Outsourcing Perils and Some Tips to Avoid Them

To large-scale businesses and a number of small entrepreneurial firms, the idea of outsourcing is the pot of gold at the end of the rainbow. As companies want to be liberated from unwanted administrative and clerical functions yet still enjoy an entirely profitable organization, businesses from all-over the world have plunged into this wonderful offer of technology as a means for storing, retrieving, disseminating, or processing information that goes beyond the limit of time and location.

However, some commentators have posed several issues against outsourcing and have actually described the process of transferring business operations to a third-party as “time-consuming, complex, and perilous.”

One study in the US enumerated six most common outsourcing mistakes that companies commit when they hastily decide to embrace the idea of outsourcing. One concern is this: proximity, telecom infrastructure, and cultural and language barriers could possibly turn a company’s dream into one terrible nightmare.

Concerns regarding the proximity of the service provider probably stemmed from possibilities that computers, which links the company to their outsource agency and vice versa, also have limitations and untimely breakdowns may mean loss of a huge amount of money. Companies would therefore have to make sure their outsource provider is reliable and efficient in handling technical problems. A good outsource provider bears a reputation of being able to still carry out their functions if and when technical difficulties arise. Researching on the backgrounds of outsourcing firms and reading testimonials from satisfied clients would be good references when in the process of deciding which firm to contact.

Cultural and language barriers may also pose relational and ethical issues between the company and the third-party. As the businesses and the outsource firms operate in different societies possessing a variation of norms, there are chances that operations are not done the way the company wants them to run. In order to avoid this, communication lines between the company and the outsource provider must always be open. It would be of great advantage if the company who wish to do outsourcing would comprehensively lay down their terms and conditions to the outsource provider before signing a contract with them.

As regards language barriers, companies are encouraged to also study the language proficiency of the service providers. It is also best to note that good outsourcing firms ensure that they study the culture of their clients while doing business with them.

Bottom line: One of the best ways to avoid the perils of outsourcing is to make sure that the service provider is reliable enough.

If you are looking for an outsource service provider or if you know someone who is looking for one, you may want to consider these facts on the Philippines being one of the leading global outsource service provider.

As of December 2007, the Philippines has been identified as one of the top 30 countries in the world that provide offshore services. Just recently, the Philippines was voted as the most preferred outsourcing location by companies in the United Kingdom. The Philippines is identified to have many years of experience in information technology enabled services. Compared to other Asian outsource providers, the Philippines boast of a vast population that speaks English with American and neutral accents. Filipinos are also known to be very much exposed to Western culture and the global business.

You see outsourcing isn’t at all as complicated as some perceive it to be. If and when done the right way, outsourcing would still be the pot of gold. And here’s the plus: the pot of gold doesn’t have to be at the end of the rainbow. It is always within their reach.

Beyond Financial Advantage:A glimpse on the non-monetary benefits of outsourcing to small businesses

The utilization of a third party to perform tasks for a specific company or outsourcing has nonetheless, seeped into transactions within the global business community. As Information Technology continues to provide innovations for entrepreneurs across the globe, many large companies have resolved to outsource important company functions (payroll processing, accounting and distribution – to name a few).

Outsourcing has been found to be of great advantage to small businesses since aside from it converts fixed costs to variable costs, it also allows businesses to veer away from large expenditures and invest more on other revenue-producing activities thus making the company more attractive to investors.

While it is a fact that outsourcing reduces company expenses (and this has been perceived and believed to be the most important of all the benefits), allowing outside firms to handle functions in behalf of the company, when done right, actually pose quite a number of long-term benefits.

Since companies who invest into the outsourcing industry are able to save on research, development, and distribution expenses, they are also able to reduce retail and service costs therefore attracting more costumers. As the company is released from the burden of conducting studies for company development or better product distribution, employees are able to focus on customer satisfaction. The increase in work efficiency would then result to higher product or service patronage.

Outsourcing also minimizes human resource problems and expenses, again allowing companies to focus more on the peripheral activities toward serving the customer better rather than entertaining human resource-related concerns. This also allows managers to focus more on the company’s economic and customer-service goals. This saves the company from dealing with non-profitable concerns.

The business sector isn’t always friendly to small companies that have limited monetary investment capacities. It is almost a prerequisite that when a company decides to conquer the world of entrepreneurship, their financial resources must be inexhaustible. When small companies decide to outsource, they are able to get access the same economies of scale, efficiency, and expertise, as the bigger the companies.

For a company that is yet starting, outsourcing providers are the ones who are very much able to trace out markets and competitions that pose threats to the business. Also, as financial conditions, technologies, and government policies change all too quickly, the outsource providers are seen to better assume and manage complexities that are yet to arise as they are also seen to generally be better at devising ways to avoid both the identifiable and the unforeseen risks.

