Successful IT Outsourcing

Application Service Providers have always been around us in some shape. The need for them mainly arises when the overall acquisition cost of a service is too high. You can think of it like electricity generation. We all need electricity for our routine activities and can also buy generators or alternative energy supplies to fulfill our own needs. However, the cost of generating electricity this way is too high as compared to the bills we pay. That’s because the fixed costs get distributed amongst hundreds of buyers and become negligible or too low in the end.

The same rule applies on the internet, where ASPs establish large networks with sophisticated equipments and rent out the service on smaller scales. This is done mostly on a per user basis or on a monthly basis. In some cases, it can be a combination of both, like on-demand software firms charge a specific fee per x number of user per month. These ASPs have grown bigger with time as more people have been moving from customized software packages to such hosted software.

Let’s take a look at some of the common characteristics of an ASP to understand why this sector is growing day by day. Firstly, they do the initial investment and buy all the equipments from hi-tech servers to desktop computers. Then, they develop their own software from the scratch in most cases, test it vigorously to make it perfect and make it user-friendly for the masses. These software also need maintenance and supervision at all times, which necessitates the presence of skilled staff. The ASPs take care of this end too and hire PHP programmers, Flash designers, helpdesk people and more. Then comes the issue of periodic updates to keep abreast of the latest developments in the technology sector and to take care of any legislation if it applies. All these things result in huge expenses and these costs are distributed to service buyers. In some models, the service is provided free accompanied by advertisements. Email is an example of such a free service, where providers like Yahoo and Google let us maintain a free email account and fund it with advertisements.

The ASP model works well because it provides numerous benefits to service buyers. The cost of making customized software run very high, and it’s also a huge risk for small businesses that are dubious of their future needs. Secondly, you need months to design customized software and tweak it. On the other hand, on-demand software provides you instant access to their systems, mostly on a limited trial basis too for free. Even if you predict your firm will be a hefty user of that software, it’s still better to try on-demand software and note the customizations you need. Once you realize you can justify the costs of developing and maintaining your own software, you can always do that.

So reap the benefits of the ASP model, and save your expenses while you pay-as-you-go.

While most organizations have gone the way of outsourcing their peripheral activities while managing their core competencies in-house, a recent happening in the Wireless industry seemed to have changed this rule. March 18 witnessed an announcement from Vodafone that they have decided to outsource the administration of their large wireless network in the UK to none other than Ericsson. In another story that made it into media around the same time, Orange network made a similar contract with Nokia.

Previously, companies have mostly been reluctant to outsource their core tasks at that may mean giving away your strength and cash cow into the hands of others. Besides, it may also deprive them of the competitive advantage gained through experience and years of management. However, these British wireless operators are now applying their entire capabilities on marketing and sales.

Vodafone has been considering this outsourcing option since the middle of 2008 and has now gone into a 7-year contract with Ericsson. The company has high hopes this deal will bring greater cost efficiencies over the entire lifecycle of the contract. In addition, the beauty of this deal is that Vodafone won’t lay off the employees; it has rather arranged it such that the employees will migrate to Ericsson and work under their management starting this year. While Ericsson would work to save operational and maintenance costs, Vodafone wishes to use these monetary savings for innovating new services and products for its clientele.

In the other deal, Orange has arranged a similar transfer of employees with Nokia, where the latter will inherit over 200 employees and will supervise the Orange network for the coming five years. It’s worth mentioning here that Vodafone previously outsourced its operations in Holland to Ericsson around 3 years back.

Some experts predict that the wireless industry may gradually move towards sharing a single network for greater cost efficiencies. Though that seems difficult to happen in the near future, a prolonged recessionary period may act as a speeding catalyst in this regard.

As we have stressed time and again, IT outsourcing is an already appreciated practice and we should now move over the debate of outsourcing vs. in-house development. And the need to outsource your non-core activities increases in times of economic hardships such as the current global financial crisis. That’s the route JP Morgan is taking now, thanks to its acquisition of Bear Sterns and WaMu that have put more pressure to cut costs and meet shareholders’ expectations. In a recent BusinessWeek story, it was reported that JP Morgan has decided to increase its outsourcing spend in India by a whopping 25%.

