Posts Tagged ‘Business Services’


by Oliver Schmid

 

What is outsourcing and why might outsourcing be good?

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  • Do you make your own shoes?
  • Do you deliver your own mail?
  • Do you sew your own cloth?
  • Do built your own car?
  • Do you build your own house … by your own hands?
  • Do you have the skills to be your own physician and make your own medication?
  • Do you grow your own food and raise your own life stock?
  • Do you take care of your own trash removal?
  • Do you …. (fill in anything you do not yourself) … ?

If you answered ‘YES” to any of the questions above you are outsourcing.

Anytime a service is provided for something you don’t want to do yourself, anytime somebody else does something for you, you don’t want or can’t do you are outsourcing something. Have you ever thought about this when you are complaining about that too many things and too much work or services are outsourced?

Outsourcing has been around as long as mankind. Anytime somebody realized that they have a special skill for something and focus on this skill and providing these skills to others in exchange for services, goods or money it is outsourced.

Why are we doing this? Because we always were aware of the fact that certain people have special skills one might not posses themselves and in return this person might have a skill somebody else does not have.

Outsourcing is nothing that was invented yesterday. What is new, is that we have realized people in other areas or countries have the same skills but perform these skills for a fraction of the cost. Before complaining about outsourcing think about whether the task on hand that is outsourced would be something you wanted to do yourself and had the skills to do yourself.

Think about if each of us had to grow their own food, build their own homes, remove their own trash, … you continue the list … would we still be able to fly to the moon, invent all the technological gadgets we have today that make our lives so much easier and more comfortable. Be honest to yourself. Most likely not.

By giving work and services away too others we  freed ourselves to learn other things, specialize and improve on skills we have as well as developing new skills.

Reflect on your daily tasks, your job, your kids, your family. Aren’t you performing outsourced services for them because you know how to do a particular process or task.

Over the years I have learned and realized that most of the tasks or work we outsource to other countries are things we really don’t want to do ourselves. I have worked for instance with domestic call centers just to learn that the people working there are not really happy in their job. They don’t want to listen to other people complaining. They don’t want solve other peoples problems. Eventually these people leave their jobs because they get burned out or fed up with what they are doing. Churn in US call centers is many times higher than compared to Indian or Philippine call centers. The reasons here for will be subject of another follow-up blog, since the subject is so complex in itself.

We only outsource work we don’t want to do ourselves or are not willing to pay for if it would be done in our own country (onshore outsourcing).

Without getting deeper into why we are outsourcing and all the plausible and less plausible reasons, ask yourself when hearing about outsourcing or complaining about outsourcing:

  • “Would you be willing to it yourself?”
  • “Do you have the skills?”
  • “Would you want to perform the same work for the same amount of pay?”
  • “Would you be willing to pay for the service if it would be done by what you expect a fair wage if you would do the same work? “

I just came across this great video talking about how outsourcing can make sense for your small business.

Dr Marc Kossmann and Charlie Seymour Jr explain how outsourcing can help you running your business better and more successful by allowing you to concentrate what you are doing best.

I am in no way affiliated with them but it makes really sense to me.



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by Oliver Schmid  – IAOP :: International Association of Outsourcing Professionals Member


1.) What is outsourcing?

For years, outsourcing has been on the mind of many business people but what one associates with the term outsourcing, might be conceived as something completely different by somebody else. The only common ground is the understanding to give a task or process that used to be performed internally to a third-party service provider for fulfillment.

2.) Types of Outsourcing:

Outsourcing can be as mundane as giving support to somebody else and might be as complex as having business core processes being performed by somebody else.

Typical tasks and/or processes that are outsourced can be:

  • Partial or Total Outsourcing: Some functions or tasks will be outsourced partially while other will be outsourced in its entire. Partial or complete outsourcing can also be seen differently and depends of the viewpoint (Customer / Provider) of the parties involved. It also depends of the overall functionality of the to-be outsourced operations and can often not be determined clearly.
  • There is outsourcing of only operational functions vs. outsourcing of functions, tools and personnel.
  • Business Process Outsourcing (BPO): Interpretation of the meaning of BPO varies and depends again on the point of view. From a customer point, it could be giving away an in-itself-closed-business-process for which the provider carries complete responsibility. From a legal aspect, it is imperative to define all roles and responsibilities in a contractual from and every party involved need to understand their individual responsibilities and the consequences for non-compliance.

3.) Goals

The possible reasons for customers to look more closely at outsourcing to are equally diverse and complex as its possibilities and approaches.

