Multi-vendor Outsourcing Is Way to Go

Multi-vendor Outsourcing Is Way to Go

IT decision makers are moving away from single outsourcing service providers to using multi-vendor outsourcing, according to a survey of 100 global CIOs.

TechWeb reported that in polling the CIO and business leader base of Indian outsourcing provider Patni Computer Systems, the survey found that 45 percent of the respondents favor using multiple vendors to competitively distribute specific project requirements. Just 17 percent favor using a single provider for global assignments.

The Indian outsourcing firm's survey also determined that 94 percent of respondents are increasing their outsourcing budgets with 65 percent indicating their increases range from 5 percent all the way up to 35 percent. "Although cost savings is still an important factor in selecting an outsourcing partner," read the Patni announcement, "33 percent of the respondents indicated that quality of services was the primary concern."

SMEs to ride next offshoring wave - But will it suit all small businesses?

SMEs to ride next offshoring wave - But will it suit all small businesses?

By Steve Ranger

Published: Tuesday 26 September 2006

Small businesses will be the next to benefit from offshore outsourcing - but it might not be a route taken by every company.
Benjamin Schmittzehe, chief executive of management consultancy Schmittzehe & Partners said there is a "huge untapped market" in the form of the smaller businesses that have not yet embraced outsourcing.
Speaking at the silicon.com CIO Forum in London, he said: "One of the reasons it hasn't happened so far is, primarily, if you are trying to develop offshoring capabilities it's more efficient to target the large companies - that's where the cream is."
He said there is a "massive opportunity" for SMEs in terms of cost savings and added: "One of the big differences between multinationals and SMEs is that SMEs are more stretched."
But Ehab Roufail, programme manager at 192.com, warned there are potential pitfalls for the unwary. "I'm from an SME background and for most SMEs it doesn't make sense to outsource to India," he told the audience of IT executives at the conference.
Roufail added: "You have to spec things out and put a lot of processes in place to make sure that [outsourcers] don't go off at a tangent." He said outsourcing might be an appropriate option when smaller companies have grown larger but said that to do so at the beginning could be a "big danger".
Speaking on the same panel Manpower CTO Kevin Fitzpatrick said there can be big benefits from using offshoring, and that skills - particularly to support commodity services or infrastructure technology - are widely available.
He said: "The business case for offshoring work is definitely there - the role of the CIO is making sure that the process will work, that we've covered all the bases."

Is Insourcing the New Outsourcing?

A recent Compass poll of executives from 70 outsourced companies in North America found that only 4 percent of organizations would not consider taking all or some services back in-house when their contract term expired. Two years ago, this result would have been surprising, but recently an increasing number of client organizations view repatriation of services or insourcing as a viable option.

The growing popularity of insourcing results from a variety of factors, including acquisition of outsourced companies by insourced companies, clients' disillusionment with their outsourcing deal, an increased focus on selective sourcing (and retaining strategic services in-house), and a growing confidence within companies in their ability to efficiently manage an IT operation.

Sourcing Scope

Over the next 18 months, according to published reports, outsourcing contracts worth more than $90 billion will be up for renewal. A variety of factors suggest that many client organizations are seriously considering insourcing a significant portion of those outsourced services.

The key factor driving the consideration of insourcing has been the failure of outsourcing to achieve the consistent, long-term and significant cost savings clients anticipated. Compass analyses of large outsourcing contracts show, on average, a cost reduction of 15 percent over the first 18 months of the agreement. However, because of growing demand for services, and the "back-end loaded" nature of many outsourcing contracts, the client's costs are often—by the end of the term—30 percent higher than those of a well-managed internal operation.

In some cases, organizations facing financial difficulties outsourced with the clearly defined objective of short-term financial gains, such as getting employees off their books, realizing immediate IT cost savings or receiving a cash infusion in exchange for assets. Organizations whose financial situation has subsequently stabilized may now be revisiting their outsourcing strategy and determining that they can manage operations more efficiently in-house.

Meanwhile, organizations that expected the best of both worlds from outsourcing—low cost and "value-added" responsiveness and commitment—have inevitably been disappointed, and are now revisiting their decision to outsource.

In other instances, outsourcers have become victims of their own success. Consider: An organization hires an outsourcer to tackle daunting challenges such as consolidating standards, processes and systems following an acquisition or merger. After the outsourcer commits the resources and resolve the client lacked, and delivers a well-run, standardized global operation, the client brings the operation back in-house, exploiting the outsourcer's investment and reaping the rewards in terms of ongoing cost savings. It's an unfortunate situation for the outsourcer, which has invested substantial resources in anticipation of a long-term relationship.

Revisiting Strategy

In a broader sense, the increasing consideration of the insourcing option as contracts reach their termination dates signals not so much the failure of outsourcing as it does a revision of an overall delivery strategy on the part of client organizations.

