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Outsourcing 2.0

In the News:

The New York Times 

Outsourcing extends to small and medium-sized companies

"The trend is unmistakable: more middle-market and small companies are in fact turning to outsourcing," said Gene Marks, the author of The Complete Idiot's Guide to Outsourcing and the owner of a Pennsylvania IT consulting firm. Outsourcing, when done right, delivers potent benefits, he said, and they go far beyond the cost savings that are often what first attracts a small business owner to the idea. Improved performance - targeted skills delivered effectively, punctually - are the more enduring goal. "Outsourcing 2.0 is about core competencies," said Gurpreet Dhillon, a professor of information systems at Virginia Commonwealth University. "In Outsourcing 1.0, it was all about saving money. Now, companies want to concentrate on what they do well and outsource what is not central to the business." Experts quickly tick off multiple areas where outsourcing is already gaining traction in the middle market:

    Accounting "Fewer and fewer small and midsize businesses are doing accounting in-house," said Marks. Plentiful suppliers exist to provide this service, and they do it at cost-effective price points.
    IT consulting From setting up computer networks to troubleshooting ailing computers, more small businesses are looking outside for answers. Few businesses will be dealing with such issues themselves within a few years. "There is no point in doing IT in-house," said Dhillon.
    Sales and marketing "This area is ripe for outsourcing," said Marks. More suppliers are turning inbound call centers into outbound ones, where their staff prospects on behalf of other companies. Often, these call centers seek not so much to close a sale as to set up appointments for employees of the contracting firm. Marks said that once a business decides to investigate outsourcing, it will likely turn up many business processes that lend themselves to being done by outsiders. The key question for any company contemplating outsourcing, said Dhillon, is this: What are our core? With that question in mind, it becomes easy to sort through the business's recurring to-do list and decide which areas are prime for outsourcing, either to domestic third parties or overseas.

Loss of control is, of course, a primary obstacle to outsourcing initiatives, said John Willmott, the CEO of NelsonHall, a London-based firm that analyzes outsourcing trends. In many smaller businesses, top executives are usually accustomed to overseeing personally almost all that happens in their company. But once these executives focus on the benefits of turning over non-core processes to outside vendors for which these are core skills, they begin to appreciate that outsourcing frees them to focus on the activities that make the firm money and that let it distinguish itself in the marketplace, Marks said.

One reality of outsourcing is that it may prove to benefit smaller businesses most of all. "They really stand to gain," said Dhillon, who reasons that the more they outsource peripheral functions, the more they will be able to focus on what they do well. Agreement is wide that small and midsize businesses are relatively late to climb aboard this trend, but expectations are for vigorous adoption in the near future. "We are only now entering the fat part of this curve," said Michael Janssen, an executive with the Hackett Group, an Atlantabased strategic consulting firm. "We are just at the beginning of outsourcing. Globalization is driving this, and the trend will run deep in most organizations."

Going global: outsourcing quickens the pace


DriveCam, a small San Diego-based company, had the product and the sales leads, but it also had a big problem: turning those leads into dollars would require significant foreign language skills in multiple Asian languages, from Mandarin to Cantonese, with Korean, Japanese and several others thrown in. "They had exhibited at a trade show and found themselves overwhelmed with inquiries from Asia," said Kevin Bolen, chief marketing officer at Lionbridge, a Waltham, Mass.-based company that staffs 50 locations around the world and specializes in localization and globalization services for its clients.

DriveCam's product is an innovative windshield-mounted camera that continuously records video and audio inside and outside a moving vehicle. The data is saved only when there are sufficient g-forces - as in an accident or a near miss. A benefit of the product is that, when properly used, it can help commercial drivers and their supervisors identify patterns of risky behavior (like tailgating) and take steps to correct them. The technology also helps companies defend against unwarranted claims of fault. Lionbridge entered the picture when DriveCam outsourced to the Waltham company the project of creating collateral materials to support DriveCam in multiple Asian languages. How long would it take a small US-based company to assemble a team of 6 to 10 Asian-language specialists? This question, posed by Bolen, drives home how Lionbridge's outsourced solution helped DriveCam. "Our estimate is that we enabled DriveCam to get to market in Asia literally several years faster than if they had gone this route on their own."

