Project Outsourcing

Outsourcing: Critical Issues

Outsourcing is helpful for companies to avoid capital expenditures, which is in particular important in non-core areas that may need new systems and up gradation. Another primary benefit of outsourcing is reduction in costs. BPO provides quantifiable benefits through improved efficiencies, lower overhead, reduced payroll and benefit expenses, and fewer capital investments.

Outsourcing has also been beneficial to businesses in terms of increased customer satisfaction. Some fruitful outcomes of outsourcing are explained below

-Productivity Improvements

A fundamental feature of business process outsourcing is its ability to set free corporate executives from some of their day-to-day process management responsibilities. Usually, executives spend eighty percent of their time in management of details and only twenty percent on formulating strategies. However, when the business process is outsourced, the scenario is completely different. In such situations, executives get more time. The time, which is saved by outsourcing some processes, helps the business executives tremendously to explore new revenue areas, accelerate other projects and focus on their customers. All this leads to productivity improvements.

-Cost Savings

One of the most important benefits and advantages of outsourcing the business processes is in terms of cost savings. The companies that outsource their work access the best expertise in the outsourcing field and at very low wages. It has been concluded from studies that for every one dollar invested in outsourcing across India, the value derived by the US economy is between $12-14.
-Improved HR

Improved Human Resources is another tremendous advantage of outsourcing business processes. A large number of market studies show that Human Resource outsourcing provides cost savings in the range of twenty-forty percent for customers. It also leads to improved HR. HR outsourcing is a market that is growing significantly over the past few years and is expanding even more rapidly with the passage of time. This is based on the fact that gradually more companies are looking at outsourcing transactions and processes to create a more strategically focused HR function.

Many companies all over the world are getting moving towards outsourcing their HR processes and transactions to run their HR functions more efficiently, free the HR function to focus on strategic people practices that drive growth and add to the organization’s long term success and facilitate their professionals to add value to their business. With the change in business trends the companies today, call for complete domestic and global HR delivery through systems and processes that can generate economies of scale to reduce or eliminate their need to make future investments in quickly outdated technology.
-Focus on Core Business

Outsourcing gives tremendous help to the companies to concentrate more on the core areas of their business. The most important factor behind the growth in the outsourcing market worldwide today is an increase in the number of enterprises that are reviewing their internal operations in an attempt to fully understand their true core competencies. In the process, they are able to focus more on their core competencies. Outsourcing gives freedom to the management to focus more time, energy, and resources on building the company’s core businesses. Once outsourcing of certain processes take place it becomes easier for the company to compare and evaluate the efficiency and effectiveness of services that are being delivered from outside and inside. This decision-making process often includes an evaluation of the cost of owning technology - with its associated support costs, that are not core to the enterprise (HR is one such example). This trend is leading to an increased keenness to outsource processes that are considered non-core, yet critical activities. These critical activities include claims administration, HR services and payment services.
-Increased Capability

Apart from other advantages, business process outsourcing has another big advantage, which leads to increase in capabilities of the employees and the company. With this know-how increased capabilities can be seen. The employees can expand their ability to deliver new products and services to their customers. Then there are the factors of scalability and scope. Companies that wish to grow internationally must continuously invest in infrastructure and find talent around the world and this is possible only trough business process outsourcing.

Outsourcing: Critical Issues

There are some critical issues which should also be considered while outsourcing tasks. The following are some of the critical issues of outsourcing which need to be focused on in order to make the outsourcing project successful:

Determine Outsourcing Skills Needed

Once the project or task to be outsourced is decided, the outsourcer should carefully analyze the specific skills that are critical for a vendor to posses so that he can complete the organizations project successfully. These outsourcing skills include:

-Expertise in the process being outsourced.

-Extensive project management skills

-An understanding of the outsourcing organizations business

-The ability to integrate best-in-class service providers into the process

-The willingness to establish performance measures

-Knowledge or expertise that your company lacks internally

-Managing Costs Efficiently

Cost reduction and saving are on the main reasons why companies and organizations are attracted towards outsourcing, but it should be remembered that it is a critical issue at the same time. Wrong assumptions about the cost such as companies might be ready to do an organizations project at a low cost but there would be chances that the initial cost might turn into a much higher overall cost. To avoid such a situation it is advisable to assess the scope and price of the project at the very start.

-Communication Management

The process of making the decision to outsource a business task and then getting the task completed is a long and time consuming task. Such tasks require extensive communication and information transfer between the outsourcing partners in order to keep each other updated with the latest information. The two parties will have to operate proper communication channels to encourage information exchange. Communication is advantageous as it keep the outsourcer informed and up dated about all the current activities of the vendor. If there is a situation in which the parties who have agreed on a outsourcing project, belong to different cultures, it is extremely important to compromise on these differences and accept them. This is also an essential part of effective communication. This difference in can be gaped by organizing social events, educating about company background etc. In order enhance communication between the two parties the following points must be considered:

-Establishing good communication systems

-Regularly contacting your outsourcing partner

-Giving clear instructions and feedback

-Clarifying all possible doubts

-Performance Management

The outsourcer would have to keep a balance between the actual performance level and the idealized performance level for the outsourcing project. The major constraint on which performance is based is the time factor. Efforts should be made to complete the project within the prescribed time.

-Risk Management

The risk factor in an outsourcing project is a major concern. The outsourcer should make a full check of all the possible risks that could occur and hence strategies should be formulated before hand for dealing with them.

-Crisis Management

The management of the outsourcing company should take precautionary measures to deal with a sudden crisis at any level of the project. These precautionary measures should be taken both on financial and professional level.

-Knowledge Transfer Management

Knowledge transfer has a direct and strong impact on productivity. When a company who wishes to outsource is transferring information about a proposed project it should be seen that complete information and knowledge is transferred to the vendor or outsourcing partner. This process if managed efficiently increases productivity.

-Relationship Management

The relationship between the outsourcing partners also has a great impact on the final result or the timely completion of the project. To establish good relationships among the two partners, it is essential to organize formal review meetings often. These meetings can focus on the performance on both teams and also decide upon the future goals. In order to maintain a good relationship for long term mutual benefits it is important to work with a partner who understands and implements business ethics in his work. To establish a profitable and good work outsourcing relationship, the following aspects should be considered:

-Constant monitoring

-Mutual understanding

-Transparency

-Scope for discussion

-Build flexibility to contracts

-Openness to intermediate scope and price review (Outsourcing Management: How better Outsourcing Management helps in Successful Outsourcing)