Therefore, only some of the usual motivations for outsourcing will be referred to here:

  • Focusing on core business:
    • An organization wants to concentrate its resources on its core business, and therefore functions that are not part of its core business will be outsourced.
  • Cost savings and optimization:
    • An organization wants to reduce its cost of doing business through outsourcing by creating a flexible cost structure, which is directly related to the performance of its service provider.
  • Purchasing skills:
    • An organization wants to benefit from the increased competence of the provider who considers the to-be outsourced function as its core business. Often, an organization also wants to reduce its performance risk through contractual reassignment of performance risk to its service provider.
  • Flexibility:
    • The provider can often offer the customer more flexibility in the implementation of the delegated services than it would have been possible to a customer with its limited resources and scope for action.

4.) An outsourcing project is divided generally into:

  • the preparatory and planning phase, which includes the Baseline analysis, defining goals and determining the future procedures,
  • the initiation phase with the selection of the provider. and the contract negotiations,
  • the implementation phase with the transfer and the Setup of the facility (or Transition to Operate) and finally the actual
  • the start of the actual operation

Looking at the continuous “life” of an outsourcing initiative the following phases will follow:

  • Review and optimization of relationship and implemented processes
  • At contract expiration either the transfer of all functions to a new service provider or the return of the outsourced functions to the organization (insourcing)

5.) Preparation & Planning:

At the beginning of each outsourcing, a strategic analysis is performed to determine which services or which divisions will be outsourced as well as where the interfaces between the internal and external providers will be in the future.

Following this phase the outsourcing scope will be defined, which will include the functional spectrum. It should definitely be avoided not to make any clear commitments at the beginning, because the scope is the basis for all further tests, the structuring of the outsourcing and the subsequent tender.

The next step would be the internal analysis (assessment) of all areas that are part of the scope:

  • What personnel and which assets are involved?
  • What type of data is available?
  • Current Cost?
  • Which services are currently performed internally and which are already performed externally?
  • To which extend have processes and services already been documented?
  • What is the quality of the currently performed services?
  • Is delivery of services consistent with the according service performance documentation?
  • Are there any legal aspects that need to be considered; e.g. transfer of licenses?
  • Are there any industry-specific aspects to be considered (e.g. in the financial area)?

Oliver Schmid has extensive experience in offshore outsourcing to the Philippines, nearshore outsourcing to Canada and onshore outsourcing of matrix oriented call centers.  He is also versified in outsourcing of data center operations and data center monitoring and support. In addition Oliver Schmid participated in various 3PL and Supply Chain outsourcing initiatives.


Oliver Schmid, EzineArticles.com Basic PLUS Author


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The Structure of Outsourcing by Oliver Schmid is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.


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by Oliver Schmid

Over the last 15 years outsourcing has developed at a very fast pace. Unfortunately, what has not developed at the same speed is the development and implementation of Best Business Practices and the according standard processes and procedures. This in return results in uncoordinated efforts and lack of understanding of the whole process. Third party service providers will try to sell outsourcing as a win-win situation, but this is not always the case.  A majority’s outsourcing efforts are implemented through “trial and error” and there for a more costly than expected.

Sixty-nine percent of companies outsource IT services. Outsourcing of application development and maintenance ranges from 15% for CRM, ERP 25%, another 25% for business processes, and 27% for other applications.

Statistics about outsourcing provides us with a positive picture but more and more businesses are disappointed with their outsourcing efforts, according to new research.

Companies express frustration with the quality of work being provided, according to a survey, but most businesses still said they chose the cheapest outsourcing option instead of the best quality.

The question is why are companies frustrated with quality of work provided. What are the reasons behind that frustration? There can be many reasons. Reasons can be:

  • Language issues
  • Geographical problems
  • Cultural problems
  • Infrastructure and Operational problems
  • Lack of procedures and controls
  • No or poorly defined Service Level Agreements (SLA)
  • Lack of or poorly defined Key Performance Indicators (KPI)
  • Lack of guidance and follow-up
  • Failure to understand the business model, processes and expectations

Some of these listed issues may have a bigger issue on your business than others depending on the type of service that has been outsourced.

In my 12+ years of outsourcing experience the lack of guidance and follow-up by the Outsourcing Organization led to a failure of understanding the business model, the processes and expectations by the Outsourcing Partner. Yes, you read right – The Outsourcing Partner. It is important to see the organization/provider you outsourcing to as a partner rather than just a service provider.

Service Providers are organizations that provide services that do not directly have an impact on your business and its day-to-day operations. Service providers are banking services, payroll services, cleaning services, mail and package delivery services and other business services that have are not part of your core business model. Even certain outsourced IT services fall into these categories.  Again, some of the above services may be critical to the success of your business and at that time they must shift from Service Provider to Outsourcing Partnerships.

