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Making a Decision to Outsource: Driving Factors
Most executives view offshore outsourcing most of all as a source of cost reducing. The greatest savings are expected to come from lower labor cost and reduced project timelines. However offshore outsourcing also creates new challenges and expenses for the organization involved. Those may include vendor selection costs, legal costs, costs of transition and many others. That is why despite the evidence of possible major up-front cost savings many outsourcing vendors have yet to prove that they are able to provide positive ROI in a complex project. Yet businesses have to perform deep analysis of its strategic program and goals before making a strategic decision to outsource part of their activities. The main driving factors are as follows: Lack of special expertise/knowledge. This is probably one of the most important factors that force companies to outsource. Many projects require technical expertise that is not present within the company. Moreover, very often the company can not hire employees with required expertise, or it is not reasonable to employ them full-time. As Outsourcing Institute has suggested "outsourcing is a clever alternative to hiring". Floating demand for personnel. Often a company that engages itself into a large project is reluctant to search for new skilled employees, because it estimates that upon its completion it will be forced to discharge them (say, in a year or two). It is wise in such case to outsource part of the project to an offshore vendor acquiring also the possibility to reduce costs. High risk level. Companies working in high risk spheres often prefer to reduce them by finding an offshore vendor with advanced expertise in the same domain. Also it is not reasonable to shift all responsibility to outsourcing partner, attracting mature specialists with needed skills and technical knowledge in most cases allows reducing risks. Process management perfection. Outsourcing vendors earn their profits in many respects because they have standardized their internal processes. Take the example of software developers who integrated Capability Maturity Model raising their processes from ad hoc, chaotic level to mature, disciplined software processes. Partnering with such mature organization may allow for transfer of best practices across project boundaries, thus providing some standardization for the outsourcing organization as well. Reduction of time spending on management. Transferring secondary functions and processes to outsourcing vendor will allow management of the company to concentrate on core processes and projects that have maximum priority. Achieving objectivity. Often companies fall into the trap of inertness of its workers. The reason is that people minds can not manage with rapid technological changes and employees are reluctant to refuse "old approved techniques and methods" thus being not able to find and apply optimal solutions. Internal obstacles may delay or even block new initiatives. That is why it is worth recruiting independent expert company that will suggest the most appropriate solution for particular business needs. The company shall clearly recognize all possible reasons for outsourcing and rank their priority. A coordinated approach of management must be formed, in other case valuable time and resources may be spent on finding a vendor whose effectiveness will not satisfy one of the managers. As practical experience shows main reasons for resorting to outsourcing are: - increasing the overall company effectiveness; Probably the most important point to keep in mind while making decision whether to outsource or not is that outsourcing is not the means to solve all company's problems. All problems arising within the company require careful examination. If their cause is badly defined strategic aims, outsourcing is likely to worsen the situation, not improve it. If a company does not realize its needs, it will neither be able to explain them to exterior vendor nor gain success. Will outsourcing be really profitable for your business? It depends. In first place it depends on you and how much effort you put into pre-outsourcing preparation and analysis. We hope that this article will help you to identify your needs and acquire more clear vision of possible reasons for outsourcing. If you are still not sure and hesitating, you may contact us, and our analysts will definitely help you. Denis Syropushchinsky is a Marketing Manager in Qulix Systems - Offshore Outsourcing Software Development Company, located in Minsk, Belarus, Eastern Europe. Our client-oriented approach and effective offshore software development services are the things that will help you to achieve your business goals. If you have further questions about offshore outsourcing, please contact us. Copyright 2005 Denis Syropushchinsky. All rights reserved. This article may be freely reprinted on your websites. We only require that the article and the resource box at the bottom of each article remain unchanged.
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RELATED ARTICLES
Dont Let Your Measurements Mislead You Don't Let Your Measurements Mislead YouThere aren't too many words that can strike as much fear and loathing into the hearts of your internal customers, and sometimes your own employees as the words "Operational Measurements". Operational Measurements often get a bad rap because of their misuse by well intended, but misinformed management. And it's easy for your employees to view Operational Measurements as some kind of cheap trick to force more work out of them as you constantly try and force more and more production from your team. Meanwhile, your sales team thinks that you will use Operational Measurements to cloud the issue of customer satisfaction by pointing to your "great numbers" while leaving the customer very unhappy. The truth is that you cannot succeed in managing an operational organization without the proper measurements in place. Any attempt to run an organization without them is doomed to failure because you will lack the fundamental information required to manage your business. Coach Dave is a strong believer in Operational Measurements because he knows that the right measurements, taken in a consistent fashion will allow you to continuously improve the performance of the organization and the company. Yep, Operational Measurements are good. . . . except of course, when they are bad. In simple terms, Operational Measurements are progress meters that can tell you how well, or how poorly your group is performing. The key to successful Operational Measurements is to make sure that you are managing and measuring your key processes. It all starts with your departmental or company objectives. You should have 2 to 3 major objectives, depending upon the size and scope of your organization. The key is to focus on whatever it is that you are really being asked to deliver on, and then set up your objectives, and Operational Measurements in a way that can tell you if you are succeeding or not. If your objective is production based (i.e. produce 50 widgets per month) then make sure that your measurements track the number of widgets produced. If your measurement is time based (i.e. complete widgets within 10 days of receipt) then once again, make sure that your measurement tracks to the objective. You would be surprised how easy it is to create measurements that sound important, but have nothing to do with your stated objectives. For