For one thing, insourcing reflects the growing maturity of the outsourcing marketplace. Specifically, clients are undertaking a comprehensive analysis of their sourcing requirements to determine what should be outsourced and what should be kept in-house. This more nuanced approach recognizes that outsourcing in and of itself is not a solution to management challenges. Clients are also becoming more confident in their ability to manage operations, and senior executives are becoming more willing to consider an internal IT organization's business case for insourcing. This was not the case a few years ago.

Organizations with a truly global scope, moreover, can be their own outsourcers, and gain many of the benefits of utilizing offshore service providers directly. For example, a multinational bank with operations in Poland could consolidate mainframe operations there and take advantage of that market's highly skilled workforce and low labor rates, as well as the benefits of consolidation. Large organizations can also afford to hire the best talent, as well as leverage economies of scale as do the large service providers.

Tier Two Players

The emergence of "tier two" regional outsourcers has been another key factor in changing clients' sourcing strategies. For one thing, midsize vendors provide more options in terms of selective sourcing, allowing clients to define specific functions to outsource—as well as specific functions to keep in-house.

Smaller, regional service providers are also proving to be more adept at, and committed to, delivering commodity services. Such relationships—where the client's objectives are clearly defined as receiving services of reasonable quality as cost-efficiently as possible—tend to be most effective.

The growing popularity of smaller outsourcers also reflects a growing disenchantment with all-encompassing "megadeals" with global outsourcers. Rather, in reassessing their sourcing strategies, client organizations are finding that a selective approach employing a mix of regional players and insourcing can be the optimal "global" mix. Finally, for smaller client organizations, regional vendors can be a better fit organizationally, whereas working with the major players often results in a disadvantaged negotiating position.

Cautions and Considerations

Despite recent trends showing insourcing in a favorable light, client organizations should not underestimate the challenges of repatriation, and must ensure that they have a strong internal management function that can address the confusion and disruption that inevitably accompanies a repatriation initiative.

A sound financial business case, based on an analysis of existing costs and service quality, is essential to any client organization considering insourcing, and should be applied to assess and navigate various scenarios. For instance:

If clients believe they are being overcharged by a service provider and seek to remedy the situation through insourcing, a cost analysis is necessary to validate the assumption.
If the business case analysis demonstrates that a vendor is in fact overcharging, the client organization should consider the option of presenting a "proxy bid" cost analysis based on market rates to the vendor as a negotiating tool.
In planning for repatriation, client organizations must recognize that the process requires defining a long-term price structure, and identifying the benefits of different strategies. For example, what will be the potential impact of consolidation or offshoring over a period of two to three years? A repatriation initiative should be built around a fact-bases analysis of options and long-term impacts.
Insourcing requires a thorough assessment of internal skills and management capabilities. Do the necessary capabilities exist? Is the client organization willing to invest the resources to develop the necessary internal capabilities?


Compass expects to see an increase in companies repatriating services over the near term. Ultimately, however, most organizations will pursue a more balanced delivery strategy and take the selective outsourcing route—keeping some services in-house and outsourcing others.

TeamLease to unleash mega job hunt in India

NEW DELHI: Riding on a boom in retail and manufacturing sectors, TeamLease, India’s largest staffing solutions firm, aims to add 40,000 more employees in its pool next year, up from the current year’s target of 52,000.

“We are also targeting a Rs 1,000-crore turnover in 2007 from the current figure of Rs 520 crore,” Ashok Reddy, managing director, TeamLease, told DNA.

Gearing up to tap a huge workforce from category B and category C towns of India, the company set up new offices in in Bhubaneshwar, Goa, Indore, Nashik, Vizag and Jaipur in the last four months.

“With 400 recruiters working all over the country to build a candidates’ pool and identify skill sets , we add about 5,500 people every month, of which about 2,500 get absorbed by the companies,” said Reddy.

He said that in the next five-six years there would be 10-12 million jobs through temping (temporary workers which the company offers its clients) . In a country with a workforce of 400 million, only 1.8 lakh temp jobs are there in the organised sector. As the HR sector grew in India, some major players like Manpower and Ma Foi went for mergers and acquisitions.

“We love our independence and by getting into mergers and acquisitions, we would kill our growth rate and value addition that we do now,” says

Reddy, dismissing the idea of any near-term mergers or acquisitions. The firm started with banking, financial services, insurance and entered BPO and telecom sectors, but is now busy evolving temp services in sectors like retail and manufacturing.

There will be no dearth of temp jobs even for the undergrads, who are open to new ideas and easier to train. Companies like Reliance Retail will offer 5 lakh jobs in two years, once they roll out the retail operations, Reddy said.

Manufacturing is another sector which will give a quantum leap to temp jobs. Earlier temping was being done for white collar jobs only, in the last six months, blue collar jobs are also being “temped”. This trend will catch up very fast, he said.

“By next year, we expect 10% of our associate volume to come from blue collar segment, which is set to grow further,” Reddy said.

HOW – AND WHY – TO EXPLORE OUTSOURCED DOCUMENT

DOCUMENT OUTSOURCING
HOW – AND WHY – TO EXPLORE OUTSOURCED DOCUMENT
MANAGEMENT

By Jeff Zbar

Consider this proposition: If your company manufactures products or consults on management solutions, should any process beyond your true core competency be internally managed? From facilities management to shipping to document production, any non-core process often better serves the company bottom line when outsourced.