So this means the second largest bank in the United States will put in around $400 million into its Indian outsourcing channel within the next 12 months. At the moment, JP Morgan is spending anywhere between $250-300 million in a year on outsourcing, most of which went to TCS, Accenture and Cognizant. Guy Chiarello, the Chief Information Office for JP Morgan, wants to make sure that his firm can reduce their overall IT expenditure, reported an expert who wanted to stay clear of any media popularity. Although the news has leaked to mainstream through a reliable source, the Indian and US offices of JP Morgan didn’t reply when contacted by some media folks.

In the light of the current financial crisis where banks were hit very hard, it would be no surprise if others followed the same path of outsourcing. But still, many other banks seem unsure of the route they will take when it comes to IT expenditure. The main problem is that large scale mergers and acquisitions of various financial institutions have necessitated big changes to the information architecture now.

This would basically involve merging each institution’s database so that customers don’t face problems even if they had an account in the bank that has been acquired by another one now. And besides, these companies also need to merge their software and online trading applications to present users with a single interface. All these changes require a huge budget and IT outsourcing seems to be the most feasible way to execute these tasks in the most efficient manner, given that Indian outsourcing service providers already have vast experience in dealing with offshore US-based clients.

While these are large banks with big budgets, the same thing can be done by small businesses too. With the future profitability of banking and real estate sector in jeopardy, people who have saved money now need to invest them elsewhere. Starting a new business may not be a very bad idea in this regard. And hiring offshore staff to take care of your IT needs is a good way to start with a low budget initially.

With the success of IT Outsourcing, people are now just entering into offshore outsourcing contracts without giving much thought to the whole process. One size doesn’t fit all and you need to view and analyze your specific requirements and your internal workforce before you even decide to outsource.

Then comes the decision to find a feasible outsourcing model. What do you essentially need? Is your current workforce insufficient to handle all the various internal tasks? Or did some customer ask you to perform a task that you can’t handle in-house? Depending on such questions, you have to decide whether you want to hire full time staff, outsource a specific IT function or hire offshore providers for a particular project. That’s what we will be looking at in this article.

Firstly, let’s see the need for a full time employee. This is basically the need when you start getting more work than your current workforce can manage easily. You need to increase your employee strength but you also realize that the increase in work load may be temporary and not long term. Besides, hiring permanent in-house employees means increase in fixed costs like extra PCs, chairs, etc. for all the new entrants. And if the workload reduces in the near future, it will be difficult to layoff this extra workforce.

Contract workers are usually too expensive to afford, especially in these tough economic times. So the best option is to hire an offshore employee like a virtual assistant who will do all sorts of administrative tasks. But take care that you hire dedicated staff as you want the offshore workers to be focused only on your jobs, not on the jobs of multiple employers. We can name this model personnel outsourcing, where the aim is to increase the workforce for managing additional work without hiring in-house employees. Usually, for these types of services you don’t need to hire people with highly specialized skills.

Secondly, sometimes you get clients who need a variety of services and your current workforce might not possess the necessary skills to execute all those required services perfectly. At other times, some services are closely related to your core activities but can still be handled without much collaboration within various departments. For example, help desk activities can be handled separately if employees have access to necessary database information within the company records.

So it makes sense to outsource this specific function to an offshore IT service provider. This model of outsourcing, which we can classify as function outsourcing, is also feasible when a specific IT function can be handled in a better and cheaper way by offshore providers.

Finally, we have project-based outsourcing, where we outsource only specific IT projects. Projects usually have pre-specified targets and milestones. And the deliverables in projects can be easily defined. Project-based outsourcing is usually done for a short period and the deal ends with successful completion of the project.

Sometimes these three models can seem overlapping but your choice would usually depend on your current skill set and requirements.

