Much of the monitoring of an outsourcing deal is based on specific metrics. There are good reasons for this approach — after all, metrics are “hard numbers” and are relatively easy to measure. No doubt, meeting metrics is also a very important part of any quality outsourcing deal. But are metrics everything? I don’t believe so, nor do I believe that a single-minded focus on metrics is the best way to manage an outsourcing deal.
Here is my annual list of New Year’s Resolutions for those of us in the outsourcing industry.
For Outsourcing Customers
1) I will dedicate adequate resources to managing my outsourcing deal.
2) I will send out RFP’s only to vendors with a chance of earning the business.
3) I will set service levels that reflect my true business needs, not pie-in-the sky service levels that cannot ever be met.
4) I will avoid the end-of-year search for pricing concessions to cover up my own bad budgeting.
5) I will listen to my outsourcing vendors for ways that I can improve my business and its interface with my outsourcing vendors.
6) I will pay regular attention to my outsourcing deals and proactively work with my vendor to solve problems.
7) I’ll refrain from blaming the vendor for things that are my company’s fault, but I will be honest with my vendor when it is their fault.
… And for Outsourcing Suppliers
1) I will make quality customer service my highest priority.
2) I will only offer pricing that is fair - and will not sell outsourcing services as loss-leaders with the expectation of “making it up later.”
3) I will accept responsibility for my actions when performing the services.
4) I will resist the urge to overdiscount.
5) I will listen to my customers for ways by which I can improve my services.
6) I will manage my outsourcing deals to optimize customer service, not short-term revenue.
7) I will take real measures to reduce turnover and keep my workforce happy and interested in the work.
… And for Outsourcing Advisors
1) I will reduce the complexity of deal structure.
2) I won’t “ride” deals to maximize my profitability (at the expense of my client).
3) I will actually watch expenses and costs.
4) I will “think outside of the box” to help my clients develop flexible deals that will bend without breaking.
5) I will reign in runaway projects an keep my staff under reasonable control.
6) I won’t make hyperbolic, self-serving public statements about future trends.
7) I will provide my customers with deal summaries and other information that will help them manage their deals.
And for all of us…
Let’s drop the hype and focus on real business and real deals! 2008 will be as good as we make it!
In one of my favorite recent articles, Victor Gomez of the Dallas Morning News discussed the troubles faced by the big three Dallas-based outsourcing vendors, EDS, ACS and Perot. All are feeling the heat from Indian-based vendors, and are blaming the cost differential for their problems.
In an interesting article appearing on cNet.com on December 13, Steve Tobak asks the question, “Would you pay more for better service?” In the article, Mr. Tobak implies that most Americans wouldn’t pay extra for domestically-delivered service (assumed to be superior) than they would for off-shored service (assumed to be inferior).
As BPO outsourcing matures and more and more companies are getting into the fray, increasing numbers of companies are now also realizing that perhaps outsourcing hasn’t been such a good deal. The “lift and shift” mentality so commonly afflicting companies is coming back to haunt them in the final analysis – issues from poor training and productivity, management and technology do not go away, in spite of the work being done elsewhere.
The life cycle of outsourcing as a trend is following the same pattern as recent business fads. Certainly, the U.S. domestic deal flow, which has been weak at best, is showing its age. I expect that European outsourcing, which was the major hot growth area in 2007 - will face a similar fate in 2008 (late adoption does not necessarily result in late abandonment). This doesn’t bode well for those of us providing services in this industry, although it may bode well for the global economy in the long haul.
If the U.S. economy continues to show signs of a slump, it will be increasingly likely that our politicians and special interest groups will look for a bogeyman to blame. In his New York Times bestseller (2006) Take This Job and Ship It, Senator Bryon Dorgan did just that: he pinned the loss of jobs in manufacturing and services on greedy CEO’s, and foreign competitors who don’t play by the rules. But what exactly are rules in a global economy? If American politicians define rules as fair trade, they have a lot of explaining to do as for why America’s wealth creation for the past hundred years towered over practically the entire world, combined. Simply stated, most managers within today’s U.S. Corporation have no clue as to what the definition of productivity is within their operations and corporation. If you ask this average manager how to define productivity, he will likely give you a definition of how to reduce costs, which isn’t the same thing as productivity. During America’s Gilded Age during the late 19th and early 20th centuries, productivity was defined as business growth achieved through a more efficient use of labor, capital, and technology. Productivity achieved could only exist if it was in the best interest of both the worker and management, as anything short of this would lead to contention and blame. Today, America is shipping much of its manufacturing and a lot of service work overseas in need of achieving productivity. But can productivity be achieved through simply offshoring to a lower cost provider? In many cases, the answer to this question is no, and corporations use outsourcing as a mask to hide their true productivity issues, versus as a tool to solve for it. In my book, I call this practice an easy out.