For many businesses, such is the case with document production. Between employing staff to manage an internal copy reprographics department (CRD), to leasing equipment, renting additional office space to house the CRD, and striving to stay atop the latest in technological advances, companies that run their own CRDs often find themselves mired in a money-losing process.

Document outsourcing can lead to convenience and flexibility through scalable document delivery operations. In short, off-site print services can deliver unsurpassed CRD benefits – with out the expense in dollars and productivity typically associated with on-site CRD operations.

Yet how can such an organization release itself from the way business has always been done to capitalize on a new solution?

Many large corporations, and even paper-intensive companies like larger law firms or accounting practices, have made the move to document production outsourcing. Upward of 60% of enterprises outsource some part of their document output needs, according to Gartner, the Boston research firm. Yet many don’t handle the process well. To wit, by 2005, some 75 percent of organizations that fail to properly manage the outsourcing process across its life cycle will not fully realize the benefits the process can deliver, including improved service quality, cost controls and realized objectives, Gartner notes.

Unlike the “outsourcing” that conjures negative connotations in the media, document outsourcing is removing some or all paper document production from a company, and outsourcing it to a domestic external provider. These companies may be located nearby, or in the case of national providers, in many locations nationwide, thereby providing production and logistical benefits unattainable from an internal CRD.

Small to medium businesses (SMB) increasingly are joining Fortune 500 corporations in exploring document outsourcing as a solution to several issues, notes Greg Greenberg, a senior analyst with research consultancy AMI Partners. A confluence of events and motivators, especially in the SMB space, has joined forces to create a suitable climate for change. They include:

Limited qualified staff to manage increasingly complex CRD technology and software solutions, or the need to focus existing staff on other, more important processes.
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A desire to focus on the company’s core competency, as opposed to such resource-consuming and non-core processes as printing.
An overall trend to improve print quality, which traditionally could not be accomplished with devices priced reasonably for the SMB organization. Outsourcing or applying leading-edge printing applications “can enable an SMB to look more like a larger firm by showing a certain level of quality at a lower cost,” Greenberg said. And A move away from creation of static documents, including marketing materials, presentations and brochures, which often are printed once in large quantities, then becoming dated or “stale” as they lie awaiting distribution from costly storage facilities. On-demand digital printing provides for just-in-time printing, eliminates need for storage facilities. Documents or parcels then can be drop-shipped directly from a print vendor’s location – without client personnel touching, packing or shipping the materials.

By applying outsourcing or advancements in printing technology, a company can grow – and grow its CRD applications – without hiring new staff or professional CRD managers internally.

Though prices for such devices, especially in the color laser category, have dropped to the sub-$30,000 range, the hard cost doesn’t reflect the actual cost related to an internal, self-managed CRD. Those include the persquare-foot cost of additional space to house the CRD, staffing costs related to operating the department, and the need to ensure the organization has the latest in reprographics hardware and software solutions. And with the move to color for Page 1 of 2 Copyright The Outsourcing Institute 2004.
internally-produced, professional marketing brochures and collateral materials for client outreach and new business development, production and binding equipment needed to put an impressive finish on the documents requires significant capital outlay.

Hence, the initial stages of a move to document production outsourcing begins with the realization that such outsourcing is no longer a tactical cost savings opportunity, but a strategic business practice. The company can free up assets and capital, and pay only for those services actually used – including printing, binding, stapling, boxing and/or shipping or distribution – in the variable-cost model.

THE MOVE TO OUTSOURCED DOCUMENT PRODUCTION

The move to outsourced document production requires careful planning from the top down. The process often is initiated and championed by a C-level financial, operational or information technology executive, who then appoints an individual to oversee solution research. Gartner Research calls this post the “production czar.”

This czar would be tasked with performing a thorough assessment of the company’s existing print production functions and facilities. Typically, when color press runs consistently exceed 1,500 copies per run, analysts believe this is an appropriate occasion to consider outsourcing the process, said Peter Grant, Research Vice President of Gartner’s Digital Documents Imaging Group.

Such an assessment can be accomplished by existing internal staff, or with the guidance of a vendor known for such review and applications. Under this review, tally the number and type of existing equipment, output volume of each device (with specific numbers for color and black and white output), as well as service and supply costs. The goal is to assess the current equipment, service and supply costs on a per page basis, and use those costs as a basis for comparison against the outsourcing proposal. Additionally, this review should reflect where the company is with regard to document outsourcing, as well as where the czar and other champions want it to be.

Though rewards can be achieved, document outsourcing is not without its risks, Grant warns. Among the greatest risks are possible security breaches of documents being produced off-site. For some organizations, production of sensitive documents, which typically represent a minority of print output, remains within the internal CRD or individual copy stations. Disruption of office culture or end-user control also is an issue. This is especially true for those employees unaccustomed to outsourcing print jobs, not physically overseeing the process, or simply walking to a CRD down the hall to fetch a printed job.

