OUTSOURCING 4.0

OUTSOURCING 4.0

To understand outsourcing 4.0, let’s flashback to when and why outsourcing evolved …

Outsourcing 1.0 … “Low cost was the main reason in the first generation.”

In my opinion, when the western world realized that routine IT projects for maintenance can be offered outside their country’s boundaries for a much lower cost, India took a leading role to execute those projects and proved that it was the preferred destination for low cost alternatives. The reasons were obvious – spoken English in all Indian metros and an abundance of qualified but unemployed engineers.

Outsourcing 2.0 …“Quality and communication gaps were an instrumental aspect in the second generation.”

Later, the generation moved to the second level when US and UK customers started to consider the outsourcing of Software Development projects and long term multi -year contracts. This era triggered quality issues and communication challenges between customers and vendors. Many serious and responsible companies started refining their outsourcing methodologies and opted for ISO 9000 followed by SEI levels.

Outsourcing 3.0 … “In this phase western companies started to leverage India’s strength of Non –IT services.”

Then came Y2K followed by BPO/KPO and IT-ES space. In this generation India started offering its bandwidth of not only engineers but also English speaking graduates. This helped Indian IT companies to discover the strengths of other cities and start leveraging resource pools. Along with the US and UK – Europe and Australia also joined the new wave and discovered that India is a vast country with a wealth of intellectual assets. It not only offers IT but also other services.

Outsourcing 4.0 …“This generation is a result of globalization and Innovation – hence, I call it Outsourcing 4.0”

Now is the era of the 4th generation – I call it Outsourcing 4.0. In this generation, customers are relying not only on India but also exploring the values of outsourcing in other countries like Russia, China, Latin America and Mexico. Today’s customers are expecting not just ROI, but also ROR from their vendors. Current businesses need a more agile way of project execution and adaptation of Web 2.0 and Enterprise 2.0 in their offerings. Customers also need On-Demand services model. The new trend demands global delivery companies to offer incremental value services to bring closure alignment between Business - IT. This requires them to do business consulting and not restrict themselves only to IT projects execution.

Gain The Benefits Of Outsourcing Now

In this day and age, outsourcing, or the passing of business processes and functions from one company to another is very common. This happens because, quite simply, there are endless benefits to outsourcing tasks, functions and procedures.

The point of outsourcing these tasks is to allow an organization to become more competitive by allowing it to concentrate more on it’s core functions.

By outsourcing, companies can continue to work on an ongoing basis. They no longer need to be focused on a single project at one time. By outsourcing certain tasks, companies, organizations and individuals can gain time to focus on other projects

Another great thing about outsourcing is that it can look after the ancillary functions, and thus, allow the organization to concentrate on the core business function. This eventually optimizes the growth of the company.

Outsourcing can greatly reduce the operating costs of any business. This is one of the best benefits of outsourcing. This happens then a third party takes care of the support elements of business operations. In turn, this can free up cash for the central core business functions.

Outsourcing can bring big productivity gains to any business. The service that the company offers can improve through standardized procedures through the use of an outsourcing vendor. Even companies with a global portfolio can find that outsourcing vendor can deal with that portfolio and help increase the lifespan of the portfolio too.

One of the most important benefits of outsourcing is that the company gets an easy access to world-class capabilities, which you can use to support your business.

A 25% reduction in costs of major business processes can be achieved through outsourcing. Efficiency and productivity gains also occur as well as a reduction to risk.

Outsourcing can help when trying to remain competitive. Any demand placed upon the company to adapt to new challenges can be handles quickly and efficiently through outsourced services.

During tough economic and difficult trading times, outsourcing can make best use of available resources. A flexible approach during lean times can be the difference between business survival and business failure. Outsourcing offers this flexibility.

There are plenty of additional benefits of outsourcing as well, such as improved customer satisfaction, effective cost management, project enhancement, and much more.

5 Reasons Why SMBs Should (Must) Outsource Their IT

The San Francisco Chronicle recently published an article called “Wise outsourcing has more benefits than just saving money”. The article appeared in their Small Business section (http://allbusiness.sfgate.com), an excellent resource for business owners and CEOs.

