Move Over to Risk-free Outsourcing

Risks involved in outsourcing and how to avoid them

Outsourcing involves certain amount of risks to be taken, both by the companies outsourcing their projects and by the service providers. This is especially true when businesses are involved with complex and intricate IT projects. Alec Miloslavsky, CEO of Exigen Services, an outsourcing supplier that specializes in Agile development, points out the most common types of risks that affect outsourcing and how to avoid them.

Since most companies look only at financial benefits acquired by outsourcing, they forget about the risk factors involved. Alec Miloslavsky, defines three major risk factors as, financial risk, where the costs of a project escalate beyond expectations, time to market risk, where the projects are not delivered on time and delivery risk, where the objectives of the project are not met. In order to combat these risks and get the most out of the service providers, Miloslavsky advises companies to follow these five simple tips. They are:

1. Always make sure that the returns are favorable: Companies outsourcing their IT projects should make sure that their primary goal is a specific project result and not just cheap labor. If the outsourcing partnership is structured properly, it will automatically bring down both risks and costs.

2. Remember that methodology matters: In order to achieve complete satisfaction, companies should stipulate that the vendor should use specific methodology and governance that will result in proper project execution.

3. Keep in mind that success is a joint responsibility: With all decisions made in advance and timely feedback, outsourcing companies and service providers can reduce the risks involved and effectively reach their business goals.

4. Allow room for things to change: Since change is inevitable during the execution of a project, companies should make the necessary allowances needed. Both the methodology and the priorities should be reassessed and reconfirmed periodically to effectively meet deadlines.

5. Insist on end to end alignment: Companies should make sure that all resources, including staff, are properly aligned with the outsourcing companies overall business goals. This will ensure that no changes will the intellectual property and project control.

With the above points kept in mind, companies seeking vendors overseas are sure to minimize their risks in outsourcing. This could lead to quality services being offered resulting in shared goals, responsibilities and incentives on both sides.

India emerges as the #1 destination for the outsourcing of R and D projects

With Indian talent being recognized the world over, outsourcing of Research and Development (R and D), is steadily on the rise. It has been estimated that the R and D outsourcing industry will increase by 23% by the year 2012. In fact, Bangalore is said to be in second place when compared to Silicon Valley, since 130,000 engineers are currently being employed in software research and development.

According to the study by the management consulting firm Zinnov, the number of outsourced R and D centers in India has increased from 180 in 2000 to 594 in the past year. The reason being attributed to this is that, in spite of the rising costs of outsourcing, India still remains a lot cheaper than the US. The total cost of employing a fulltime Indian engineer including wages and benefits, facilities, telecom, travel and administrative support ranges from USD 35,000 to USD 55,000. This works out to be three times lesser when compared to employing an engineer in the US.

Another vital reason that cannot be overlooked is the growing quality and experience of India’s huge technical workforce. Apart from the highly trained and experienced Indian workforce, there has been a steady influx of returnees from the U.S., Britain and Australia, many of whom have held years of managerial and R and D experience at Western corporations.

According to Zinnov’s statistics, about two thirds of Bangalore’s 80,500 engineers working in foreign owned R and D centers have four to seven years of experience and the remaining one third have worked seven to fifteen years, enough to qualify as the lead architect for many products.

With a talented and experienced workforce available at nearly one third the cost, Indian R and D centers have emerged as the number one destination for clients from all over the world.

Top Five Upcoming Trends in Outsourcing

Outsourcing basically exists on the principle that if there is a task to be completed, there is always someone else who can do it at a much cheaper rate. Keeping in tune with this principle entrepreneurs are keen on finding out new tasks that can be outsourced. This has led to quite a few unusual and interesting trends in the outsourcing industry.

With the Internet and VoIP, outsourcing of previously unheard of tasks has now become much easier. Five of these upcoming trends are categorized below:

1. Outsourcing personal chores
David Davin, COO and co-founder of DoMyStuff.com invites people to bid any task, be it raking leaves or installing software. Though this service is still in its infancy, the concept proves that outsourcing of personal chores is here to stay. In fact, the research firm Evalueserve predicts that by 2015, consumer and small-business who offshore their services will grow to more than $2 billion. This is phenomenal growth of Person-to-Person outsourcing has shown a substantial growth from only $250 million, in 2006.