Yet rewards found with outsourcing can be numerous and ongoing. The average company spends three percent of its revenue on document output and handling, Gartner notes. Outsourcing can control such costs. Moreover, the client enjoys assistance in managing output needs and an end to technological obsolescence found with purchasing or leasing long-term document production equipment. Internal facility space is freed up as equipment and functions are moved off-site.
And finally, and for some, most importantly, the company is able to focus on its core business – which almost certainly can generate more money for the business than overseeing a CRD.

Moreover, an outsource solution can allow an expansion-minded company to grow more rapidly following mergers and acquisitions. By integrating an existing unified, holistic document outsource solution into the newly acquired operation, duplication and waste is eliminated and operations are streamlined.

REGULATIONS SPUR DOCUMENT OUTSOURCING

As increased state and federal regulations control how certain companies and industries operate in the 21st Century, appropriate use of document outsourcing can play a critical role in ensuring rules and regulations are adhered to.

The spate of corporate malfeasance that led to the Sarbanes-Oxley Public Company Accounting Reform and Investor Protection Act of 2002 now require greater document management and internal control. Additionally, the Health Insurance Portability and Accountability Act of 1996 requires control and tracking of patient records, with strict adherence to patient confidentiality. Variable data printing options, when combined with bar-coding and database management, ensure that patient data is protected, while the organization is able to capitalize on cost benefits found with document outsourcing.

The variable-cost pricing model of outsourced document production allows organizations to meet these regulatory requirements, while also improving bottom-line results.

For many companies, outsourcing also delivers significant production and workflow benefits over internally operating a CRD. Print technology deployed by external vendors often easily outperforms those used at an internal CRD.
These machines allow for heavier production schedules and volumes, more complicated printing applications and more powerful technology overseen by skilled and dedicated staff.

Finally, depending on the vendor selected, all phases of job management, from submission to revisions to job monitoring, are handled online via password protected sites. This allows for creation of variable-data printing solutions – at variable-cost printing prices – formerly unattainable from traditional outsource printing vendors. The use of such data allows documents to be personalized with specific customer data, which therefore can improve customer satisfaction.
When married with client expectations and contracted applications and services, the relationship becomes more productive and rewarding.

“That’s the innovation that’s occurring with technology,” Grant said. “It’s just rethinking what we’re doing. It’s a transformation play. Why do you want to go to outsourcing? Because I’m changing the way I compete in business.”
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IT Infrastructure Outsourcing

The Key To IFO Success: Assessment

An Outsourcing Definition:
The conscious business decision to move internal work to an external
supplier with whom your company develops a mutually beneficial and
strategic relationship.

With infrastructure in its various capacities acting as the backbone for most businesses, infrastructure availability has become a mission-critical necessity for growing enterprises. Organizations evolving with today's fluctuating business climate face the challenges of managing and maintaining their increasingly complex business center operations and various infrastructure areas.
As a result, many successful businesses are turning to infrastructure
outsourcing as a way to maintain a competitive edge. Infrastructure
outsourcing (IFO) enables companies to focus on areas critical to their
strategic success while gaining the advantage of competitive infrastructure
functions, enabling business growth.
There are several keys to successful IFO, including finding a service provider who partners with your organization to help you to evolve strategically and profitably. However, before you can even get to the point of seeking out a service provider, companies must identify those areas within their infrastructure that are good candidates for outsourcing. This assessment phase is key to the ultimate success of a company’s outsourcing ventures. So, how does a company go about assessing their outsourcing needs? A lot of introspection and unbiased evaluation!

What IFO Services Are Out There?
Success in outsourcing depends on how well you define and communicate your IFO needs to potential contractors, and the quality of the relationship you develop with your chosen service provider. The goal of IFO is to bring in experts to serve your infrastructure needs more efficiently than you can on your own,
freeing you to dedicate more of your resources to your organization's core competencies. There are several types of IFO that can be utilized within one company including business processes, IT, enterprise support and manufacturing processes.
• Business Processes (BPO): is the delegation, to a third party, of the management, operation of a company process, to allow the company to improve its productivity, efficiency, and competitiveness.
• IT (ITO): is the delegation of IT infrastructure, application development, maintenance, and support to an external provider to improve performance of this critical support service.
• Manufacturing Processes (MPO): is the delegation of product manufacturing to an external provider to improve the a) development, b) production, fabrication, assembly, or c) post-production support of that product. Establishing a relationship with a third-party to support the manufacturing process joins the strengths of both companies to go to market sooner, produce a superior product or extend the market penetration of the product.
• Enterprise Support (ESO): is the Facilities Management Services that support the company’s premises and its occupants. This can include Administrative Support Services that enable the company to operate more effectively, e.g.: travel desk, teleconferencing support, and fleet maintenance. Within each of these categories, a company may outsource day-to-day maintenance and administration, or planning and design. Making a decision about what to outsource should depend primarily on the capabilities and needs of the organization and the knowledge and expertise of the staff.

