Don't be obsessed by price for outsourcing to
succeed.
As major corporates like Barclays, Sainsbury's and JP Morgan
bring their outsourced projects back in-house and Gartner urges
businesses to "end compulsive outsourcing" is it all over for
outsourcing?
A 60% slice of the top UK outsourcing professionals questioned
by the National Outsourcing Association said that insourcing poses
a major threat to outsourcing contracts.
But the Technology Partnership Initiative reported in October
that 81% of large UK companies plan to increase offshore
outsourcing over the next two or three years.
Some deals may have been unsuccessful, but facing up to the
"myth of sourcing competency" as Gartner called it in a report
published last November, will mean taking a considered, holistic
approach, viewing the project in tandem with the company, using
outsourcers on the inside as well as externally and developing
bespoke, hybrid solutions.
Outsourcing is about more than just moving the company's
problems out to India and hoping someone else will sort them
out.
New take on the global view
So this is a readjustment for the sector rather than burn-out.
It represents a change for financial institutions, in particular
where they used to outsource whole departments to the cheapest
provider.
Banks are now taking a truly global view, considering the
project, the people needed and dividing them up among the most
appropriate locations.
In the banking sector, this may mean doing your IT development
in Spain, your testing and back office processing in India or
Brazil, meanwhile keeping some of your support team in place in
London to respond quickly to front-office needs.
My company believes in the "four Ps" approach to outsourcing as
the best way to get value for money while not eating it all up in
increased management time: focus on the project, its people, the
price and the place - probably in that order.
Companies should work out what is best for them rather than just
following headline day rates to the far corners of the earth.
Rather than starting with place ("where is the cheapest place I can
send the work?"), first ask about the nature of the project. How
complex is it? How likely is it that the requirements will change?
What is my timescale and scope?
Then consider the type of people the project needs; what their
levels of experience should be; and whether the project will
require different skills at different stages. Who will manage the
project and how; where will they be based?
Closer to home
This is where European workers can often have the edge.
Businesses are beginning to take advantage of the comparatively low
cost of living in Spain, for example, and the equally
highly-trained staff available with a European mentality, while
keeping the project close enough to allow it to develop and be
given management time.
The answers to the first two Ps will determine the outcomes of
the second two.
Price is ever important, but only if all things are equal. What
is the budget? How does it compare to the timescale? How important
is the labour cost? Have you considered the (often hidden) cost of
management time?
Finally a decision can be made about place - where to send the
work. Which locations for which people? Rather than a component of
the decision it is the output of the equation.
If the project requires lots of people doing the same,
relatively simple task, then maybe India, Brazil or China would be
better options, but some banks are already finding that with
anything complicated, it is more effective to nearshore the
project, keeping it within Europe.
Although India remains the top choice for outsourcing at 75%,
according to the Technology Partnership Initiative, Eastern Europe
(28%) and China (25%) run a close second.
Outsourcing, whether near-shore or offshore, is not about to
disappear. Gartner also predicts global offshore spending on IT
services is set to rise to a total of £28.6bn by 2007. Companies
can still see and gain the benefits of outsourcing, but
consideration of the four Ps first can help to identify the best
way to outsource your project.
Graham Underwood is operations director at GFT UK