Sunday, June 05, 2005

Why outsource

I was once in an outsourcing discussion with a client we were pitching to. The client wanted us to outsource their HR activities but was requesting us to take the processes as is and then also give them a significant cost reduction. My question was how. If we were to take same processes and same service levels, then we would have to deploy the same number of people and use the same technology being used and if that was the case, the cost incurred by us would be the same as what the client was incurring. From where will we get the cost reduction.

This got me thinking about the motive most clients have around outsourcing and why it ends up not giving the requisite benefit that it should. During conversations with a few clients the feel I got is that clients wanted to download their problems onto someone else, who can be blamed, other than ofcource show cost reduction. Due to this the situation never improved for most organization, infact it worsened as now there was another inefficient process of handover between the organization and the service provider.

To me the basic reasons why any organization should be outsourcing is for the following reasons :
- To get better service levels
- To reduce corporate time spend on routine non-core transactional activities
- To streamline processes for better efficiencies and continuous improvement on processes

Cost reduction is an outcome which will accrue automatically if the other three objectives are met. First and foremost we should be looking at improved service levels. More so with respect to the HR processes as we are talking about processes which impact our so called most important resource – people.

For service providers there is a need to ensure that their clients can get higher levels of service to justify the outsourcing decision. Also there is a need to work with the client to streamline the handover process to ensure that there are no additional inefficiencies that get built in at that stage.

Another significant change required for an outsourcing deal to work is for the client to treat the service provider as a partner, an extension of its own organization, similarly for the service provider to think of itself as an extension of the client organization. This will ensure that both the organizations are working towards the same cause of providing higher service levels to its ultimate customer, the employees.


Anonymous said...

Hi Sanjay

Kudos on this well-written article. However, the truth in the Indian outsourcing scenario is that all this talk of 'partnering' a client is just rhetoric. In reality, many clients think that outsourcing is the solution to all their problems, including internal inefficiencies, poor communication and processes or a lack thereof etc. When things go wrong, it becomes a mutual blame game with the vendor and client blaming each other for processing or other related errors. Some solutions to this would be :

- Mutual agreement upon the deliverables at the time of contract signing. This would help in doing away with continuous / ad-hoc / unreasonable requests from clients which often lead to the relationship souring

- The client must take ownership. At the end of the day, the vendor is only acting on the client's behalf- the buck has to stop somewhere!

- Mutual agreement of timelines upfront. This allows for a sense of 2 way discipline between both the client and the vendor. From a vendor's perspective, this allows for breathing space, since there can be a certain cut-off point beoynd which last minute requests can't be entertained.

Keep up the good writing!

Cheers: Another HR Consultant

Aditi said...

Again a great 'simple thought' :-).. But if you turn the table the other way around - it is also the responsibility of the outsourcing partner to ensure that their clients see the light of the day.. The ground realities, especially in India, are that people look for outsourcing for all the wrong reasons - but I genuinely feel that it is also the outsourcing partner's responsibility to highlight process inefficiencies, discuss how the same can be streamlined and only then take up the assignment - Sadly enough, as most organizations here are still 'return focused', they shy away from investing this kind of time, effort and energy... Hope this starts changing soon!