How the four Ps pay off

Don't be obsessed by price for outsourcing to succeed.

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

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