The article lays down some of the obvious advantages of outsourcing for SMBs. The main points are:

• A better control on capital costs. True, outsourcing means transforming fixed costs into variable ones, and that’s paramount for small businesses.

• A reduction of labor costs. If you are a business owner, employees mean tax liabilities. As long as cash is a scarce resource, you do not want to run the risk of falling behind with the IRS, EDD and other government agencies. And any entrepreneur would definitely prefer to renegotiate payment terms with an outsourcing provider than with the EDD or IRS, even if the IRS can be accommodating.

• An increase in efficiency. When subcontracting, you can set your expectations by the contract (Service Level Agreement), something you cannot do with employees. Employees are a great resource when employers have already secured a revenue stream that enables proper HR management, not just merely meeting payroll expectations. Managing employees include training, quality work furniture, travel expenses, proper office space, employee events, parking allowance if you are located in a city like San Francisco, and much more, not to mention recruitment fees. When you add up those costs, you realize that securing a regular revenue stream must come first.

• The ability to start projects quickly. With limited resources, you can merely reassign people to new projects, unless slowing down or putting on hold ongoing in-house projects. Working with a third party enables to put your dollars at work almost immediately; and once again with a better control on the deliverables.

• A better risk management. We live in a fast changing world, but when it comes to technology, the speed is even higher. A large enough outsourcing company has the expertise required to help make the right decisions. For instance, starting with the wrong development environment is likely to cost dear, to say the least.

The list lacks one point though, which I find critical, equity control. However, this subject deserves a detailed explanation, and I will elaborate on it in my next post.

But that said, this very good article should help managers that are contemplating outsourcing their IT make the decision to go ahead.

Should I outsource development?

Outsourcing

In recent years there has been an amalgamation of many outsourcing marketplaces directed at entrepreneurs for hiring web development and design folks. Is this the right solution?

The answer depends on what you are trying to do, what you are willing to accept, what price point willing to offer, and what trade offs you are willing to make.

So what are you trying to do?

Is innovative technology a key component of your business offering? In general the success of a business based on specialized competitive technology requires a more innovative, carefully screened and informed team which will drive up the costs. If you skip this step, you could be faced with major delays and/or frustration and lack of completion.

If innovative technology is not a key component of your business offering and your unique selling proposition revolves around a new use case or better user experience of existing tech tools, you can create a fully functioning prototype quickly and cheaply by using a outsourcing firm that allocates its design/development resources across a variety of projects. Since such firms split man hours across projects, they tend to be much cheaper alternatives to outsourcing a team.

What performance you will accept?

Two major barriers when working with outsourcing teams are communication barriers and skills scarcity. The communication barriers can be caused by cultural issues, timezone issues, lack of face-to-face non-verbal cues, and lack of clear specification on your part. Sometimes these differences can be very subtle and go uncaught, until results prove otherwise. It is always a good idea to allow time for several iterations.

Skills scarcity can occur simply because of the different business environment abroad. This can mean differences in the technologies/platforms that are popular. It can also mean less experience and understanding of basics like US specific look and feel especially since what works for the business needs of their more local clients may not work for you

but the good news is…

that none of the cons are real barriers.

There are a variety of outsourcing options out there. Cast a wide net and make first cuts based on level of communication you are willing to accept. Post first cuts hire an outsourcing consultant from the culture of the outsourcing firm to coach you on specs and first few conversations with outsourcing firm. My friend Sumit Gupta provides this service.

You could also hire an internal team known for their communication skills to delegate or to get more ears on your interactions with the firms to make sure more people catch possible miscommunication earlier. Make sure to choose people who are patient.

When faced with skills scarcity question your assumptions. How important is one platform compared to others for your product? Can you compromise with something which has only slight limitations but a big pool of low cost outsourcing resources. Be creative about your process and execution. There are many different ways to slice the outsourcing baby to make it work for you. Here are a few I have heard about