In today’s economy, businesses face enormous hurdles no matter what their particular business endeavor. Competition from larger, more established firms, globalization, the looming potential for technological obsolescence and the need to keep costs under control can make management of most companies an extreme challenge. Focusing on the core business can be difficult especially when growth – and success – force management to shift its attention from the market and ‘getting ahead’ to the company’s own, internal structures. A strategic tool for CEOs is business process outsourcing. Through the process of outsourcing, analysts say, companies can regain focus on their particular business, become more efficient and even rival the systems and control level of larger companies in outsourced processes and most importantly focus their efforts on the value-added functions of their business. According to many respected reports, it certainly can help a company’s bottom line. However, there are many factors to consider before venturing into the burgeoning world of outsourcing.
Mistakes typically made with outsourcing
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Trying to outsource a function that has high costs, minimal processes, and is causing considerable management angst; at least try to take the excess costs out before you outsource. Don’t give someone else your savings margin.
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Not developing a business case and strategy on what to outsource, thereby making it difficult to assess cost and process improvement proposals from vendors.
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Not establishing a method of performance measurement upfront during the contract phase.
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Failing to consider the long-term relationship dynamics.
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Not planning upfront how the relationship might end.
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Failing to understand and manage this new organization dynamic.
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Failure to explicitly define boundaries, with clearly defined roles and responsibilities. Never outsource one piece at a time without a master plan.
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Outsourcing imposes discipline on your organization. Adapting to the rigorous processes required by an outsourcer may be difficult in some corporate cultures.
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New laws will essentially make security breaches at your outsourcer equivalent to security breaches at your own company.
Standard Conflict Management Practices and Tools
Outsourcing customers and providers usually enter into agreements with optimistic intentions and expectations. Customer executives look forward to quality service, new thinking, extraordinary responsiveness, and a vendor that shows both a partner-like caring about the customer’s success and an intuitive understanding of the business. Making outsourcing relationships work takes a lot more than good faith and committed people, and too few such arrangements actually come anywhere near reaching their desired goals. Even with the best of intentions, relationships can end up in with diminishing returns for both parties.
Once in this downward spiral, customers and vendors are headed down the spiral to failure. Both seem to get stuck in negative perceptions and behaviors.Technorati
SIIA is the principal trade association for the software and digital content industry. Their recent report issued January 11, 2007 titled “SIIA Report on Global Software Development Shows Importance to Business Growth” was the culmination of a survey with 114 American-based software companies last year. Sixty-eight respondents had offshore operations while forty-six did not.Software companies are increasing offshore software development efforts. However, companies are not looking to displace American workers, said David Thomas, executive director of SIIA. “Global software development is in the process of transforming the nature of the
US software industry,” said Ken Wasch, SIIA President. “Our survey covers many of the influences on and results of this sea change.” Respondents claim:
| · Attaining 80-100% of their cost savings goals |
· Gains in productivity appear to be less than expected |
| · 73% of respondents reported a positive impact on profits |
· 66% claim the quality of work is above average when compared to onshore staff |
| · 25% rate the quality as “excellent” or “outstanding” |
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Two underling points need to be examined:
- H1-B, L-1 and L-2 visa allotments are being discussed by Congress and this report would indicate increasing the allotment should not have a negative impact on unemployment figures.
- Companies surveyed were in the software development industry and not corporate America companies with IT departments, so by inference we should draw the same conclusion and apply across the board.
The premises behind these two points are fraught with a number of problems.
- Visas should not be increased because the US government cannot keep track of the holders of the visas it has already issued and this just represents a hidden immigration loop hole.
- Software companies are creating a product to sell and development is a means to that end. Corporate America use IT as a tool that addresses their own product development and software is an ancillary support tool.
Our economy is a global economy and outsourcing is not a fad. US workers must adapt or become marginalized. Issues for companies to consider:
- What is the true cost of moving development offsite and how much time and money will be required to develop complete and accurate technical definitions?
- Does the company have a mature project management track record?
Issues for US development staff to consider:
- Software languages and tools change continuously and staying an ‘expert’ is always transient. Business analysis and project management is constant and not a candidate for outsourcing.
- Consumers like to pay the least amount for whatever they usually buy, but that does not always translate into “made in
America”. Companies will always look for the least expensive and effective means to create their products. The research found that some companies underestimate what is needed to succeed and how much effort is necessary for adaptation. Developers have to adapt and become ‘integrators’ or some other form of the solution.
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