In recent years, legal fees of major law firms have grown dramatically, both on a per-attorney and per-matter basis. Individual attorney fees can be as high as $300/hour for a first year attorney. For complex mergers and acquisitions, litigations and patent prosecutions, fees can easily reach into seven figures. This growth has historically gone unchecked and has been begrudgingly accepted by institutional clients. But things are beginning to change – and, like in many industries, outsourcing is playing a key role.
Outsourcing of legal services is not a new concept. It is, however, just beginning its exponential growth. Fed in part by the undisciplined increase in firm fees, in part by industries growing comfort with outsourcing and in part because of improving skills and capabilities in the marketplace, high growth in this market is a given. Full exploitation of these capabilities, however, has been delayed by several factors, including in-house counsel reluctance and perverse incentives for law firms. As processes and methodologies improve, in-house reluctance will ultimately decrease and in-house counsel will, for economic reasons, lead the charge to offshore services.
A September 17, 2007, article in CIO magazine entitled “How to Measure Real Outsourcing Success” (Hint: It’s Not the SLAs), pointed out some interesting statistics about outsourcing and outsourcing happiness. Starting with the premise that SLA statistics are not a measure of happiness, the article described a process built by Dr. Paul Roehig at Forrester Research, to better measure outsourcing happiness.
Let me start by saying that I honestly believe that there are portions of a relationship that defy measurement. This is true in a marriage, in a friendship, in an employer-employee situation and in an outsourcing. But these things are often the “mortar” that hold the relationships together – they are neither discreet nor clearly measurable. Certainly, I can look at a building and count the number of bricks used to build it with efficient precision. However, determining the amount of mortar that is holding those bricks together is a little more difficult.
There is a proliferation of smaller business process and call center outsourcing operations throughout the Philippines. Typically, these operations are locally-owned and have between 10 and 100 seats. Because these businesses are small and foreign-owned, they generally have little or no marketing presence in the US.
In selecting an outsourcing partner in the Philippines, most US companies appear to look for a US-owned company with operations in the Philippines, and overlook virtually all of the smaller Filipino-owned operations. The size of these Filipino operations, combined with their lack of US presence, most likely precludes them as a group from the vendor selection process. US companies usually want to partner with a group that is well-known in the marketplace and is large enough to handle their long-term volume.
In ignoring the smaller local outsourcers, US companies may be doing themselves a disservice. Though the small outsourcers are most likely not candidates for the primary outsourcing provider role, they can certainly play a part in the overall outsourcing strategy by providing specific and focused capabilities that address common issues encountered by larger outsourcing vendors. Three obvious capabilities:
Overflow Processing – Most operations have seasonal increases and decreases in transaction or call volume. Rather than increase and decrease staff to handle this seasonality, a small outsourcing operation could act as a seasonal buffer for increased activity.
Training - Commodity training (soft skills, medical terminology, financial services fundamentals) could become a core competency of a smaller operation. The smaller operation, with a much keener focus on specific types of training, could deliver more effective and cost-efficient training of new agents.
Disaster Recovery – Smaller outsourcing vendors based in provinces outside of the Metro Manila area may be perfectly poised to provide business continuity/disaster recovery services. The small outsourcing companies can potentially offer backup operations to multiple companies, as long as the risk of simultaneous disaster between these companies is very small. These smaller operations, already established in the more remote areas, provide a compelling and much more immediate alternative to a larger outsourcing provider creating a new operation specifically for business continuity. The smaller operations may also be more cost-effective without the overhead burden of the larger operations.
The use of a small local outsourcing vendor has clear benefit, though partnering with a small local operation also has inherent risks. Since these companies operate completely outside the US, the determination of their financial stability may be difficult to determine. If not appropriately capitalized and managed, these companies may be at significant risk for failure. Contractual compliance may be similarly difficult to manage, as the recourse for non-compliance is subject to Philippine regulations. Finally, the addition of a new vendor to the mix brings with it the requirements for daily and ongoing management. Depending on the scope of the work to be allocated to a smaller vendor, the additional management overhead may not be justified.