Outsourcing Partnerships must be established with any organization that provides services, which are part of your core business model and have a direct impact on the overall success and profitability of a business. These can be services like Customer Service, Supply Chain Management, Warehousing, Logistics (3PL Services), Software Development and more.

It is not that a “regular service provider” is less important to a business than a outsourcing partner that provides core business services. The difference is that a Service Provider will need less controls and less of an understanding of the core business processes. Some of these services have standard service levels they provide and not necessarily have exactly specified KPI’s and the according control mechanisms in place.

There for let us concentrate on a typical outsourcing partnership and the requirements to make it a success.

First we need to evaluate why so many business fail in outsourcing. Over the years, I have managed many outsourcing initiatives. At some I participated from the get-go and some either after they had failed or were about to fail. The number one reason has always been that the business, which was outsourcing services, did not communicate their expectations well enough or did not manage the third party provider. At the same time the organization, which became the provider of the outsourced services did not understand what was expected from them completely. The reasons have been multitude, but eventually always boiled down to lack of communication. The majority of organizations see outsourcing just as a personnel cost cutting measure and hand off all responsibilities to their third party service provider. Outsourcing initiatives, which are handled in such manner are for sure doomed to fail and will leave at the same time the impression that outsourcing does not work. This is why outsourcing has left such a negative impression with many people and organizations.

Often outsourcing projects will fail from the get-go, because an outsourcing relationship is established at the wrong level. Management is negotiating not only terms but also requirements with a sales department whose focus is to make the sale, without understanding 100% what is expected. Terms, SLA and KPI are negotiated and agreed upon before processes have been defined, communicated and put in place. It is imperative to have from day 1 all the people in the boat that are affected by the outsourcing measure. These folks really do understand their business.

I can attest that outsourcing can work and will work if done for the right reasons and if done the right way. I have successfully managed and participated in various outsourcing initiatives, like:

  • Outsourcing of customer-service-call-centers to offshore third party service providers, as well to onshore and nearshore providers.
  • Outsourcing of data center monitoring and support.
  • Outsourcing of data center replication and backup for data center redundancy and disaster recovery. At the same time improving the sustainability of not only the IT organization within the business but also the sustainability of the business itself in case of natural disasters or other unforeseen catastrophic  events.
  • Outsourcing of Warehousing, Logistics and Supply Chain Management to Third Party Logistics (3PL) providers.
  • Outsourcing of certain Accounts Payable and Receivable functions.

In many cases, outsourcing may not save you money but may improve your service levels without investing in more resources. This in return, over time, will improve company performance, reputation or brand awareness and hopefully <if done right> profitability.

It is highly recommended to engage not only reputable third party organizations that provide the to be outsourced services, but also to hire a person that has experience in managing and handling outsourcing projects. The person to be hired should not only know the does and don’ts of outsourcing but also be aware of the Structure of Outsourcing. It is also imperative to assure that your business model and the business processes that are to be outsourced make sense to be outsourced. A skilled person that has vast experience in outsourcing will be able to help to make this determination.


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In the context of global sourcing and new emerging locations, security and safety concerns are becoming the top issue for companies considering outsourcing their IT projects to cost efficient locations offshore. In this respect, the annual research conducted by the Black Book of Outsourcing with the rankings of the most dangerous / safest outsourcing spots around the globe attracts great attention among companies as a reference point for long-term business strategies.

Read the complete article at:

Europe Tops List of Safest Outsourcing Spots.

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Even the article ”

“Top 10 Risks of Offshore Outsourcing”

by ZDNET.COM is already 7 years old, it still contains valuable advice about offshore outsourcing. Many business are doing any of it and are wondering why their offshore outsourcing projects are failing or do not show the expected result or success.

Today while companies are struggling to reinvent themselves it is even more critical to have a structured outsourcing plan in place. A plan that everybody from the top down agrees upon and is able to follow. Not all organizations have the resources and/or skills and experience to do it right the first time around. In today’s economy it is critical that all aspects are considered and only a person with the respective experience can help to make an outsourcing task or project successful. Talk to somebody who has the experience and has this done already  multiple times successfully.


Oliver Schmid has extensive experience in offshore outsourcing to the Philippines, onshore outsourcing to Canada and domestic Outsourcing of matrix oriented call centers.  He is also versified in outsourcing of data center operations and data center monitoring and support. In addition Oliver Schmid participated in various 3PL and Supply Chain outsourcing initiatives.

Disclaimers:

This post was originally posted on the LinkedIn Group “Outsourcing to Ukraine” by Alena Shechkova at the Ainstainer Group and has been republished on this Blog with her consent.