Assessing Your Needs
The assessment phase can be one of the more difficult stages of the outsourcing process, simply because there are more than likely going to be political, emotional and financial factors motivating the decision- making process. If handled systematically and without bias, however, this stage in the outsourcing process
can be extremely productive and will directly contribute to long-term IFO success. According to Lew Houck, Senior Associate of the Outsourcing Institute (OI), “The first step is to clearly understand the operational requirements of the business units that are supported by the infrastructure – both current and planned. While
an IFO may be initiated in the interests of economy or enhanced technology, the day-to-day effect to the end user community should range from ‘business-as-usual’ to ‘much improved functionality.’”

The next step in determining which functions are potential IFO candidates, is to identify those functions that are strategic to your company’s core business and those which are supporting or non-strategic. With these key areas identified, the next step is to identify functions or segments of functions that can be outsourced.
Again, it is imperative to thoughtfully seek out those portions of infrastructure functions that are non-core to the company’s main source of revenue.

Houck recommends that companies develop a realistic set of outsourcing options based on existing and future needs of the company. “An unbiased approach is especially important for IFO. By its very nature the infrastructure is ubiquitous within the organization and to the user community. An unbiased approach
assures that every organization is heard and that every input is given equal consideration. The result is an assessment that is focused on the most positive impact to the business as a whole,” commented Houck. Looking to the future is a large part of the assessment phase. Identifying long-term business goals and
growth opportunities will guide companies in targeting mission critical functions. OI offers a set of probing questions that your company should ask when completing any IFO assessment exercise:

1. Where are we today?
2. Where must we improve?
3. What new requirements do we face?
4. What are our critical issues?
5. What business objectives must outsourcing satisfy?
6. What options other than outsourcing are available?
7. Which functions, if any, are good candidates for outsourcing?
8. Can outsourcing support our business direction?
9. Does outsourcing represent a good “fit” with the company?
10. Can outsourcing reduce costs at a sustainable annual rate of at least x%? If less, are there
compensating benefits such as strategic partnerships?
11. Will outsourcing enable us to maintain the required management control?
12. With outsourcing, can we retain an infrastructure that will enable flexibility for changing business requirements?

Houck offers some tips on how to stay unbiased in your assessment, “When we talk about unbiased, we are usually addressing the intra-organizational issues of politics, influence or such – the ‘unkind bias’. You also need to address the ‘kind bias’. Someone who has grownup in a given functional area will have a natural bias
for the needs of that area. They do not intend to be biased, but they necessarily are biased on the basis of their ability to understand the needs of one area. Using a committee sounds good, but the leader’s interests can be problematic. Using an outside person with the proper knowledge and experience is often the best
choice.”


The Results Are In: Approach Thoughtfully & Cautiously
Once the IFO assessment phase is completed and outsourcing seems to be the desired option, a rigorous and disciplined process should be followed when forming the parameters of the project. OI recommends that companies approach this new venture with enthusiasm, but also with caution. Why? Houck comments,
“Outsourcing the wrong infrastructure function or selecting the wrong outsourcing model can lead to tragic results.” There is a simple fix; however, discipline is the key word in this case.
Constantly test your assumptions on what you believe are the best IFO course throughout the entire process to make sure outsourcing is the right decision. Additionally, clearly identify objectives and fine tune them to the results you are trying to achieve. This may have to be done multiple times throughout the IFO process, but you will reap the financial and strategic rewards of a disciplined approach.

Final Thoughts

Outsourcing any infrastructure needs requires thought, research, and detailed planning. The keys to successful implementation include a disciplined and thoughtful assessment phase, clear communication with vendors, designating specific point people who are responsible for a specific infrastructure aspect, and working to increase the expertise in an organization to enhance strategic direction and compliment core competencies.

Small-Biz Outsourcing Guide

Entrepreneurs

Small-Biz Outsourcing Guide
Mary Crane 08.15.06, 4:35 PM ET

The promise of saving time and money by exploiting technology and inexpensive labor overseas is an old headline. Forrester Research expects the total value of outsourced information-technology services by companies in North America to cross $100 billion--some 960,000 white-collar jobs--by the end of 2006. By 2015, the number of jobs shipped overseas could hit 3.3 million.

Behemoths with sprawling back offices like General Electric (nyse: GE - news - people ) and American Express (nyse: AXP - news - people ) are responsible for much of the shift, but more small businesses are jumping on the outsourcing bandwagon every day. "If other companies are doing it and cutting costs, you have to do that or you'll be out of business," says Vineet Katial, co-founder and chief operating officer of Janeeva, a software services company that manages outsourcing relationships.

Which is not to say that most entrepreneurs who outsource do it well--especially small fries with limited resources to manage the process and ensure quality control.

Confusing matters further, the roster of countries looking for work is expanding, thanks to new players like Argentina, Ghana and Vietnam. While large companies may be able to extract efficiencies from these more exotic locales, small companies at this point are better off sticking with more established hubs, especially India.