2. Outsourcing the outsourcing
Nations as diverse as Mauritius, Costa Rica, Canada, Malaysia, Romania, Malta and the Ukraine are now emerging as strong competitors to the traditional outsourcing destination-India. A report by Gartner shows that Indian software engineers will soon be earning 40 to 50 percent of Silicon Valley wages. This has led to Indian companies outsourcing their work to other emerging nations. In fact, Infosys, a $3.1 billion leading provider of outsourced services in India, has 75,000 employees in India, but also employs many others in countries like Mexico, the Czech Republic, Thailand, China, Poland and the Philippines.

3. Outsourcing tutoring
According to Eduventures, an education research firm, online tutoring is fast catching on with parents who want their kids to get into college but cannot afford the hourly rates at centers like Sylvan. Online tutoring is now a $4.5 billion industry at an estimated growth rate 12% to 15% per annum. TutorVista is an online tutoring service based in Bangalore, India, that offers a $99 per month flat rate for tutoring. Students communicate with their Indian tutors via voice chat, IM and digital tablet. Founded by Krishnan Ganesh, TutorVista is seeing tremendous success and is in the process of doubling its tutorial staff.

4. Outsourcing drive-thru orders
Outsourcing of drive-thru orders is the latest trend to watch out for. Exit41 has recruited call-center employees who take drive-thru orders using VoIP. The orders are then sent real-time to a monitor in the kitchen so that in the few seconds that it takes you to reach the window, your steaming food is awaiting your arrival. This works out to be cheaper since not only does it help increase drive-thru capacity, but it also allows for the use of operators in less-expensive areas, for example, a state with a lower minimum wage or even Mexico. Wendy’s too has installed the system in 16 stores, with much success. Joe Gagnon, CEO of the Andover, a Massachusetts-based firm believes that outsourcing of drive-thru orders will become more common in the future.

5. Outsourcing crowdsourcing
Crowdsourcing is nothing but taking a task and unleashing it to the world. Wikipedia, the by-popular-vote T-shirt designs on Threadless.com and Amazon's Mechanical Turk service all use people power to accomplish their tasks. In fact, Google cleverly crowdsourced ‘image tagging’ by turning it into a game and therefore bypassed the need to pay for the task. Jeff Howe, a contributing editor of the magazine Wired, who coined the term in 2006, says, "Most of the successful crowdsourcing models are very much like Wikipedia in that they have a really vibrant community that has sprung up, that enthusiastically, passionately pursues this as a hobby. It's not like there's a crowd ready to do any old work. It has to be something that makes them happy."

With the above trends likely to become the norm in the outsourcing scenario, the outsourcing industry is sure to grow exponentially, as more and more entrepreneurs get creative and outsource a variety of unlikely tasks to those who willing to do it for a cheaper rate.

The Future Trends in Outsourcing

Change is constant and the outsourcing market has seen its own share of changes in the past few years. The future of outsourcing depends on the extent of how firmly rooted these changes will be, in the outsourcing market. Silicon.com has identified five trends to be on the watch out for.

Consolidation of Major Business Houses
The past year has seen numerous rumors of various mergers being spread around. The rumor that Infosys Technologies and Capgemini Group were discussing a merger has led others to believe that major alignments are on the increase. Managing director of the business advisory company TPI, Duncan Aitchison, has reportedly told Silicon.com, that even if the above merger does not take place, it reflects the current ”market sentiment.” With the competition for outsourcing companies at an all time high, this is a trend that has definitely come to stay.

Globalization of the Outsourcing Market
The talk of India losing its outsourcing market to China has long been predicted. A study by analyst IDC has revealed that China will overtake India as the top outsourcing destination by 2011. This reminds us that not only will the BRIC (Brazil, Russia, India and China) bloc of countries remain as major players, but various other developing nations such as Mexico, Egypt and Poland will start dominating the offshore-outsourcing market. As TPI’s Duncan Aitchison puts it, a “greater pattern of diversity “, is soon to emerge.