This article is a shortened article of Jérôme Barthélemy “The seven deadly sins of outsourcing

The Seven Deadly Sins of Outsourcing

While outsourcing is a powerful tool to cut costs, improve performance, and refocus on the core business, outsourcing initiatives often fall short of management’s expectations. Outsourcing failures are rarely reported because firms are reluctant to publicize them. However, contrasting them with more successful outsourcing efforts can yield useful “best practices”. Through a survey of nearly a hundred outsourcing efforts in Europe and the United States Jérôme Barthélemy in his article “The seven deadly sins of outsourcing” underlined most failed outsourcing efforts. Here they are:

  1. OUTSOURCING ACTIVITIES THAT SHOULD NOT BE OUTSOURCED. Determining which activities can be best performed by outside vendors requires a good understanding of where the firm’s competitive advantage comes from. Resources and capabilities that are valuable, rare, difficult to imitate, and difficult to substitute for lead to superior performance. Activities that are based on such resources and capabilities (i.e., core activities) should not be outsourced because firms risk losing competitive advantage and becoming “hollow corporations”.
  2. SELECTING THE WRONG VENDOR. Selecting a good vendor is crucial for successful outsourcing. The literature has identified numerous criteria for successful provider choice. A useful distinction can be made between hard and soft qualifications. The first are tangible and can be easily verified by due diligence. Hard qualifications refer to the ability of vendors to provide low-cost and state-of the-art solutions. Important criteria also include business experience and financial strength. Soft qualifications are attitudinal. They may be non-verifiable and may change depending on circumstances. Important soft criteria also include a good cultural fit, a commitment to continuous improvement, flexibility, and a commitment to develop long-term relationships.
  3. WRITING A POOR CONTRACT. Since the 1980s, vendor partnerships have emerged as a model of purchasing excellence. Partnerships replace market competition by close and trust-based relationships with a few selected vendors. The notion that outsourcing vendors are partners and that contracts play a minor role was popularized by a landmark IT outsourcing deal. However, there are pitfalls in partnership management. A good contract is essential to outsourcing success because the contract helps establish a balance of power between the client and the vendor. Spending too little time negotiating the contract and pretending that the partnership relationship with the vendor will take care of everything is a mistake. Drafting a good contract is always important because it allows partners to set expectations and to commit themselves to short-term goals
  4. OVERLOOKING PERSONNEL ISSUES. The efficient management of personnel issues is crucial because employees generally view outsourcing as an underestimation of their skills. This may result in a massive exodus even before an actual outsourcing decision has been made. Firms that contemplate outsourcing must face two interrelated personnel issues. First, key employees must be retained and motivated. A second personnel issue is that the commitment of employees transferred to the vendor must also be secured.
  5. LOSING CONTROL OVER THE OUTSOURCED ACTIVITY. When the performance quality of an activity is low, managers are often tempted to outsource it. If poor performance is attributable to factors such as insufficient scale economies or a lack of expertise, outsourcing makes sense. If poor performance is attributable to poor management, outsourcing is not necessarily the right solution. When an activity is outsourced, it is crucial to retain a small group of managers to handle the vendor. These managers must be able to develop the strategy of the outsourced activity and keep it in alignment with the overall corporate strategy. While vendor management skills are very important, they must also be complemented with technical skills. If no one in the company is able to assess technological developments, outsourcing is bound to fail.
  6. OVERLOOKING THE HIDDEN COSTS OF OUTSOURCING. Outsourcing clients are generally confident that they can assess whether or not outsourcing results in cost savings. However. They are often overlook costs that can seriously threaten the viability of outsourcing efforts. Transaction cost economics (TCE) suggests two main types of outsourcing hidden costs. First, outsourcing vendor search and contracting costs. Search costs are the costs of gathering information to identify and assess suitable vendors. Contracting costs are the costs of negotiating and writing the outsourced contract. Second, outsourcing management costs: monitoring the agreement to ensure that vendors fulfill their contractual obligations, bargaining with vendors and sanctioning them when they do not perform according to the contract when unforeseen circumstances arise.
  7. FAILING TO PLAN AN EXIT STRATEGY. Many managers are reluctant to anticipate the end of an outsourcing contract. Therefore, they often fail to plan an exit strategy (i.e., vendor switch or reintegration of an outsourced activity. Actually, outsourcing relationships can be viewed on a continuum. At one end are large-term relationships where investments specific to the relationships have been made by one or both partners. At the other end are market relationships where the client has a choice of many vendors and the ability to switch vendors with little cost and inconveniences. In this case, there is no real advantage in recontracting with the same vendor.

Oliver Schmid has extensive experience in offshore outsourcing to the Philippines, onshore outsourcing to Canada and domestic Outsourcing of matrix oriented call centers. He is also versified in outsourcing of data center operations and data center monitoring and support. In addition Oliver Schmid participated in various 3PL and Supply Chain outsourcing initiatives.