, and have moved effectively to identify particular processes and functions that can be moved off shore. For the small to mid-sized business, putting an offshore solution in place becomes a far more difficult task than taking advantage of turnkey solutions such as software development. Some of the hurdles that need to be cleared include:

• Identifying particular processes within the firm that lend themselves towards an outsourced solution, as opposed to those that may not.

• Documenting specific tasks along with metrics, in such a way that an outsourced partner can meet your particular requirements

• Identifying appropriate offshore partners and negotiating service level agreements and contracts effectively

• Creating metrics for monitoring delivery and success In designing an effective and successful offshore partnership, it is important to find a differentiated approach that meets the very specific needs of small to mid sized businesses is imperative. An ideal partner will approach the task from a process optimization point of view, and leverage an extensive network of offshore alternatives to create a solution that provides a higher quality product at a reduced price point. Key to this approach is a thorough review of existing processes and operations as well as a delivery based upon transaction pricing, as opposed to a large contract outsourced approach. The successful partner will identify your key deliverables, improve, enhance and standardize them, and then find the ideal partner to deliver them at a unit cost, so that the metrics for success are easily identifiable and quantifiable.

  1. April 27, 2009 at 11:31 am

    thank for good post.

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