example, if you goal is to paint 10 houses each month a metric that tracks how many brushes you use may sound important for cost control purposes, but it really has nothing to do with the objective. By focusing on the number of brushes you use, you may actually impede your ability to complete the goal of 10 houses. Ensuring that your objectives and measurements are in synch will keep you and your department focused on the prize. Once you have your key measurements in place, you can start to look for a pattern in the results. If you are not able to meet your objectives, the question has to become "why". It could be a variety of factors from bad inputs, to bad processes, to bad people. To determine where the problem is, break out your measurements in that area to each key step in the process. As you examine those results it will become more apparent that "step 5" takes up 80% of the processing time. Then you can focus on reducing the time spent on that step. One other key factor to account for as you measure your process steps is "wait time". "Wait time" doesn't always manifest itself clearly in reporting, so spend the time to analyze how many handoffs exist in your process and ask yourself and your staff if some of those handoffs can be eliminated through combing functions, training, etc. It is simply amazing the amount of time lost in a process due to the "wait time" while an order is sent from one person to the next. Reducing the "wait time" can dramatically improve your results. In a nutshell, that's why you need to have good, clean Operational Measurements in place. Many of the things you can count, don't count. Many of the things you can't count, really count. - Albert EinsteinAny time your organization receives some kind of a work order from a customer (internal or external) adds value to it, and then either completes it or passes it along to another organization, you qualify as an Operational Organization. As an Operational Organization you need to have solid measurements in place to measure, validate, and eventually improve your own internal processes. But there is a downside to Operational Measurements as well. The downsides can take many forms, but the most common are when you start to measure everything that you do, simply because you can. Also, when your measurements rather than your customers, begin to drive how you do business. Are you counting the right things? The right way? Are you counting so many things that counting them has turned into your primary business? Are you helping your customers, or hurting them? That's the difference between good Operational Measurements, and bad ones. When Operational Measurements Go Bad: When you first implement your Operational Measurements, you will spend a lot of time analyzing, improving, and tweaking them. The painstaking process of developing and implementing the right measurements requires a lot of time up front. But that time is time well invested to make sure your measurements are complete, accurate, and in synch with your organizational objectives. You must spend the necessary hours making sure that your Operational Measurements track to your objectives, that they provide a consistent measurements, and that they are at the appropriate level of detail to allow you to identify weaknesses in your operation, and implement improvements. But, when you find yourself counting things because you can, or you begin adding measurements that do not relate to your objectives that's the first sign of trouble. Also, when your Operational Measurements become the sole driver in your organization, that's a pretty good sign that you've turned the corner and are headed down the wrong path. Remember, not everything that counts, can be counted. And just because you can count it, doesn't mean you should count it. Let's use the example we previously discussed of a house painter. For our purposes here, this is a big house painting company with multiple crews who do different types of painting. At the start of the year the decision is made to set a new objective for your crew. You are now being asked to paint 13 houses per month with the same size crew, up from just 10 last year. You sit down with your crew and begin to look for ways to improve productivity. You make the necessary changes to your team or process and then set out to accomplish your new goal. Your changes are effective and productivity improves and you start reaching your new goal. Then, a funny thing happens. You get a memo from your boss that goes something like this. "The bean counters tell me that your paint brush usage is up 15% above last year. Every dollar counts, so I'm putting together a special task force to cut the number of paintbrushes being used. We need to reduce our paint brush usage to 10% below last years level within 30 days." And . . . . we're off . . . . this is what I sometimes refer to as "The Operational Measurement Shuffle". What is the Operational Measurements Shuffle? It's a dance that management sometimes does where we lose focus on our objectives and instead start dancing with a lot of extraneous information that may LOOK important, but really isn't. Sometimes it's not entirely clear when the Operational Measurements Shuffle actually begins. But if you pay attention, you'll see the dance by the end of the first chorus. We're now going to start counting things (paintbrush usage) that has nothing to do with our objectives, but that looks important to someone else far away. Notice that the boss didn't ask you to explain why paintbrush usage was up, nor did he look at the cost/benefit of paintbrush usage versus revenue, he just told you to reduce the usage. You can expect this new measurement to be followed by new measurements of the painters' hats being used, the amount of thinner being used, and questions about the number of rungs required on the ladders. And lastly he blamed the "bean counters". The uninformed always blame the bean counters. At first glance you might think that it's ok to wonder about the paintbrush usage. And it is. But there is a difference between asking a question, and putting in new measurements to track them. For example, a smart boss would have called and asked about the increase in the number of paintbrushes being used. Your response might have been something like this. "That's right. Our paintbrush usage is up. In order to meet our goals for the year (13 houses per month) we made a change from regular paintbrushes to disposable paintbrushes. The new brushes cost 30% less than the old ones, plus we save on turpentine, and clean up time at the end of each day. So our paintbrush usage is up, but our costs are flat or down." With a good boss, that will end the discussion. You've answered the questions, explained the variance, and shown that there is just cause for the increase. But a bad boss will not listen at all, or will just pretend to listen and then suggest new measurements on paintbrush usage. With a bad boss the fact that there is a valid reason for the increase in paintbrush usage is not really relevant. Paintbrush usage is up, and it must be reduced. For a bad boss, it's as simple as that. If you have learned how to manage your boss, then maybe you can convince them that the measurements are not relevant by showing how they don't relate to and can even detract from your objectives. But some bosses are so enamored with measurements that they can't tell a good measurement from a bad one. The long and short of this discussion is simple. 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