The determination of whether to include a small local outsourcer in the overall outsourcing strategy is dependent on the abilities of the primary outsourcing vendor and the needs and expectations of the client company. These small companies, with their inherent risks, may offer necessary functions and services that are more focused and of a higher quality than those provided by a larger organization. If the risk of these smaller organizations can be mitigated to limit impact on the larger program, they may well be worth a close look.
There was an interesting short article in Computer World on Monday, August 27 that described a trend in which outsourcing customers are bringing disaster recovery back in-house. Having witnessed this debate on an ongoing basis several times, I read this article with a combination of cynicism and intrigue.
Outsourcing has had a difficult year in North America. There are many explanations, some point to quality concerns, some to governance concerns, and some to a reduction in value caused by the combination of labor shortages and currency fluctuations. All of these represent a change in the risk-reward analysis that many are seeing with regard to outsourcing. The bad-news stories in the press continue to pump up the “risk side” of the outsourcing equation – particularly to Asia – while the currency fluctuations and tightening labor markets reduce the “reward side” of the same equation. The “plus side” of outsourcing is notably silent – there are simply no “good news” stories in either the press or the paid media.
To the uninitiated, call center outsourcing projects can appear quite complex, as they involve a wide variety of interrelated tasks and require participants from nearly all areas of an organization. The first implementation is a significant learning experience to all involved, as few internal projects have the same scope, with the added variables of an external vendor and an international destination.
Despite their apparent scope and complexity, successful call center implementations are within the reach of most organizations, despite their level of sophistication in project management and international operations. The key to managing an outsourcing project is to divide the project into a sequence of discrete and manageable groups of tasks – project phases – that can be handled by the available resources. This approach allows the project team to become acclimated to outsourcing during the implementation process. If planned correctly, the project team will progress in knowledge and confidence in parallel with the progression of the project timeline – by the time a task is underway, the team will understand the task and how it relates to the overall project. At the same time, this approach reduces the length of time that resources must be allocated to a project, as specific resources are allocated for specific phases only.
A simple example of this phased approach to outsourcing projects uses four discrete and sequential project phases to group all project work:
1. Initiation – In this phase project goals, timelines and expectations are defined, normally at the executive level. The initiation phase addresses the broader questions associated with outsourcing and establishes the guidelines and principles for the project planning and execution phases. Topics addressed during the project initiation phase include outsourcing goals (risk mitigation, quality, timing, and cost savings), timelines, internal and external communications strategies and legal and political considerations.
2. Planning – The project planning phase leverages the decisions and guidelines established in project initiation to create a detailed roadmap for the project execution. During the project planning phase, the detailed strategy for the project execution is defined. Typical outputs from this phase include the project financial model and the detailed project, risk, communications and resource plans. Like most projects, the effort expended in the project planning phase is always indirectly proportional to the effort required for the project execution phase – the more effort expended in planning, the better prepared the project team for handling the project execution tasks and managing the risks.
3. Execution – Most of the work in the sourcing project is performed during the project execution phase. The project execution phase includes all the analysis, design and development tasks required to implement the remote call center. At the completion of the project execution phase, the remote call center will be fully operational.
4. Control – Once the remote call center is implemented, the operations must be monitored against the performance goals established in the project initiation phase. This phase of the project is often overlooked, as most projects ‘end’ with implementation. The control phase, at a minimum, should establish a vendor management and oversight structure that will be used throughout the life of the call center.
The project phases and descriptions provided in this example are guidelines – specific project phases and goals can vary significantly depending on the organization. The specific project organization and phase structure will depend on the organization’s project management style and capabilities. The goals, however, should remain the same: to reduce the overall project complexity while effectively managing the project with the organization’s available resources.
TPI’s Peter Allen, in a recent blog posting in The Deal, asked whether it was better to offshore a business process using a captive or third-party model. Interestingly, the article offered no real conclusion to the question of which is better, but did highlight the most important aspect – and the biggest shortcoming – in many outsourcing relationships: The client’s inability to get past the labor-arbitrage model and, instead, focus on outcomes.
In a recent ComputerWorld article, Gerry Clark of TPI offered his perspective on outsourcing trends. One of the most interesting things that Mr. Clark highlighted was the increasing effort provider markets take to distinguish themselves from other markets. He says:
Differentiation seems to be the direction that most are taking. The big attraction offshore used to be lower cost. Today, that is not good enough because they themselves are facing increased inflation in labor, real estate and infrastructure cost. Even countries like India have to think about what else they can do to be successful.