Posts Tagged ‘Service provider’

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, Basic PLUS Author

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


Should I outsource?

All about, if outsourcing in general makes sense and what to consider and how to approach outsourcing for it not to become a failure.

Who has not heard horror stories about failed outsourcing initiatives. Many organizations that attempt outsourcing often forget that the key to any successful outsourcing initiative is shared goals and good management.

Often outsourcing is only seen as a way to save money quickly and there for implementations are rushed into without the proper planning and without any detailed documentation of the business processes to be outsourced. As a matter of fact, documenting all relevant business processes as they exist today and the way they should exist in the future with the new outsourcing service provider will allow for a much smoother and painless implementation. Only developing the proper documentation will allow all parties involved to clearly understand all the needs, requirements and challenges of these processes.

Use your in-house know how

It is also important to take responsibility for requirements. Incomplete or misunderstood requirements can make an outsourcing project more expensive as budgeted or even may fail a project completely. Nobody knows your business better than you and the outsourcer probably ever will. It is up to you to gather requirements from your business perspective and explain them to the outsourcer. Only this will assure that your needs and requirements are understood and documented accordingly. The next important step is providing training. Very often training is ignored, but good training is an important key aspect.

Do not blindly rely on your outsourcing partner

In order to show quick saving, poor documentation is often thrown at the outsourcing partner, with the expectation that they would be able to deal with it, and then the partner will be abandoned. Such outsourcing deals will fail for sure. It is important to maintain control. Outsourcing does not mean abandoning and/or losing control. It is wrong to assume that the outsourcing partner knows it all and maybe even more and there for will be able to perform better, faster and cheaper. It is important to have key people that control and maintain relationships with outsourcing partners. These key people will maintain control and guide and govern the outsourcer.

Milestones and KPI

It is also important to implement metrics or key performance indicators (KPI) that are important to your business. Assign people that understand these metrics and are able to perform benchmarking of your outsourcing partner against these KPIís and present them in a readable and understandable format that will allow to draw conclusions and take the necessary steps if required. Last but not least, review your relationship regularly, as you would do with an internal department or internal staff. Make sure to review KPIís, technical infrastructure and operational infrastructure. Combine reviews with clear measures to indicate problems or progress.

Pros + Cons from the employees’ point of view

Horror stories as mentioned above, will often emerge from the employees of the affected companies. Indeed, it may be challenging to work with somebody else from a third party outsourcing company, especially if one has just experienced colleagues getting laid off. But if you look closer, discharging experienced personnel may sometimes results from prior mismanagement, and it is possible that a well-performed outsourcing concept may be the only way to keep things rolling.

Remember if managed correctly, an outsourcing deal will be a win-win situation for both sides.

Oliver Schmid, Basic Author
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 Chainoutsourcing initiatives.

A Definition of Outsourcing

Outsourcing is all around us and has always been. It just has become more apparent in today’s difficult economic times.


Unfortunately, outsourcing today is mostly associated with “Offshore Outsourcing”; meaning sending a certain function, business process or job to an oversea third party service provider, who has the ability to perform the same for less money.

We have to get away from this mindset that OutSourcing is equal to sending work overseas. Think about it, outsourcing has always been a part of our daily lives; as well in business as at home.

Some examples of business outsourcing are:

  • Hiring of cleaning crews to clean offices
  • Having trucking companies or the post office deliver your products and your mail … and YES this is outsourcing in its most basic form
  • Hire external service companies to maintain office equipment, like copiers, faxes, computers, etc.

Some examples for outsourcing in everybody’s private life:

  • Hiring a student to tutor your children
  • Hiring a cleaning person to clean your home (occasionally)
  • Taking a bus or train to work … and yes this is outsourcing, since you give somebody else the responsibility to get you from point A to point B and you don’t drive yourself.
  • Visiting a doctor… again, this is outsourcing. Who can afford to have their own doctor or nurse on staff?
  • The list goes on …
  • … and also here the list could go on and on.

Anybody may come up with their own examples about what they do not do themselves anymore in their daily life. Next, I want you to think about why you “Outsource” this functions or tasks and I bet that in 99.9% the answer is either money or lack of experience.


The same is valid for businesses. Outsourcing today is done because it just makes sense. Rather then investing in resources and additional education to do something that is not really a part of the core business function does not make sense anymore. It is cheaper and more effective to hire somebody who specializes in this area and has the skills, knowledge and the tools to perform the same function often even better and for less money or to say the least at the same cost to you.

Outsourcing does not make sense if one pays more for a service than if it would be performed inhouse. There for any outsourcing initiative must be evaluated carefully and a cost benefit analysis must be performed at all times

Again, Outsourcing does not mean a function is send overseas. There is onshore outsourcing, meaning outsourcing is performed by an entity in a neighboring or close by country or domestic outsourcing, which means the function is performed by somebody local or at least the same country.

Oliver Schmid, Basic Author
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 Chainoutsourcing initiatives.