In Pictures: The Pros And Cons Of Outsourcing In India

How to navigate thorny outsourcing issues? Follow these steps.

1. Decide what functions to outsource.

Begin by defining, in clear terms, the strengths and weaknesses of your business. Keep your strengths in-house, and farm out your weaknesses. Next, break down business projects into sub-projects, says Atul Vashishtha, chief executive officer of NeoIT, a San Ramon, Calif., outsourcing consulting company.

One of his clients, for example, had to build a new Web site. The client knew it was good at design but probably needed some help with programming. By divvying up what it did well and what its Indian vendor could do better and more efficiently, the client managed to save 60% on the cost of the project, says Vashishtha.

2. Choose a vender--carefully.

Selecting a vendor is hard enough for large companies with fat travel and research budgets, let alone entrepreneurs on a shoestring. Consider India: About 20 outsourcing firms make up 55% of the outsourcing activity there, while about 3,000 up-and-comers account for the other 45%, according to India's National Association for Software and Services Companies.

How to find a reliable partner? Matchmaker Web sites like Elance, iFreelance.com, ScriptLance.com, RentACoder.com and GetAFreelancer.com pair outsourcers with vendors. Elance chief Fabio Rosati says his company posts, on average, about 1,800 new projects on its site each week, up from 1,400 last year.

Other helpful sources include consultancies like Vashishtha's NeoIT, TPI and EquaTerra. And small-business advocacy groups and publications like OOBP.org and SourcingMag.com offer links and certified vendor directories for outsourcers.

3. Craft a sound contract.

All vendors--no matter how capable or trustworthy--should sign a snag-proof contract. Agree, in writing, on an arbiter (say, a law firm) before disagreements crop up (and they will). "Plan now or you pay later," says Janeeva's Katial.

When drafting a contract, clarify not only the specific services you expect to receive, but the quality of the delivery as well. For example, if you are outsourcing your in-house call center, make sure the vendor knows you expect, say, 98% of the call center's incoming calls to be answered within five rings. Or, if your vendor has taken on server maintenance for your company, state in the contract that your servers should be up and running 99% of the time.

"The small-business guy should look out for the fact that vendors make a lot of their money on charging for services you might otherwise have thought were included," warns Stuart Levi, a lawyer at Skadden, Arps, Slate, Meagher & Flom who specializes in information technology and e-commerce.

Finally, be strategic about how to pay for the service--be it at a fixed rate per employee per hour, a rate tied to performance, or a lump-sum cost. For example, a small airline might outsource its customer-service unit at a rate per phone operator, while a bank might farm out its loan-processing operation and pay per loan. However you hammer out payment terms, be sure to explore all the options relative to your company's cash position.

Tempting as it is to save money by going offshore, the fact is that without the right planning, outsourcing can suck profits--not supercharge them. "Don't skimp on the transition," says Simon Bell, director of A.T. Kearney's Global Business Policy Council, which publishes an annual index of countries best suited to handle outsourced work. "Spend time and processing to communicate on both ends to make sure there's a smooth transition."

Calculating the Expected ROI of BPM

Calculating expected return on invesment (ROI ) is a difficult exercise, as where and how ROI is generated differs from company to company and situation to situation. In the case of business process management (BPM), this difficulty is further compounded by the many intangibles and difficulties in quantifying benefits, as demonstrated by results from a survey by Intercai Mondiale that appears elsewhere in this newsletter. That said, there’s no question that coming up with at least a ballpark figure for expected returns is important. The first step toward calculating expected ROI is to identify potential places where ROI would be likely to be generated.

Here are a few ideas:

Situations where a large number of false positives are being generated. If you are turning down 50% of credit card applicants because they are showing up as fraudulent, it is likely that introducing a more refined and accurate way of scoring applicants may help you reduce that number to a more reasonable one, thereby increasing the number of potential customers. Situations where throughput is limiting production and ability to satisfy demand. This could be caused by inefficient processes, where a lack of a certain resource is causing a bottleneck. It might also be caused by a sub-optimal process that could be improved with some optimization. Situations where tasks can be automated to increase productivity. This will help you decrease the number of employees needed or allow your organization to scale up and increase production. Situations where frequent costly errors are made. These are parts of a process that generally involve some sort of calculation or decision. If the errors are caused by calculation errors, automating those aspects of the process can result in a tremendous savings. This is usually done by incorporating some type of business rule engine into your business process. If the errors result from lack of information, BPM can be of significant value by providing the right information to the right person at the right time.

Generally, the ROI associated with a BPM project is generated from a number of sources, both quantifiable and not. The first step towards getting a plausible ROI number for the tangible benefits of a BPM project is to identify your metrics. Once you have identified metrics that are likely to generate ROI for your organization, it’s really just a question of “plug and chug.”