Like almost all other industries and practices, IT outsourcing also has had its share of myths and misconceptions. While these myths haven’t been able to stop the flow of outsourcing, they have done some damage to small businesses that wanted to benefit from the numerous benefits of outsourcing their IT tasks. Let’s see and debunk some of the common myths running in this sector.

First of all, people think outsourcing is doing harm to the local economy. While I am not saying that jobs aren’t affected by offshore outsourcing, the hype that the practice of outsourcing is bad for the economy is a myth certainly. Ask yourself. If your business really benefits from a practice, won’t it be good for your local economy too. If you can reduce your expenses, won’t you be able to give your shareholders more profits. Then, most of the technology from fiber optic cables to internet telephony are manufactured and powered by western nations. So while offshore IT outsourcing can reduce some jobs, it brings others to cover up the gap.

Moreover, some companies hold the misconception that outsourcing to offshore staff is a shameful act. This is probably the influence of propaganda by people who are against outsourcing for their own reasons. However, many large multinational firms outsource IT tasks, not only to cut expenses but also to focus on their core competencies. In fact, the main philosophy behind business is to increase profit and to expand. By outsourcing, western companies benefit from the talent of an offshore population, which isn’t much different than hiring Indians living inside our own nation.

Some believe that outsourcing can result in higher expenses after you consider all the intangible costs associated with it. Yet some others think the savings from IT outsourcing are usually overstated. However, if you compare the hourly salaries of workers in Asian countries like India and Indonesia, you will realize that there are huge saving potentials. Moreover, you eliminate all the fixed costs associated with a larger workforce, like extra PCs, electrical devices, transport arrangements, etc. This significantly reduces risks for new and small businesses, and allows them to start with minimal investment. And with this statement, we also debunk the myth that outsourcing is feasible only for large-scale companies that have resources to monitor work in different regions.

Finally, there are some myths that actually arise because of poor work by some outsourcing providers. Managers and entrepreneurs in western countries usually don’t take the necessary measures to avoid outsourcing failures because they lack experience in this regard. For example, people think your offshore service provider will never deliver with time. This has actually more to do with good selection than offshore outsourcing. You can even find people in your own country who won’t meet deadlines.

Then, many a people face communication problems while dealing with offshore workers. You can usually solve this problem using latest technologies like VoIP, frequent emails, and so on. These problems usually arise when you select individual service providers who take more projects than they can handle. So hire dedicated staff that would work for you and only for you.

If you perform your IT tasks in-house, you must have developed a way to manage each individual project, timelines, debugging, and other routine tasks. Though the processes are more or less the same when outsourcing IT tasks, you need some additional qualities to become a successful remote manager. Let’s walk through a check list and see what you need to consider when managing employees remotely.

Firstly, it’s all about communication. That’s the main thing to take care of because you are usually used to the traditional style of communicating face-to-face with each employee. On the other hand, remote managers can use a variety of communication channels like phone, internet, fax, etc. But you still need to mention all this when making the deal. If you are managing low-level tasks, ask your employees to send you daily reports. If the job is a big project, then you can ask for weekly updates at least. You can, rather should, use instant messengers too occasionally; this is the best channel when you need to discuss something important where the employees may have questions popping up in their minds.

Secondly, keep yourself focused on the end goals and targets. When managing remote employees, it’s hard to see if they are doing their work or playing Solitaire. So you have got to see if you are achieving your targets and milestones on time. Detailed reporting and documentation is necessary for both sides; you need to give your employees a list of tasks they have to accomplish and the expected time frame. But don’t pressurize them to do more in less time. You have to remember that it’s easy for them to decrease quality without anyone raising eyebrows.

In addition, it’s essential that you give them proper feedback. It’s not necessary to always leave a positive one, unless you’ve got a perfect employee. But also don’t make it a heart-breaking one, as this can result in loss of interest and motivation. Tell each employee honestly where he went wrong and what he could have done to make it right. Whether you get daily reports or weekly, it’s essential that you leave a feedback every once in a while. Failure to do so may give the impression that you either don’t care about the work or are too busy to worry about its timely completion.

