Is outsourcing your IT services worth the trouble?

March 15, 2010 - PRLog -- One of the hot topics these days in various corporate boardrooms is the dreaded decision whether to outsource or not. On one hand, outsourcing can be very lucrative for the company and its investors. However, the social backlash that's often followed is not to be taken lightly. So what is a company to do? Should it stay loyal to its fiduciary responsibilities or to the very individuals that make the company what it is today? Economics, Nationalism and Globalism have never quite come head to head like this before, making this one of the decisive choices facing today's companies.

First, let's examine the various kinds of outsourcing options available. The first type that comes to mind can be referred to as "offshoring". This type of outsourcing often implies that portions of work are performed on foreign soil. The most obvious reason for employing this option is cheaper labor. The economic realty is that in some parts of the world you can get 2 to 3 times more labor power for the same amount of money spent here in the US. Primary candidate countries that come to mind are China and India, although there are various South American countries that are also used by various US Fortune 500. A variation of this model can be called "nearshoring". Nearshoring is similar to offshoring except the foreign countries tend to be close to the US; closer geographically as well as culturally. Think of Canada or Mexico as prime examples. The labor rates are not quite as attractive as offshoring but sometimes their proximity to the US lends them to be thought of as a more moderate outsourcing option compared to offshoring.

Outsourcing can also take place domestically right here in the US. Let's look at an example that will explain this type of outsourcing. When you hire a painter to paint your house, or when you higher a mowing company to mow your grass, you are outsourcing. These are tasks that you could perhaps do yourself, but somehow you deemed it more economical or viable to outsource than do the work yourself. Maybe you would rather spend your time on a different or more rewarding activity or came to the conclusion that you simply couldn't do as good a job given the time to perform the work. I'll call this type of outsourcing "business process outsourcing" or BPO. You can find a substantial list of companies specializing in BPO in various segments including but not limited to human resource management, accounting and finance, and information technology to name a few. BPOs ideally should do the job they are hired to do better, faster, and cheaper compared to anyone else performing the same job. This is a very strong benefit and one that most companies are coming to realization with. BPOs allow a company to concentrate on its business without losing quality, cost or time.

Now that we have looked at the kinds of outsourcing available, let's examine some common challenges and pitfalls. With offshoring, the sheer distance often means that the work performed is done in a time zone 12 hours away. In another word, while the management works here, often the workers are asleep and when they are working, it's night time here in the US. This means that coordination of work handoff and management review needs to be carefully thought about and designed. A second consequence is communication charges involved with long distance work coordination, although new technologies such as Voice over IP, which are significantly cheaper than the old phone line, are reducing the full impact.

Although some companies have tried to offshore/nearshore products and services, in reality it's mostly the product based companies that have realized the best gains. A shrink wrapped product can lend itself nicely to being built anywhere in the world as long as the quality controls in place are deemed adequate for the consumers. Service companies or services tied to products (think tech support for consumer goods) have not fared well since the cultural and social issues that inevitably popup in a simple conversation haven't been addressed. A majority of companies send trainers to the offshore/nearshore locations in an attempt to overcome this difficulty, but its effects are yet to be seen.

You might also have to watch out for BPOs that internally turn around and offshore/nearshore their work. This makes the BPOs susceptible to the same challenges and pitfalls mentioned above which in the end can affect the end customer.

So you ask yourself, "What should a company facing outsourcing decisions do?" In summary, the economics of offshoring can be very compelling but there are other factors that should be taken into account. Foremost, a company should keep its customer's experience in mind when dealing with outsourced entities. The social impact of laying off employees aside, the apparent economic gain in offshoring might not even offset the loss of revenue and (usually very high) re-acquisition costs resulting from the customer having a less than optimal experience and becoming disloyal. But the realty of business means that BPOs are, in general, a necessity in today's competitive environment. So when the time comes for your business to consider outsourcing to a BPO, ask around and make a point to understand their business model and how they provide their services to you.

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