"An outsourcing client wants to know it is getting the A-team for its project. That has traditionally been a problem for smaller companies," said Satish Maripuri, Lionbridge's COO. "Companies like ours are starting to show that mid-market firms now have right-size outsourcing solutions available to them."

From Russia with talent: outsourcing spreads

"We are about value. That is our promise to clients," said Arkadiy Dobkin, the CEO of EPAM Systems, which is headquartered in Lawrenceville, NJ, and ranks as the leading provider of software engineering outsourced services in Eastern Europe. While other companies have rounded up talent in Asia, Dobkin - who grew up in the former Soviet Union - has put his company's focus on recruiting IT talent in Russia, Belarus, Ukraine and Hungary. His staffing totals more than 2,000 IT professionals in Eastern Europe and, he said, that gives him a higher head count in the region than any other competitor.

Are Eastern European IT professionals more expensive than those in India or China? No; what's surprising, even to some outsourcing professionals, is that they are not costlier. Said Dobkin: "Total costs are very comparable from region to region." Nonetheless, EPAM's clients are not necessarily seeking rock-bottom pricing. More important to many is high-quality talent along with a focus on meeting deadlines - completing projects on time and on budget. That has become critical, particularly as South Asia is experiencing labor shortages in some highly skilled sectors, which have delayed project completion, while "there are currently no labor shortages in Eastern Europe," he said. Another trend from which EPAM is benefiting is that clients are seeking to diversify the "where" of their outsourcing to avoid unexpected local difficulties, from political unrest to monsoon flooding. In the spirit of putting one's eggs in multiple baskets, they are looking to hedge geographical risks, and "Eastern Europe has emerged as a region where more companies want to put projects," said Dobkin.

Ask the expert: Frank Casale, the Outsourcing Institute

Most people didn't even know what "outsourcing" meant 10 years ago. Today it has become a global force that is transforming economies, changing lives and reshuffling wealth. Where the work gets done now is always on the table as a negotiating topic, and one man who has seen the reality and the power of outsourcing is Frank Casale, CEO and founder of The Outsourcing Institute, perhaps the leading information resource in the field. The important fact today, said Casale, is that outsourcing is entering a more pervasive phase where small and midsize companies at last join the movement. Call this jumble of new-style processes the next generation of outsourcing, and this is an arena where Casale has plentiful insights to share:

Is there an inevitability to outsourcing today?


There is an expression you've probably heard, that when a bell has rung, you cannot unring it. That's where outsourcing is today. People are doing it. Yes, it is also true that in some organizations, management is bringing some processes back in-house. With outsourcing, the management skill is learning how to use it for your organization and investing the time to do your due diligence up front and understand where and how outsourcing will benefit your company.

How mature is outsourcing when it comes to small and midsize companies?


We're still at an early stage; there are a lot of people looking into it. The market is starting to gel. There's a tremendous opportunity for small and medium-size companies to outsource. This is creating a roster of service providers that are targeting midmarket and small companies. This is a huge change. In the past, you didn't want to be a small company calling an outsourcing provider that only does business with big companies, right? A whole new micromarket is being created. The midmarket organizations are where the Fortune 500 were in the late 1980s.

What's a lesson that needs to be learned to really get Outsourcing 2.0 in gear?

The mentality of many organizations needs to change to see outsourcing as collaboration with a service provider as opposed to treating them like a supplier, which is one thing if you are drop-shipping computers. It is another thing if you are entering a four-year multimillion dollar deal for a third party to handle your HR back office. Enlightened clients develop truly collaborative relationships with their service providers.

What kind of outsourcing do you think is the least likely to take hold in the near term?

I am tempted to say that there is no process or function that is off the table. It is all part of the evolution. Think of the Internet. How many of us said we would never use our credit card on the Internet. We probably said that in 1999. Now look at us. Similar forces are gathering steam with outsourcing. People are figuring out how to make it really work for their organizations.