Many typical in-house work practices also apply to outsourced work, and periodic performance appraisals is definitely one of them. In fact, motivating your offshore workforce is more important than motivating your internal staff. Also ask them for feedback occasionally, to learn what you can do better and what they find annoying about you. Finally, if you can arrange face-to-face meetings every six months or a year, that would be great for creating more trust and understanding.

Follow these tips and you will see how effectively you can manage your remote employees, giving you a higher ROI as compared to in-house staff. And be sure to grab our FREE 6 day course on how to become a successful remote manager.

The concept of IT outsourcing has gone past the stage of proving its worth and significance, which is evident from the many scholarly papers that you see from a single search on Google Scholar. Still, you will find that many a times managers complain about failures when they decided to outsource their IT tasks. While there are definitely quite a few factors at play in almost all such cases, one of the most important things is the selection of a good IT service provider. Let’s see how we can do our homework in this regard, to help make outsourcing a profitable experience for us.

First of all, you are actually forming a strategic partnership when you select an application service provider. So you need to think long-term and have to take into account things that your business may go through in the coming few years at least. Selection of a service provider isn’t any less hassle than selection of bright in-house employee. You don’t want to wake up one day to find that your Indian service provider can’t fulfill your needs any longer because he isn’t upgrading his knowledge of the latest technologies. So do you planning and understand where you will be standing one year from now. Then go search for a service provider who will grow his skills with more or less the same pace.

Secondly, it’s essential for you to appreciate the boundaries of your service provider’s responsibilities with respect to yours. This is very vital when you share some of the responsibilities and manage a couple IT tasks in-house or on your own. You need to tell your service provider exactly what you expect from him AND what you don’t expect from him (the latter being easy to forget, almost always). If you pay by the hour and the other guy spends his time on something you didn’t want him to do, you will be the loser at the end of the day. In addition, it is better to have these responsibilities in written somewhere, even if you have them electronically. It is easier to show him that document anytime if you realize he isn’t doing his job as agreed.

Another very important thing is reliability of your IT service provider. If you close a deal with a firm that has invested $50,000 in an offshore set up, then you don’t have to fear them running away with your money or packing their bags anytime soon. Yeah, I know we have our share of Satyam and Madoff, but believe me they aren’t everyday newsmakers. You need to get your hands on qualifications of the staff who will be working on your project. For instance, ask the other party if you can view resume of PHP developer and if you can select the one you want to work on your project. It’s essential to have the ability to communicate with the very people who will be working on your project. And you better get dedicated staff or the developer may give preference to that other higher-paying client if there’s a deadline clash.

Finally, make sure that your selected service provider will be available when you need him and where you need him. Even $100,000 aren’t worth a penny to a dead man when it’s too late.

It’s not confidential any longer that IT outsourcing is profiting a number of firms worldwide, specially in North America and Europe. In these days of recession, businesses are more than ever trying to come up with means to cut their expenses; hence, outsourcing IT jobs is on the rise again. Traditionally, outsourcing was never limited to information technology processes and included HR outsourcing and others but they more often than not have higher dangers as compared to IT outsourcing.

An American firm outsourcing debt recovery to an offshore Indian call centre would come across problems as the employees might not be that successful because of their mediocre English communication skills. Similarly, one needs to comprehend potential customers’ psychology and thinking rationale to do profitable marketing, and you can hardly expect your Indian service providers to comprehend how Americans think. But information technology jobs like programming and designing can certainly be outsourced without worrying about these points. I don’t mean to say there are no dangers involved here; just that you can gain significantly whereas the risks are comparatively minimal, especially if you do it right. Since it is difficult to cover all the advantages in this small post, we will look at a few of them.