The following example -- based on the case of false positives mentioned above -- shows how to calculate potential ROI by making inferences from available data:

Identify the number of customers being turned down based on the likelihood that their application is fraudulent. In this case: 50%. Call this number fraudcurrent Using available information, identify what the likely actual fraud rate is. In this case: 3%. Call this number fraudactual Find out the average revenue generated from a customer for this type of product. In this case: $1000. Call that number revenuecust Identify, based on historical data, the number of applicants for this product over a given period. In this case: 100,000 over the past year. Call this customersyear Perform the calculation: ROI in dollars/year = (customersyear * (1 - fraudactual )) * revenuecust ) – (customers year* (1 - fraudcurrent )) * revenuecust ) = (100,000 cust/year * (1 - .03)) * 1000 dollars/cust) – (100,000 cust/year * (1 - .5)) * 1000 dollars/cust = 47,000,000 dollars/year = ROI in dollars/year

This is just one example of how to calculate one type of ROI. The validity of the calculation is obviously dependent on the accuracy of the numbers used and the surrounding business conditions and objectives. For example, even though the actual number of fraudulent applications is 3%, you still may not be able to fine-tune your system to reach this level; you may still have 7% false positives in addition to the 3% of real positive identifications. For this reason, it is important to understand that any ROI projection is only a ballpark number. On the other hand this type of mathematical calculation of ROI will also exclude the many intangible benefits that come from implementing BPM.

Persistence pays for outsourcer

Persistence pays for outsourcer Ben Woodhead SEPTEMBER 12, 2006

world according to | Rama Raju SATYAM makes no secret of its plans for Australia. The $US1 billion ($1.3 billion) Indian computer services company long ago identified this country as one of its most important targets in the region, and it has backed that up with hefty investments. Melbourne is now home to Satyam's biggest development centre outside India, and the Hyderabad outsourcer expects to boost Australian revenue by 30 per cent to $US71.5 million in the 12 months to March 31 next year. It is known to hold contracts with Coles Myer, Qantas and Telstra, but strict non-disclosure agreements mean that many of its local customers remain secret. Satyam has acknowledged that it works with big Australian banks in Melbourne and Sydney, but has refused to name names. The company was reportedly snubbed last year when Westpac group executive Michael Coomer visited India on a fact finding mission, leaving the Sydney-based Commonwealth Bank as a likely customer. Recently appointed Commonwealth Bank chief information officer Michael Harte has also shown enthusiasm for offshoring, and Satyam co-founder and chief executive Rama Raju says attitudes towards the practice in Australia are changing. He has also staked a claim in one of the country's most resistant markets, the Australian government. Satyam will have up to 20 employees in Canberra by the end of the year after opening an office there last month, but it does not expect an enthusiastic welcome to start with. Having built Satyam up to a $US1 billion company over the past 19 years, do you get frustrated that there is still considerable resistance to offshore outsourcing in sectors such as the Australian government? We've placed a lot of importance on the business in Australia and I should say that we definitely see a lot of change in the way things are being done. More and more Australian companies are looking outward, and some decisions that companies here are making show that they want to get things done on a global scale. We're quite happy with the progress we've made so far and are sure that things are going to look quite good. We have our biggest development centre outside India in Melbourne and that clearly shows from our side a commitment to make things happen here. Does the size of the Melbourne development centre reflect that companies in other countries, such as the US, are more willing to have work fulfilled offshore? Not necessarily. If you look at the US, we have six or seven development centres that are quite distributed. Here in Australia it is mainly between Sydney and Melbourne. It also depends on what sort of mix of offshore and onsite work the customers is looking at. Whatever the customer feels comfortable with is what we try to do. We're starting to see more debate on whether or not the cost benefits of outsourcing work to India still exist. What will be the deciding factors that tip people to offshoring, and how quickly do you have to capture customers in Australia before you lose the cost advantage? We're aware that globalisation is taking place. Even if you take Indian companies it is becoming more important to think globally. You cannot operate in a controlled environment, so we need to scale up, we need to face global competition, and that's a good thing. From that perspective it's important to have the best people and that's the reason why, as a company, we're recruiting people from around the world. There cannot be a compromise on the quality of people. Costs for companies such as Satyam are rising because of wage pressures. How are you dealing with that? The costs are definitely going up, but as the costs go up companies are also making investments in knowledge management and in making sure they become more productive. It's the only way one can manage the expectations of investors. Most of the concentration of our Indian workforce is in the tier-one cities in the country. Now we're moving into the tier-two and tier-three cities, so that is one way of at least trying to balance some of the costs. In the long run we're also exporting to countries such as China, the Philippines, Vietnam, Singapore and Malaysia: wherever talent is available. There is a widely acknowledged skills shortage in Canberra. We've seen agencies such as the Australian Tax Office openly discuss offshoring as a way to deal with that. Is this something you think will play into your hands? Asia-Pacific director and senior vice-president Virender Aggarwal: Attracting staff to work in Canberra is never an easy task. To attract people to work on government assignments won't be easy either, because the rates that you get are not the best. It's very difficult to attract contractors to work there. We'll start to see the government outsource more complete projects and assignments, but frankly, our experience of Canberra has really just started. I don't think we'll become a big player soon but we're very enthused by the fact that federal and state governments are talking to - I won't say welcoming - companies such as ours. It's acknowledged that, despite rising costs, Indian outsourcers are still cheap compared with companies such as Accenture and IBM. But you're more expensive than many Australian firms. How are you dealing with competition from lower cost suppliers? Raju: If you look at the big five companies - the likes of IBM, Accenture and EDS - their cost structures are high because almost 90 per cent of their resources are in developed countries. It's also becoming important for Indian companies to develop more multicultural workforces. We cannot be at 90 per cent of our workforce in India. That's the reason why we started centres in various countries and are aggressively going about increasing our multicultural workforce. When we try to increase the mix of people, naturally the cost of delivery starts to go up. Even Indian resources today are not as deep as they used to be. Almost 55 to 58 per cent of the cost is for human resources, which used to be 40 to 42 per cent a few years back. The only way we can manage this growing cost is to increase the productivity, move up the value chain and understand our customers' business. That requires investment. A smaller company may be able to do things at a much lower cost but they are not able to scale up. It takes time for somebody to provide those kinds of services because customers today are looking for integrated solutions. You're also building up your business process outsourcing business. How is that progressing? Satyam has a subsidiary Nipuna, which focuses on BPO. The BPO sector is growing very rapidly in India. Of the $US23 billion of exports in the service sector last year, close to $US6 billion came from BPO. We, as a company, see tremendous opportunities in this space. They are more towards transaction processing than call centres and we're also experimenting with providing services from low-cost destinations in India. Today in India we may not have good roads to all parts of the country, but we have excellent communication links. The state governments are very proactive and the costs have also come down quite dramatically in the telecoms sector. What are your plans to move further up the BPO value chain from transaction processing? The volumes may be in transaction processing when we do work for the financial services and insurance sectors, but there are also higher value-added services in our BPO customer base, including knowledge process outsourcing. What proportion of Satyam's revenue comes from BPO and how do you see that growing over the next 12 to 24 months? We're close to $US1 billion in revenue for software services. BPO is something we've just started. There are about 2000 people in our BPO organisation now, out of 32,000. In numbers it can grow much faster than the software services business. Are there different challenges in winning BPO customers versus applications contracts? If you look at companies such as Satyam and Infosys, when we started our BPO subsidiaries we wanted them to be separated because of the kinds of resources required in the software industry. That's how it has been done, but more and more customers are looking for a total solution. What sort of BPO activity are you seeing in Australia? Australia and New Zealand manager Deepak Nangia: A few organisations are exploring it, but they are not looking at BPO separately. They are combining it with apps. BPO obviously has more union pressures than pure applications because BPO affects a much larger base that is unionised. Is that consistent with other countries? In Britain there's more noise, but they are also doing a lot of BPO. India's publicly owned banks are looking to outsource transaction processing. What role do you want to play in that? Raju: Our strategy right from the beginning was to focus on the outside market. Now the Indian market is also growing rapidly and, in the past two to three years the focus has been getting into the Indian marketplace. The same goes for BPO. Right now the focus is outside India, but when more and more Indian companies start looking at it we may have a small portion of BPO coming from India. When you compete in India do you benefit from being a home-grown player and do multinationals face the same kind of caution from Indian companies as you might in Australia? It is the other way around, and not only in the services industry. It's also in areas such as infrastructure. Indian customers always want to look at the foreign name and some of the biggest deals have been with international companies.