Already established outsourcing firms boast of resources that allow them to start projects right away. This would save companies from the expensive and time-consuming necessity of hiring, training, deploying, and paying additional staff to perform the needed start-up functions.

Most companies give in to the concept of information technology enabled services or outsourcing because they have no choice. But actually, looking at it beyond the financial advantages, outsourcing could not be seen as the last recourse. It is the best choice every company would make.

A Hodgepodge of Outsourcing Jargons and What They Mean

Benchmarking
A method used by public sector organisations, charities and private companies for gauging their performance by comparing it with the performance of other organisations, typically of a similar size. The government encourages public sector bodies to compare their score on various published performance indicators as way of improving public services. Many organisations are now members of so-called benchmarking clubs in which they compare published and unpublished performance information.

Best value
Regime that aims to continuously improve local government performance through a programme of reviews and inspections. Councils must examine their services according to four guiding principles. They must challenge how, why and by whom a service is provided; compare its performance with that of other authorities; consult service users; and use competition to get the best service available.

Compulsory competitive tendering (CCT)
Regime that forced councils and NHS authorities to let private sector companies bid to provide a range of local government services and non-clinical health services. Initially applied only to six blue-collar service areas, including cleaning staff and school meals. Later extended to take in a wider range of services, including some white-collar jobs. Superseded in 2000 for local government by best value.

Concordat
Agreement created between two or more organisations, often to help deliver a service or set out a formal relationship, for example between the NHS and private healthcare companies, or between local and central government. The concordat signed between the health secretary, Alan Milburn, and the private healthcare industry in November 2000 enables the treatment of tens of thousands of NHS patients in private facilities.

Contracting out
The practice of outsourcing services once provided ‘in house’ by a council, NHS body or charity. For example, local authority social services departments “contract out” meals-on-wheels services to charities and commercial organisations, paying them for the service rather than carrying it out themselves. The contracting out of public services to private companies for profit is a controversial issue.

Direct labour organisation (DLO)
Part of a council that delivers services such as highways and building maintenance and construction. Created under compulsory competitive tendering in the early 1980s to create a split between the customer (the council) and the service provider (the DLO), which allowed the DLO to bid fairly for services alongside private sector companies.

Direct service organisation (DSO)
Provides council services such as catering, cleaning and refuse collection. Similar to direct labour organisations, but created later, under a fresh round of compulsory competitive tendering legislation in the late 1980s.

Enabling state
The enabling state is the phrase used to describe how responsibility for delivering public services traditionally provided by the state is passed to private or voluntary organisations (or “arms length” government agencies). Underpinning this is the idea that smaller, local and specialist providers are more effective and efficient at delivering publicly-funded services than large centralised bureaucracies (such as the NHS). Thus the prime minister, Tony Blair, in his speech to the Labour party conference in October 2002 said: “Just as mass production has departed from industry, so the monolithic provision of services has to depart from the public sector. People want an individual service for them. They want government under them not over them. They want government to empower them, not control them… Out goes the big state. In comes the enabling state.”

Franchising
NHS franchising involves identifying and appointing a top management team to the “biggest challenges”, whether taking over failing trusts or key modernisation initiatives, or running strategic health authorities. The “franchise” bid for a top job will involve the team – which can be from the private, voluntary or public sector – producing a business plan and operational strategies and appointing its own top team.

Local improvement finance trust (NHS Lift)
NHS Lift is a private limited company set up by the NHS and private sector property developers under the public-private partnership initiative in order to fund, replace and refurbish primary care premises in England.

Outsourcing
Awarding a contract to a private, public or voluntary sector organisation to supply a service previously run by a public sector body such as a council or hospital. See contracting out above.

Private finance initiative (PFI)
A controversial method of providing new public buildings and projects such as schools, hospitals, roads and homes by using private sector money up front that is later repaid with interest by the state. Under strict rules for the initiative, introduced in 1992, a private sector consortium designs, builds, finances the project – and then operates it for a period of at least 25 years. The consortium’s fees are paid from public money, with an element of that fee dependent on it meeting performance standards throughout that period. Also known as public private partnerships (PPPs).

Tupe
The transfer of undertakings (protection of employment) regulations 1981, pronounced “too-pee”, which protect workers’ terms and conditions when the employer they work for changes. Usually relates to conditions of workers when their jobs are privatised or transferred to the private sector.

Two-tier workforce
Created often when a private company takes over the running of a public service. Workers previously employed in the public sector have their terms and conditions protected by law but new joiners currently have no such defence. An agreement in February 2003 between the government and unions seeks to abolish aspects of the two-tier service in local government by guaranteeing wages and conditions “no less favourable” than the public sector for new staff hired by contractors. But it does not apply to staff who have already been hired on lower wages, or to staff in the NHS or the civil service.