In a series of articles to accompany the new BCS offshoring report we take a closer look at the phenomenon that is offshoring and how UK PLC is fighting back and using increasing globalisation to its advantage.
Individual examples of outsourcing prove the lie to popular belief that it is bad news for all but the accountants. Lynne Bailey and Carol Long discuss examples where outsourcing has generated benefits for the organisation and individual staff members.
Making the outsourcing decision
Outsourcing (or contracting out) is often defined as the delegation of non-core operations or jobs from internal production within a business to an external entity (or subcontractor) that specialises in that operation.
Outsourcing is a business decision that is often made to lower costs. More importantly, it also allows the organisation to focus on maintaining and developing core competencies.
Offshore outsourcing can fail because it is seen as a tactical rather than strategic decision. It is important that sufficient thought must be given to other related drivers. It is inappropriate to focus on identifying individual work packages and the vendor to perform them based on cost alone.
By taking a strategic decision, the vendor(s) chosen to work with are likely to be a better fit for an organisation. For example, technology specialisms can be taken into account, as can size and turnover.
Although one of the major outsourcing players may come highly recommended, they are not necessarily an appropriate fit where the total amount of work expected to be outsourced is not great.
In this case a slightly smaller vendor organisation, provided they have the required skill and resource levels, may provide a more personalised service as part of a successful relationship.
There is also frequent lack of consideration within the client organisation on how to adapt its processes (including governance processes), tools and capabilities to ensure outsourcing success.
Although there are guidelines in this area and much has been written about this, there is no well-defined 'cookbook' that an organisation can use to implement an 'off the shelf' solution.
Where due consideration is given, offshore outsourcing frequently does provide the opportunity to satisfy the business' wider needs, whilst offering significant cost advantages over outsourcing the work within the United Kingdom or performing it internally. In a well prepared client, the resulting quantitative and qualitative benefits can be significant.
As the examples in this article will show, the scope of the work to be performed does not have to be huge for these benefits to be achieved.
Benefits for the individuals
Outsourcing can allow individuals to get closer to the business bringing them valuable career development experience. It can also mean that client technical staff can specialise in areas they find more attractive.
Malav Kapadia, currently a senior executive with Datamatics Ltd (a respected medium-sized Indian outsourcing organisation), recalls a major logistics and distribution organisation that outsourced its Delphi development work. The organisation took the decision to outsource the Delphi work and put this out to tender.
The outsourcing model chosen resulted in a mixture of onsite and offshore work, with selected vendor team members being onsite for the requirements and high level design phases, returning offshore to work with the rest of the team during the low level design and build phases and then returning onsite for acceptance test and deployment. Internal team members worked on other areas more closely aligned with the business.
This work was viewed internally as being less interesting and challenging than development work using other languages. As result of the tender, internal team members were freed to focus on other technologies, which were more attractive to them.
Working for an outsource supplier, as part of their onshore team, will also allow some IT specialists to develop their interests, refine their skills and have a stability of employment that isn't normally available.
The diversity of clients a specialist will be required to deal with will ensure these specialists have the variety and volume of work to support their desire to specialise.
Benefits for the business
The recent strengthening and changing of governance requirements in many areas of business has been demanding and challenging.
Those organisations that have outsourced some aspects of their business have found the suppliers have moved their business to conform to the new requirement and standards in a relatively pain free way.
One large IT outsourcer has included in their bid for a contract in a financial sector client a transition plan that would involve a move to a fully Information Technology Infrastructure Library (ITIL®) compliant IT provision, which in turn would make other aspects of regulatory compliance more readily achievable for that business.
A January 2006 survey by the Business Improvement Network and Head Light Communication (summary available from http://www.bin.co.uk/) revealed that one of the key areas for improvement according to senior managers is building the people capacity for excellent business performance.
Outsourcing of delivery of some development projects can bring new knowledge into the organisation.
Kapadia recalls the outcomes for one client included an additional benefit in the introduction of Rational Unified Process (RUP) development methodology, a methodology already used by the vendor. The vendor team were able to impart knowledge on RUP methodology operation with particular respect to its operation in a multi-site situation.
Focusing on the smooth running of operations and using outsourced services to the best advantage can lead to significant performance improvement.
A FTSE 100 organisation used an offshore vendor to check the batch reports from overnight runs, taking advantage of the time difference between the UK and India. In this case any errors could be rectified and reruns scheduled before the client team arrived in the morning (UK time).
The alternative to taking this work offshore was either to introduce shift work for the client team (significantly more expensive and expected to be extremely unpopular) or to accept the business consequences of delayed / failed runs. The outcome was a successful activity performed entirely offshore.
Improving focus, cost reduction and appropriate resource use
Another of Kapadia's previous projects involved working with the UK operation of a large global manufacturing organisation. The organisation was highly dependent on the manufacturer of their niche material requirements planning package (MRP) for implementation and support activities.
This led to a large consultancy bill and the need for internal team members to provide aspects of the support in order to decrease the costs where possible. Work tended to be performed on the basis of resource and budget availability rather than business need. Working to this model, business need became a secondary factor.
Documentation of the code changes and processes employed were not adequately performed. The organisation needed to investigate opportunities to reduce costs, increase business alignment and improve adherence to defined standards.
Although internal team members already provided some of the less 'specialist' aspects of package support, the organisation did not consider it a feasible option to equip them with the necessary skills to take responsibility for implementing and fully supporting the package.
Included in this decision was the perception by team members that these skills would not be a particularly strong addition to their own CVs. The risk of staff attrition subsequent to investment in training was a further factor in the decision.
By outsourcing the activities, it was possible to transfer that risk to the service provider. Even though this was currently the case with the existing provider the price paid was too high.
The offshore organisation produced a plan which included providing their people with the necessary skills to implement and support the MRP package, whilst guaranteeing the agreed level of skilled resource would always be available.
Each team member had a clearly defined role in either the implementation or support teams, and was equipped with the necessary skills to move between these two teams as the business need dictated.
Team members were also moved between onsite, offshore and implementation site as required. The majority of required changes could be planned in advance, ensuring optimum resource levels at an optimum cost.
The outcome was a highly successful operation where implementation targets and support levels were both met at optimum cost.
An added benefit was that client team members no longer had to provide 'low level' support in order to reduce the consultancy bill. The client team were trained to manage the overall operation, resulting in a perceived increase in job satisfaction.
While the headlines may spell out doom with each outsourcing decision, there are true benefits to be had.
The major driver for application development and support outsourcing is often seen as cost reduction. However, our experience shows reasons are rarely totally limited to the 'bottom line' and are spread over a number of factors such as:
- The desire to increase the potential benefit of permanent team members by moving them closer to the business;
- The required speed to market to gain additional business benefit;
- The need to increase service levels;
- Flexible resourcing requirements to cover peaks and troughs;
- An inability to recruit to meet increased workloads;
- The need to supplement existing team member skills;
- The opportunity to gain knowledge of new technologies / methodologies from the vendor;
- The desire not to focus internally on legacy technologies.
The examples above show how advantage can be gained for individuals and businesses from focusing on these aspects as part of the outsource planning.
Lynne A Bailey is a BCS member with over 25 years experience in the IT industry. Her specialities include offshore outsourcing, project management and strategic consultancy. She is a senior project manager with Balsysma Ltd. Email: Lynne.Bailey@balsysma.com
Carol A Long is a business advisor specialising in business excellence, operational performance improvement and project management. She is a BCS member and principal consultant with Three Triangles Performance Ltd. Email email@example.com