Website to outsource tutoring services from India

www.tutorswithoutlimits.com

New York - A new website will help teachers in India and Pakistan set up their own business of teaching students in the US.

Catching on to the trend of what is being called educational services outsourcing (ESO), www.tutorswithoutlimits.com expects over 100,000 teachers in India and Pakistan to set up their Internet businesses in the next two weeks.

Founded by American IT entrepreneur Glynn Willet and his son, Tutors Without Limits (TWL) incorporates the new Web 2.0 AJAX technology to create the most advanced learning system for teaching on the Internet in a system called the Lesson Board.

Glynn and his brother Steve Willet had earlier founded ATX, a professional tax software company.

‘This is just like teaching in my classroom!’ a press release quoted one of the first teachers to use the Lesson Board as saying.

With the start of the US academic session in September, parents and students in the country will now be able to get help any time of the day or night.

US students usually pay $40 an hour for tutoring services. However, last year, call centres in India started offering these services for as low as $14 to $20 an hour.

Now, with the launch of TWL, tutors will be offering their services directly to students in the US at prices they determine.

However, Raghavendra Rao, a mathematics online tutor who teaches a number of children in California from Bangalore, told ITWire, an Australian IT news website: ‘This will no doubt be good for us, but there are going to be a number of teething problems that would have to be ironed out.

‘The overseas clients have to be sure that they are getting value for their money and at the same time tutors in India should not just scramble for this and let down pupils. That would create a very bad impression and would not be good for the e-learning community.’

According to the press release, the TWL marketplace will quickly sort services based on quality, content, qualifications and recommendations.

Although initially limited to the US, India and Pakistan, TWL services will be launched in Canada, Australia, Europe and Japan within two months.