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Help is on its way for outsourcers
23 Jul 2007
Topics: Outsourcing, India
Despite the odd high-profile contract cancellation or piece of bad publicity, the Western world's appetite for exporting non-core business functions is as strong today as it has ever been. Businesses are finding that outsourcing can save money and improve quality and all the signs are that the first movers in the space are about to be joined by the business mainstream.
The fundamentals behind outsourcing - that low-cost communications, technology and labour equals big savings - are well documented. What is new is that, as the market for more established globally outsourced functions such as IT services is showing signs of maturity where multinational clients are concerned, new generations of outsourcers and new outsourcing centres are springing up.
Growth in hubs like India - where IT services still represent the majority of all outsourced business - is still far outstripping the growth rate globally of business process outsourcing (BPO - whereby a third party takes charge of back-office functions such as HR and accounting). However, competition is on its way. In the Middle East, for example, the new Dubai Outsourcing Zone opened last year, boasting imported talent and state of the art infrastructure. It aims to attract companies by differentiating itself as a hub for business continuity.
China, already well known as a key destination for the outsourcing of manufacturing, is becoming an option for outsourced services as well. With new strategic investments imminent, this powerful economy should become a global player in BPO in the future.
Likewise, the recent expansion of the EU has made low-cost, educated workforces accessible for those who like to keep their offshoring closer to home.
"Competition is definitely hotting up," says Gurpreet Singh, vice-president of BSI India. Singh points out that the outsourcing wave is just beginning, with large players either establishing or ramping up capacities: "The relatively smaller players in India are feeling the effects - high attrition, increasing traction, shrinking margins, demanding customers requiring more for their money, and so on," he says. "At the same time, many countries are beginning to understand the benefits that outsourcing has brought to the Indian economy and are hoping to take advantage. Malaysia has the infrastructure, for example. If it addressed some of its own political obstacles, it could encourage and take part in this modern day, economy-boosting wave of services."
This is a problem, as India's labour pool is notably migratory - "it wouldn't take much for some of India's neighbours with significantly better infrastructure to attract much of this labour pool and gain advantage," says Singh.
Help is at hand for service providers, however. For example, standards on information security (ISO 27001), IT security (ISO 20000) and business continuity management (BS 25999) are evolving to address the issues they're facing.
"As outsourcing clients become more aware of these standards, they will become demanding," says Singh, "and insist on them from potential outsourcing service providers."
Then there are the particular dynamics of modern offshoring to be considered. One such trend is for outsource clients to move away from single-source service providers in favour of spreading the outsource budget across multiple vendors. Another is to exploit the lessons learned and savings made from outsourcing back office functions by applying the practice to strategic functions such as sales and marketing, research and development.
One key thing that is often overlooked when decisions are being made on outsourcing is how best to manage the extended supply chain once it is in place. Unlike other areas of business administration, best practice resources are relatively hard to come by. With extra regulation in topical areas like corporate social responsibility, environmental protection and sustainability, the need for standards and best practice on managing outsourced relationships is likely to increase significantly.
Guiding hands
The need for greater guidance was picked up on in a recent survey conducted by BSI British Standards' Professional Services department on buyers and sellers of outsourced services. Among other findings, the survey found that 87 per cent of respondents agreed that compliance with industry standards by suppliers gave them more confidence when buying outsourcing services, even though the standards they were most aware of - ISO 9001, ISO 14001 and ISO/IEC 27001 (formerly BS 7799) - were not directly relevant to relationship management.
The survey also picked up on the fact that both buyers and sellers gained confidence from standards, either as a tool for winning business or as a way of screening new suppliers, with one Dubai-based supplier claiming that all business processes would benefit from having standards attached to them.
Paul McNeillis, head of Professional Services at BSI British Standards, believes the task now is to adapt the standards model so that it provides an effective quality benchmark for companies engaged in outsourcing.
"With remote relations like outsourcing, standards make real sense but, by and large, external outsourcers need to use standards strategically, by choosing those that will help them win a contract or differentiate itself in another way," he says.
"Standards are an under-used knowledge product and can be incredibly powerful in providing third-party assurance, but they do need strategic thought in their application in order to create advantage for businesses. Our research told us that while awareness was very high for established standards it was very low for everything else. Using standards strategically is a missing discipline that needs to be explained. You'd be amazed at how many blind spots companies have, and how many times they fail to line up their business strategy with their use of standards to gain competitive advantage."
This could all be set to change should the European Commission decide to give the go-ahead for a specifically outsourcing-focused standard. Brussels is currently conducting a feasibility study on such a standard, with the aim that its introduction may improve one of its key guiding principles, the free movement of labour.
Dan Palmer, head of market development for manufacturing and services at BSI British Standards has been working with the National Outsourcing Association as part of the UK's effort on the study.
"We believe there is the potential for best practice guidelines on how to go about outsourcing," he says. "We've already published PAS 11000 on relationship management, which sets out very good principles on building relations with external and internal clients, but there are some specific areas where there is potential for more guidance. Outsourcing is a tremendous learning process: standards can help you pull together accepted best practice."
CASE STUDY: New document for managing relationships
If your organization is currently engaged in outsourcing or is considering a future move, PAS 11000 Collaborative business relationships might be for you. PAS 11000, which was launched last December, provides an eight-stage framework to help organizations develop and manage relationships in their extended supply chain.
Published by BSI in association with Partnership Sourcing Limited (PSL), PAS 11000 provides guidance in a number of areas, for example, building the right internal infrastructure for managing relationships, selecting the right partner or partners, measuring and maintaining benefit and developing and executing an exit strategy.
Business Standards © 2010. Editorial produced by Caspian Publishing in association with The British Standards Institution. Editorial opinions expressed on are not necessarily those of BSI Group or Caspian Publishing. Neither Caspian Publishing nor BSI Group accept responsibility for advertising or editorial content, nor for that appearing on linked third-party websites. Reproduction in whole or in part is forbidden without written permission from BSI Group or Caspian Publishing.
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