Why this Outsourcing Deal won't Fail

In this post on ITToolBox, Sandilya writes about why outsourcing (actually, offshoring) will croak. The probable reasons for failure cited by the author include process immaturity, cultural differences and the time difference. The more I think about what he says, the more I am convinced that far from croaking, outsourcing won't even catch a cold.

Process Immaturity: This point focuses on one of the objectives of BPO, i.e. process efficiency at reduced costs of ownership. It reflects simple rules that traditionally, organizations used to apply to BPO, viz.

• Outsource mature, non-core processes
• To specialized providers
• To achieve cost savings and
• Improve management focus

However, isn't that fast changing? In a recent research project, my interactions with more than 150 BPO managers from a range of organizations revealed that companies are pushing the envelope and using BPO to achieve a diverse set of strategic objectives. For example, TradeRanger, a start-up used BPO to launch its business, a utility company in my sample used BPO to restructure its business when the energy sector was deregulated, etc. More than 40% of the managers in my sample said that they had outsourced processes of strategic importance. More important, a plethora of articles point to the rapid growth in outsourcing of innovation and R&D to Asian contractors. This is the least mature of business processes. Even in the case of mature processes, the providers' competitive advantage cannot come from efficient servicing, scale and skill. When the limits of efficiency are reached, it will have to come from process innovation.

Cultural Differences: I might agree with the overall perspective but the illustrations don't do it for me. They're too simplistic. First, the language of technology, although not as universalistic as Mathematics, is fairly uniform. I agree that translating business requirements to this language of technology is the difficult part. But, Sandilya makes a broad generalization. Sophisticated coordination infrastructure and communication technologies are the very reason why BPO is so pervasive today. Coordnation and communication costs are a function of the nature of the outsourced process - think payroll vs. product design. Perhaps, in the latter case, the solution here is human resources. You pick the person who can translate store to shop, you work collaboratively with the client during the transition (of course, the nature of the process determines the coordination costs here), and "What if you needed a small piece of code in one week? Would you spend three days explaining how the system works in the US?" - No!

Time Difference: I agree that this can be a bigger problem than the prior two - limited widow of time and minimal mistakes since each mistake can cost a day. However, if you see it as a 24 hour development lifecycle, you can manage it thus. Maybe you need a teamwork approach and managers on both sides of the world who can get up early and stay up late. But, yes, this requires tight management controls, sound processes that ensure a smooth hand-off between teams, and sophisticated technology that allows the offshore team remote access to the client's network and pertinent archives. This one, I agree.