Published by Oliver Schmid at 4954 IT Consulting, LLC

Outsourcing is becoming more and more a viable option for many businesses. Reasons for outsourcing vary and can be increased-shareholder value, reduction of cost, improve operations, keeping up with competition, lack of internal resources, improve cash flow, turn fixed cost into variable cost and many more.
Outsourcing has been around for generations. Outsourcing is a part of how businesses operate. In its lowest form it is your office cleaning crew. Another form of outsourcing is your source of electricity. Who would ever think about having their own power plant to generate the electricity needed to run their business?

Outsourcing is taking a set of work, tasks, responsibilties or functions and transferring them to an outside service provider.

Why would you outsource Information Technology? You may say that there is a profound difference, but is there really? Is Information Technology the core of your business, it this where your organization is best at?

In the past outsourcing Information technology was a business decision in order to drive down internal IT costs. I agree this should be a factor in your decision making, but it should never be the sole reason or you will be in for a big disappointment further down the road.

What can be some of the advantages of outsourcing Information Technology in its entire or only partial? How about:

  • Best practices service – > State of the art service you only could provide at a substantial increase in cost.
  • Improved network operations – less down time through a more stable network infrastructure
  • Opportunity to reduce costs – through IT operational overhead cost reduction and infrastructure standardization
  • Reliable data backup and recovery – allowing for business continuity and sustainability
  • Network Redundancy – allowing for business continuity and sustainability through redundant data center

At the same time you may argue disadvantages like:

  • Loss of control – It depends on a good contract and agreed upon Key Performance Indicators (KPI)
  • Less flexibility and customization – Flexibility could be a minor issue but with the right planning the issue can be minimized. Customization – not really a disadvantage but rather an opportunity for standardization.
  • Fragmented services and vendor coordination issues – it depends. You certainly do not want to fragment your critical business process in order maintain control and avoid costly “finger pointing”.  Planning is crucial.
  • Possibility of increased costs – Yes you may have increased cost for the start-up, but due to improved efficiencies these costs can be recuperated fairly soon.

Again, key is being diligent in planning your outsourcing project in all details. Don’t leave it up to your vendor or service partner.  I can assist you in doing the planning, providing cost-benefit analysis and work with you on finding a service partner that fits your needs.

I will provide you with a free 1 hour phone consultation. Please email me at

(c) Oliver Schmid / May 02, 2009 / IT Consulting, LLC

LImproved network operations
Opportunity to reduce costs
Reliable data backup and recovery
Economies of scale and specialization

by Oliver Schmid / 4954 IT Consulting, LLC

Imagine walking into your office on a Monday morning just to learn that your network has crashed or you get this call on a weekend or during your vacation.

Angry Network Admin

  • Do you know what to do at that time.
  • Will you be able to help or how long will your network be down?
  • Do you know the cost of such an incidence to the overall business?
  • How can you prevent such occurrences and make sure that this won’t happen to you or your organization?
  • IT Outsourcing is you answer.  But what is IT Outsourcing?
  • What can it do for me and what and how much do I outsource?
Outsourcing means that you are sourcing experts in their fields

The answers to these questions are: Outsourcing means that you are sourcing experts in their fields, so you and your business can concentrate on the field you are the experts in.  In the old days organizations used to select so-called single or full outsourcing deals. They outsourced a mega deal that provided them with a single provider for all their outsourced operations.

The question that arises here is, how can one be an expert in all fields? Would you hire somebody that claims to be your Accountant, your IT guy and your Distribution Manager at the same time?

Probably not. So why would would you hire on Outsourcing provider for all your organizational needs?

Here is where “Selective Outsourcing” comes into the play. Selective sourcing deals are much more effective and much more successful. Selective outsourcing deals are successful 77% of the time, versus 38% in single or full outsourcing deals based on a study.

A Forrester Study reveals that 88% of organizations today are in selective outsourcing deals. Selective outsourcing is used to optimize processes and to reduce cost.  At the end of the month when justifying your budget and the increase in outsourcing cost remember that 38% of cost savings come from process optimization and standardization. Labor will only be about 9%.  Yes your overall IT cost and budget may increase, but your overall cost of doing business will decline.

This means that during any outsourcing deal process optimization and standardization must be the main focus in order to be successful.

A main focus today is on innovation and you are wondering, how can I be innovative if I have everything outsourced.
This is while searching for the right partner to outsource to, the ability of this partner to be also your partner in innovation  must be considered and evaluated.  Many outsource providers today do not have this ability. Once signed up you are stuck with what they have to offer at this time for years to come.
Can innovation be bought you are wondering. Innovation may be bought from an external service provider, but in order to do so they need to understand your business and have the expertize to provide you with the right solution. They must have deep vertical business process and technology expertise.
It is important to know how much your service provider is investing in R&D and being able to help you with innovation.
You have to request innovation, because it does not come as part of the deal.
Below a great presentation on “Outsourcing your IT”  by
Orrin Klopper, MD of Netsurit discussing the benefits of outsourcing your IT.

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