Even when companies outsource some functions, they often keep control over far more than their core competencies. Unless outsourcing will deliver a cost savings with equal or better service quality, they keep it in-house.
“They say, ‘We want a service level, a service assurance at a price, and if you don’t hit that, we’re going to penalize you,'” said Robert McNeill, senior analyst in the IT services research group at Forrester Research. “In India, they take the client’s process and do if for less money.”
Although the mega deals have waned — marked perhaps most prominently by J.P. Morgan Chase’s break with IBM — the selective approach is steadying the heartbeat of outsourcing.
Tempering the Risks
“Organizations don’t want the risk of handing over all of the services to one provider,” McNeill told CRM Buyer. “If you look at EDS, it’s junk-bond status now.”
Boutique businesses have taken the limelight. “Smaller companies are better at handling smaller, discreet bundles of business,” he added.
And by farming out only bits of business, U.S. organizations can more easily grasp the risks they take as well as the efficiencies they gain. “It’s easier to see you’re getting a better price, easier to get a benchmark when you’re selective for better process manageability,” McNeill said.
“We feel that we are the forerunner in providing judgment-driven, high-end services and empowering our clients to do their jobs better,” said Lonnie Sapp, chief operating officer of OfficeTiger of New York. The company provides outsourcing services, primarily in India.
Unlike IBM and EDS, which take a company’s entire infrastructure management off its hands, OfficeTiger allows its clients to choose the arrangements that minimize internal concerns about risk and quality.
According to McNeill, such focused, flexible service providers have a greater success ratio in retaining and pleasing their clients, in part because they can clearly show the value clients get for their money without having to untwist the multiple processes managed in infrastructure deals.
“When organizations develop a process and deliver it to one of many outsourcing service providers, it becomes a very discreet operation,” McNeill said.
The U.S. firm sending work out of house and overseas may audit the process at the third-party location to confirm that it stays true to its purpose. It may even send managers to oversee foreign workers handling the business. McNeill says this is a way of “ensuring that your process, however it’s created, is effectively carried out by a service provider. It may be an internal concern, a regulatory one or a security one.
“When it’s 10 and a half hours away and 10,000 miles away, it’s more risky than if it’s just downstairs,” McNeill continued. “The farther away you go away from home culturally, geographically, with regard to regulatory concerns, the risks increase.”
But does all of this oversight destroy the purpose of outsourcing? Olayele Adelakun, assistant professor in the School of Computer Science, Telecommunications and Information Systems at DePaul University in Chicago, told CRM Buyer that when an organization has to work so hard to ensure its contractors adhere to its processes, it means it hasn’t done its homework in selecting the right outsourcing vendor.
“The whole objective of outsourcing is that you don’t want to look over the shoulder of the vendor,” he said. “If you instruct the vendor that it has to do [the job] in a particular manner, you shouldn’t have outsourced it. You should have done it in-house.”
This story was originally published on March 14, 2005, and is broughtto you today as part of our Best of ECT News series.