Friday, May 25, 2007

Office Politics: Outsourcing not as easy as it seems

Source: Novascotiabusinessjournal

More and more companies are finding new ways to cut costs through outsourcing different facets of their business, but there is a steep learning curve to venturing into what is often unknown territory, experts say. A study released by the Centre for Outsourcing Research and Education (CORE) earlier this year reported that while companies reported a 75- to 80-per-cent satisfaction rate with the more traditional forms of outsourcing, such as IT applications development and management, less than 50% of those surveyed said they were satisfied with outsourcing entire business processes (BPO).

"It becomes more complicated when you outsource a whole function as opposed to the technology or a small piece of the business. If you outsource a very discreet activity that is normally straightforward, there is usually no problem," said president of CORE, John Simke.

Jim Mikell, a consultant at the Everest Group, said there are several areas that are being explored for new outsourcing opportunities. Everest produces monthly online magazines Outsourcing Journal and BPO Outsourcing Journal. "The most mature areas have been IT, application development, call centres and technology research and development. But there are a set of emerging areas such as HR, finance and accounting and procurement that are also now being explored," he said. According to Mikell, contracting out specialized core processes, such as claims processing in the insurance industry or clinical research in the life sciences sector, are also becoming popular.

Mikell said other new areas for outsourcing are supply chain management, which includes inventory logistics and transportation management. He also cited management care beyond call centres and help desks. For example, utility industries outsourcing meter reading and customer claims. Although these outsourcing areas might give the company the edge they need over the competition, these pioneers also face the biggest challenges when it comes to getting it right.

Marissa Lepore of the Canadian Mortgage and Housing Corporation (CMHC) recalled the adjustment when her organization decided to outsource all their printing, warehousing and material management services, mail, shipping and receiving services back in 1998. "We are in the mortgage loan and service business and we have a good deal of information products that we send to clients. We looked at what core business was and what was not, and if it was not, could we and should we outsource it?" she said.

Mikell said that ironing out expectations versus reality when it comes to new forms of outsourcing is critical to a successful relationship. "There is definitely an early adoption period syndrome. For any outsourcing market there has been a break-in period for the suppliers to get a better understanding of how to manage these processes," he said.