As anyone can guess, reduction in costs is the primary advantage you would enjoy. You don’t need to reach an annual contract with an in-house worker, and you don’t have to offer a permanent position with all the fringe benefits. In fact, SMEs can use this option to engage only a little of their investment in HR. Now what I am touching upon is not something pretty encouraging and is rather an unethical advantage, but regulations in poor countries don’t support employees as much as western legislations do. So it’s rare that a firm operating in India would be paying hundreds of thousands of dollars for racial discrimination litigation.

In addition, the real benefit of IT outsourcing, if you ask me, is the opportunity to devote attention exclusively to your central tasks without having to worry about other side-line jobs. To perform all jobs efficiently on your own, you would usually need organized plans, measures, and standard practices that take some time to master. Alternatively, IT outsourcing firms would have been taking such orders for a couple years and must have arrived at that efficiency level where one cannot jump at once. So rather than inventing the wheel again, you can be at advantage by hiring those who keep themselves up-to-date with market trends and are acquainted with the newest technology like the back of their hands.

Another commonly overlooked advantage of outsourcing is peace of mind from employee recruitment and retention. The hiring process is too much of a trouble and enough to distract your concentration from your main tasks. And each quitting worker results in a new hiring process in addition to related costs like advertising the empty seat. Therefore, outsourcing IT tasks is a pretty reasonable choice and can bring about many benefits you seldom think about.

As experts say, people don’t quit companies, they quit managers. Becoming a successful manager is a challenge in itself. By outsourcing to an experienced BPO company, you don’t need to worry about retaining your employees, you don’t need to spend hours training them, and you don’t need to bring them in line with your own organizational culture.

So what is holding you back now? Devise a line of action, assign some funds and find a professional IT outsourcing company for your work. Hire a Php developer, ASP programmer, graphic designer, or any other type of IT staff you need and free yourself for your central competencies.

Hey Hey, Finally my First video for my course. Pay attention guys, this is good. It will teach you about to become a specialist outsourcing manager. We really focus in this one on the benefit of outsourcing.

Outsourcing has its own advantages and one of the most important one is that it creates job opportunities for millions across the globe. Everyone has his or her own reasons for working here, but a common cause is undoubtedly the paycheck. Now, working has its share of problems, as many of us will agree that juggling your workplace and home becomes very difficult indeed.

India has a maze of multinational companies who are headed by a new wave of Indian executives. You come across all sorts of people while working, from hard-to-approach employees to bullying colleagues. It becomes easier to work in an environment where there is a certain level of compassion. You may not be able to cope with the pressure of work at all times. However, when your immediate boss understands your situation and encourages you to reach for the stars, then you can surely fight against all odds.

In India (and in many countries in South-east Asia), we have a blend of both worlds, that is, the good and bad, and then there is the grey too. On the one hand, you find employers who are all encompassing when it comes to providing solutions to their employees, while on the other hand; the scenario remains glum for us or the employees, as we are underpaid and overworked sometimes. I wouldn’t say ‘exploited’, but underpaid – surely.

Let us look at the sunnier side. In the corporate sector here in India, many employers understand the importance of the hard labor of their employees. Especially for people like us who are connected to the knowledge process outsourcing sector, a writer’s mental block is a common problem. To tackle it, companies here offer recreational solutions like yoga, mental games, dance, music, exercises, and much more. In fact, facilities have improved dramatically over the last five years. It has really helped the atmosphere in the workplace improve, and the overall economy of the country as well.

Then there is the flip side of the scenario. In many cases, I feel that personal lives are not given due importance in the workplace. Sometimes, if you really have a serious issue to handle at home and need to miss a day at office, you have to provide detailed explanations. Though you live in, say India, you get holidays when the US and Europe are off. It often happens that you do not get the leave that you had really wanted. The immediate consequence is that the quality of your work gets affected sometimes.

I have gathered that you can help yourself by learning stress reduction tips to deal with workplace blues. If you are happy working at your place of work, only then will you be able to make your employer happy through your work.

Bhavesh Bhatia