Increase in P2P Offshoring
Redeployment (the relocation of a back-office function or a whole department) which has so far been associated only with large businesses has now reached small businesses and even homes, says Evaluserve, a research company. This is because of the increase in online tutoring, writing and translation services and web and software development. Since most of the customers for these services are small businesses or even individuals, they are being termed as “person-to-person”, or P2P offshoring. According to Evaluserve, P2P offshoring, has suddenly shot up to more than $250 million between April 2006 and March 2007. Evaluserve also predicts that the P2P market will rise to around $2 billion by 2007. This re-emergence of offshoring is one of the future trends to watch out for.

Turning Towards Green Sourcing
A recent poll conducted on Silicon.com’s CIO Jury (a pool of chief information officers and other corporate IT professionals) has revealed a strong adherence towards environmental factors and ecology issues playing an important role in the selection of offshoring partners and technology suppliers. With a constant rise in energy prices, a shift towards Green sourcing is a trend that is catching on.

Rise of Virtual Worlds
The concept of Virtual Worlds becoming business friendly like the Internet is still very new and is yet to catch on. Meanwhile virtual offices and virtual “meeters and greeters”, are constantly being developed and tested by companies in the outsourcing market. News of a partnership between Entropia Universe, a virtual world with a science fiction theme and a Chinese online-entertainment company has created a virtual economy that could provide up to 10,000 jobs. This trend predicts a fusion between help desk and call center services and virtual worlds, where customers can be both informed and entertained.

These five trends reflect the current market scenario and are to be monitored in order to determine the future of outsourcing.

Trends for 2008: Outsourcing Industry

In the last few years, outsourcing has transformed into a more streamlined and mature industry. Here are some of the top trends predicted for the outsourcing industry for 2008.

The Analyst House Gartner expects that the outsourcing sector will grow at a robust 8.1% in 2008. Companies are outsourcing more, but opting to go for a multi-provider strategy, resulting in smaller deals and lesser media hype.

Politically Correct Outsourcing: With a heightened sense of environmental consciousness everywhere and the US presidential elections looming large on the horizon, 'socially responsible outsourcing' looks to be the mantra of 2008. There will be an increased focus on how service providers deal with their social and environmental responsibilities. Outsourcers in the US and the UK are taking an interest in the social credentials of their offshore service providers and the ethics of outsourcing practices. Offshore service providers who contribute to the environment around them, adhere to good in-house work ethics and enhance overall employee opportunities with training and career growth are the ones who will make the grade in a new environmentally conscious marketplace.

Outsourcing goes Professional: Outsourcing is emerging as a professional domain in its own right with growing demand for professionals having domain expertise in outsourcing best practices. As policy makers recognize the criticality of vendor management to gain from their outsourcing strategy, there is a growing demand for professionals with experience in the field. Experts predict a scenario where there will be more and more outsourcing professionals sitting at the executive table and defining the shape of business. The International Association of Outsourcing Professionals (IAOP) is offering the industry’s first and sole professional certification program – the Certified Outsourcing Professional (COP) – to address this need for a more professionalized approach to a dynamic industry. This could well be the time of the year when companies acquire a new COO (Chief Outsourcing Officer).

India Dominates as an Offshoring Location: A recent study by research specialists AT Kearney shows that India continues to have the dominant market share of 31% in global offshoring while Canada, China, Ireland, Philippines etc. are seen as challengers to the position. However, the last few years have seen the growth of locations such as Israel, Mexico, Brazil etc., which are making their presence felt as alternative offshoring locations.

Growth Areas in Outsourced Services: Outsourcing of Remote Infrastructure Management, Healthcare and Drug Discovery Services is poised for growth this year. The focus on SOA(Service Oriented Architecture) in software development and the widespread use of SaaS (Software as a Service) are also generating a lot of activity in the realm of IT and Software Development Outsourcing.