Outsourcing is a winning tactic during a recession

Outsourcing during times of economic downturn can be the target of cost-cutting. It’s a mistake that can be avoided without getting into a financial tangle. Indeed, outsourcers can strengthen their outsourcing operations to prepare for the time when market demand picks up.

Considering outsourcing as an asset and staying invested in outsourcing can bring about corporate consolidation, value creation, and help in retaining market share.

If a company chooses one’s Business Process Outsourcing provider well, it can not only enable it to outlast the recession but also benefit from it.

It’s true that a company and a business leader have to cope with various challenges in ordinary times – expansion plans, competitor moves, and people issues. Nevertheless, it’s during a recession that attention is called for to sustain customer value and maintain it’s competitive edge.

And it’s this edge that needs to be sharpened rather than adopting quick-fix solutions such as axing the outsource vendor for this can hurt business in the long term. Outsourcing should not be considered as an impediment that distances a company from its business goal.

Professor Colin Coulson-Thomas, who has written several books on management, says today’s board of directors and top managers invest in gaining the competitive advantage. They look beyond cost-cutting and concentrate on building market share by taking advantage of low prices and interest rates during a recession.

Adopting a strategic approach to outsourcing can help the outsourcing organization address precisely those challenges that the recession presents – including choosing the right BPO provider.

The outsourcer needs to ask the right questions to arrive at the most appropriate outsourcing provider. These include questions about leadership, reputation, flexibility, financials, experience, and integration.   

Understandably, there can’t be a single approach to outsourcing that will fit requirements of most companies during a recession. But there are ways in which outsourcing can be best be optimized during recession by outsourcers.

Focus on cutting general and administrative costs:
The Hackett Group, in a recent research noted that the gap between the general and administrative (G & A) costs of world-class companies and their industry peers has increased 33 per cent.

World-class companies spend on average $141 million less on G & A. This number is significant, especially considering the outsource-ability of general and administrative functions.

What should hearten outsourcers is that for a mature service provider, setting up a shared services center involves a much shorter cycle than, say, for a high-end outsourcing engagement such as virtual manufacturing.

In addition to G & A costs, conducting an assessment of the 'low-hanging processes' that can be outsourced quickly would yield significantly positive results.

In a 2007 study of global shared services, Hackett claims that 65 per cent of firms implementing shared services saved more than 20 per cent on costs, while 27 per cent saved more than 40 per cent on costs.

Consolidate processes with a single service provider:
Multi-sourcing had its advantages when the focus was more on rapid expansion, and leveraging service provider specialization. Adopting a single service provider approach can help outsourcers manage costs better and maximize the benefits from outsourcing.

More specifically, consolidation can help the outsourcer create a centralized service center with better best practice sharing and service levels.

It can cut service provider management costs substantially, involve senior leadership of the service provider at key stages, and help create a roadmap for outsourcing more high-end processes over time.

And, most importantly, lay the foundation for a deep-rooted partnership with the service provider that is imperative to tap the true potential of outsourcing.

Put together outsourcing deals that look into the future:
Organisations should not make saving cost as the sole objective during an economic downturn.

This will result in giving out outsource work that comes out cheap. Instead a blueprint regarding the strategic relationship between a client and outsourcing service provider should be drawn up.

Those organizations that mix present concerns with future objectives wisely will better sustain the benefits of outsourcing.

For instance, Mahindra Satyam BPO began its engagement with a leading Europe-based pharma major in 2004 with 40 full-time employees and one process.

But with a strategic intent to scale up the relationship, the engagement today serves the customer across 100 global locations, five different languages and multiple processes.

By being future-focused while deciding on the service provider also means factoring in the service provider's experience in handling processes from the most basic, cost-focused processes to the high-end, transformational ones.

Evaluate outsource-ability across functions:
While certain processes and functions are obvious choices in terms of the benefits to be gained from outsourcing them (general and administrative functions, for instance), there are several other functions that offer tremendous outsource-ability.

The way the BPO industry has grown is a perfect example of this. While BPO started off as being a low-end, inbound /outbound calling service, it has now grown in maturity to offer services that are core to the customer organization.

Who would have thought that one day BPOs will be creating geospatial maps from virtual locations? Who would have thought that BPOs will one day design artworks of medicine packs miles away from the location where they will be manufactured? This has been made possible due to the proactive approach of outsourcers to explore how deep BPO can penetrate within the organization to cut costs and add value. This approach is more valuable today than ever before.

Analytically evaluating each process from the standpoint of outsourcing them could lead to significant cost benefits that the organization had never foreseen.

Summation:
The purpose of process outsourcing should be perceived as an opportunity for global organizations – no matter what their size.

Smart outsourcing is about saving cost, but in the process building a company that’s prepared for profitability and customer satisfaction once economic conditions become favourable.