Friday, March 10, 2006

Software outsourcing : Excellent firms don't believe in excellence - only in constant improvement and constant change

A crucial challenge for software development cpmpanies - both big and small - in an increasingly globalized economy is to manage corporate changes quickly and successfully. While 9 out of the top 10 barriers to successful corporate change programmes can be traced to people related causes, rapid incorporation of disruptive technology into the mainstream business arena forms a core pre-cursor to a need for change in the first place. Thus the battle of managing change effectively is more than half won by properly managing the technology that drives the enterprise.

A modern enterprise typically consists of hundreds of business processes. Some of these are core to the enterprise's basic sphere of activity. A lot others are just generic processes that have nothing to do with the enterprise's core competences. While the enterprise can remain very agile in it's core competence areas and can respond to changes in technology in a timely fashion, it can become difficult - if not almost impossible - to maintain the same agility and flexibility in all the other non-core areas.

One of the most effective ways to handle this kind of business risk is to outsource certain functions of the business entity to an outside organization that specializes in providing this kind of services to multiple such businesses. This way the business that provides the service becomes a Business Process Provider for that particular business function and this becomes their core competence.

Areas of Change: The areas where disruptive technologies can sow the seed of change can be broadly classified into the following four categories:
-- Non-core business processes that are strictly rule based transaction processing.
-- Non-core processes that require high domain knowledge in the concerned business process area.
-- Core business processes that have low domain knowledge requirements and can be modelled as pure transaction processing.
-- Core processes that require high domain knowledge.

The non-core activities of an organization typically become good candidates for outsourcing to other organizations that are more prepared to handle them properly and insulate the primary organization from the effects of disruptive technological innovations. The core functions are best kept inside for obvious reasons. The core functions are an organization's raison-d-etre and may not really make sense to outsource to another organization.

Changes in Core Areas: As noted above, an organization will be consistently more agile in handling disruptive technologies within their core competence areas than in their non-core areas. For example, consider a printing shop. When digital printing entered the market as a disruptive force, all serious printing shops adapted to the new methods pretty quickly. But, most of these same shops would take months if not years to implement a cutting-edge accounting package. And even if they implement, it will probably be nothing short of a nightmare for them to upgrade to a newer version of the system!

In many cases, even some of the core functions that a business performs can become good candidates for outsourcing. This occurrs when a significant part of the core activity work-flow can be formulated as strict rule based transaction processing steps. Such processes can well be outsourced to another organization to reduce and control low skill level human resource within the organization.

Changes in Non-core Areas: With the global acceptance of internet as a valid means of business communication and with the recent advances in security solutions relating to internet communications, it is becoming increasingly easier for organizations to send out their non-core, IT oriented processes to a shared service provider. A shared service provider will typically be an IT company or an IT Organization within a larger entity who possess core competence in the field of IT and who have acquired key business process expertises either through direct acquisition or partnering with other business process experts.

The IT Organization within the Shared Service Provider company builds and then maintains the IT infrastructure that helps in service delivery by the business process experts group. This IT infrastructure can be dedicated on a per client basis or even could be shared between smaller clients so as to result in significant cost savings for all of them. Either way the client company benefits from the fact that their IT and IT based non-core activities are being handled by people whose core business is IT and the concerned business functions - say, Accounts Receivable (AR) for instance. Hence this organization will be more prepared and agile enough to quickly cope with any disruptive surges in the IT segment and take advantage of any technological advances in the business function areas - say, some new technology that makes AR processing easier.

For details read here.

The article is sponsored by A-1 Technology Inc which is an established Software Development Company and is one of the best Software Development Companies in the era dealing in offshore outsourcing including services offshore website development and software development.