To forge outsourcing deals that help businesses keep pace with dramatic changes in IT, the economy, and international law, corporate executives need to think long-term and may have to discard old notions of how to deal with service providers, according to industry experts at the OutsourceWorld conference in New York this week.
Businesses that want to take advantage of outsourcing need to come to grips with, among other things, trends in distributed computing technology, changes in accounting and financial regulations, data privacy rules, and the expanding array of services provided by offshore providers all over the world, said panelists at OutsourceWorld, a part of the TECHXNY show that ends Thursday.
One of the biggest challenges facing IT managers is the sea change that the corporate computing infrastructure is undergoing as it embraces mobile technology, according to Carol Wyatt, global offering executive for Distributed Systems & Solutions at services vendor Electronic Data Systems Corp. Outsourcing must deal with the resulting evolution of the standardized "consistent office environment" (COE), she said.
The COE model embraces a standardized desktop computing environment that saves money by streamlining procurement, training and help services.
"But having achieved lock-down with a standardized desktop, what's next?" Wyatt said.
Companies can't ignore the fact that employees come to work with PDAs and expect to link them to in-house corporate systems, she said. In addition, more companies are experimenting with the benefits of having employees work out of home offices, or work on the go with Wi-Fi and cellular modem technology.
To deal with this splintering of the standard computing environment, companies should look for outsourcers that offer pay-as-you-go, "utility" computing, Wyatt said.
"To move the desktop up the value chain, you've got to look for not only economies of scale ... but need to move fixed costs to variable costs," she said. "Stop paying for functions you're not using."
Users should look for outsourcers that offer subscription services from a shared computing environment, she said. Networking and storage services are just examples of pay-as-you go functions. Some costs may go up, and one caveat is that greater, ongoing involvement on the part of business executives in monitoring variable-cost outsourced IT services is called for, she acknowledged.
To get a handle on variable costs, the cost of any given utility service should be transparent to the client company "at the moment of transaction," she said.
Attention to legal issues can be as important as understanding IT trends, especially in business process outsourcing (BPO) deals, according to William Bierce, president and chief executive officer of law firm Bierce & Kenerson PC in New York.
For example, companies that do not have systems in place to comply with provisions of the USA Patriot Act, which was signed by President Bush in 2001 in response to the Sept. 11 terrorist attacks, face sanctions, he noted.
"The Patriot Act requires you to know who your customers are," he noted. Some of the provisions of the Act require financial companies to identify customers and report suspicious transactions. Companies outsourcing business processes involving customer transactions need to make sure the outsourcer has a system adequate for compliance with these requirements.
Companies that process European data need to ensure that they comply with the European Union's 1998 data privacy directive, under which personal data of Europeans can be exported only to countries that offer privacy protections similar to EU privacy rules. The rules prevent personal data from being linked to individuals without their express consent.
A so-called "safe harbor" pact between the U.S. and EU outlined provisions for U.S.-based companies to meet the EU rules, but India, the leading offshore outsource provider, has not yet struck such a deal with the EU, Bierce noted.
India's Ministry of Information Technology and the National Association of Software and Service Companies (Nasscom) in New Delhi expect legislation to be in place early next year that would pave the way for a data privacy pact with the EU, Bierce said.
Offshore outsourcers, especially those in countries such as India, which have access to a large pool of well-qualified, English-speaking workers, are offering an ever-expanding list of BPO services that may include billing, accounts payable and receivable, mortgage processing, check processing and human-resources department tasks, according to Steve Peters, vice president of business development for Motif Inc., an outsourcing services provider based in Lakeville, Minnesota.
"Anything labor intensive is a good candidate for offshore outsourcing," Peters said.
Motif has facilities in India that provide back-office services and systems for financial institutions, among other clients.
Open, ongoing communication is one of the keys to ensuring such offshore outsourcing deals succeed, he said. Another key is joint monitoring of service quality by both outsourcer and customer to ensure that service level agreements are being met.
Motif and its clients, for example, look at sample transactions that are done at the Indian outsourcing facilities and independently score them for quality, then compare notes, he said. This ensures that the outsourcer understands how the client views the work being accomplished, and allows for recalibration of quality criteria when necessary, he said.
Since data security is a priority, especially where BPO is concerned, businesses should take pains to check the precautions that prospective outsourcing providers are taking, Peters said. Motif, for example, uses dedicated international leased circuits for communications, closed-circuit television monitoring of the workplace and fingerprint scanning, and it has eliminated e-mail and floppy disks in desktops to prevent privacy leaks, he said.
One way to ensure that outsourcing deals don't leave companies mired in outmoded ways of doing business is to take a long-term look at business goals before entering into any kind of deal, said Frank Koelsch, president and CEO of advisory services company Everest Group Canada, based in Mississauga, Ontario.
"Most companies undertake outsourcing on an ad hoc basis," Koelsch said. But some 20 percent of outsourcing deals end up being unsatisfactory within two years, he said.
"Look beyond cost saving to the business and strategic impact of outsourcing," he urged.
Although it is a truism that most companies should not outsource core processes, business executives sometimes make assumptions that define "core" too broadly and may miss out on some opportunities to enhance strategic business goals, he said.
For example, the manufacturing of shoes may be defined as a core process for a shoemaker. But a manufacturer whose core competency is fashion design, such as Nike, may want to keep product design functions while gaining a competitive advantage in related "time-to-market" processes by outsourcing manufacturing functions, he noted.
Flexibility on the part of the outsourcer and the customer are also key to making sure that services evolve and keep up with business requirements, noted various panelists.
Companies should look for outsourcers that have enough experience in the service they provide to help the client analyze business processes and make changes to better meet corporate objectives, said Richard Osborne, senior vice president of the health and insurance practice at Epam Systems Inc., an outsourcer with U.S. headquarters in Princeton, New Jersey. Companies should be receptive to input from outsourcers that may call into question long-held tactics.
"We had a situation where a business had conflicting goals," said Osborne. On one hand, the client wanted the outsourced call center to limit phone-contact time in order to save money, but the client's business strategists had targeted an increase of sales of add-on products as a company goal, he said.
An analysis of the work accomplished by the call center found that workers who spent more time on the phone were able to sell more add-on products. The client in the end was convinced that business goals would be better met by expanding the amount of time that call center workers were allowed to spend on the phone.