Outsourcing has become a solid strategy for organizations looking to improve productivity and reduce costs. Today, companies are no longer asking “should we do this?” but rather, “what region makes the most sense?” Outsourcing Institute’s Frank Casale shares why a successful partnership starts with ‘transformation mindset’ and what factors should be considered when outsourcing offshore.
You’re the CEO and founder of The Outsourcing Institute. Tell me about the organization and how outsourcing has changed since the founding days.
At The Outsourcing Institute (OI) we like to consider ourselves the gateway to the outsourcing marketplace and have developed the largest network of outsourcing professionals in the world. We have more than 70,000 members and our membership is growing monthly. Our role is really one part marketplace, one part clearing house for information, and one part meeting place for people to network and learn and ideally do business. Our members are buyers, practitioners, vendors, and influencers, which are mostly advisors, consultants, lawyers, and analysts.
When we first started most of the outsourcing was big deals with big companies that were in big trouble. And it was mostly U.S. If you look at our member demographics back in the early ‘90s when the organization first started, you'll see it reflecting that demographic. Outsourcing has since gone beyond Fortune 500 organizations and now there's a ton of outsourcing being done in the mid market and smaller organizations. Companies have discovered this isn't just for the big guys.
Another change is a shift from solely IT to business process outsourcing deals. Regardless of how you define BPO, organizations have realized that there are opportunities to leverage the power of outsourcing beyond IT to HR, call center, finance administration and procurement, sales and marketing.
There is also a shift in focus from the front end of the transaction (how do we buy this correctly?) to the backend of the transaction and even post contract signing (how do we manage this?). Continuously hot topics are governance and relationship management. If you go back to late ‘80s and early ‘90s, the focus was on developing an RFP and negotiating a deal. Then, once a deal was signed, everyone went back to work thinking it was done.
What more experienced and enlightened managers are realizing is that the work begins after the contract is signed and it's really all about governance and relationship management. Those topics are important ones and a critical success factor for outsourcing.
How can companies transform finance, IT, accounting and HR functions through outsourcing?
The first ‘fork in the road’ that an organization comes across is deciding whether they are looking to do what some people call ‘lift and shift’ or really leverage the world class expertise and domain knowledge of the provider and transform their processes.
I'm still seeing many deals that are bearing left at that fork and they're focused on ‘can you do this cheaper?’ I can understand why because the focus of the economy now is not only cost savings, but immediate cost savings and taking the shortest distance to expense reduction. However, it will cost those companies more in the long term, assuming their competitors are saving money, improving productivity and ultimately increasing their competitive edge.
As to how companies can transform functions through outsourcing, there are many ways that it can be done. The first is to have the mindset that transformation is part of your decision-making criteria. Part one is ‘here's why we're outsourcing – and the top three reasons aren't to save money’. The second part of that is when it comes down to the decision making process, remember the original list. Most organizations forget that and then it reverts to price.
Another mistake companies make is they don't bring stakeholders to the table. You’re much less likely to end up with a transformation when stakeholders aren’t involved because you don't have the experts at the table that know the old way things were done and know the way it could and should be done. If you talk to the service providers they will tell you that in every case where they were able to work their magic it was a direct result of open and collaborative discussion with the stakeholders and process owners.
You can’t expect to do a new fashioned deal if you do a deal the old fashioned way. It's not going to happen.
If you look for transformation, allow for it in your RFP. Remember, it’s a balancing act: On one hand, if someone puts out an RFP they want to frame what they need because if it’s unstructured they're not going to get a good proposal. If it’s too rigid and regimented, they're not going to allow the service provider to show the magic they can work. Allow for the provider to make recommendations and suggestions which may be slightly out of the box because you may not know the right questions to ask all the time.
How do organizations know which strategy - offshore, onshore or near-shore - is right for their business? What factors should be considered when electing to outsource to offshore markets?
The biggest challenge facing organizations today regarding outsourcing is what destination they should consider and why. When I originally founded the institute in ‘93, the big debate was whether one should outsource or not. As we got into the mid ‘90s, things started to change and the next big controversial debate was whether one should offshore or not. It was a matter of ‘do you really want to go to India?’ because you're going to lose control, it's far away, what if something happens, it's a different language, culture, time zone, etc. After one-third of the Fortune 500 companies started going there and they saw a huge savings, that debate was won in the minds of most people.
If you look at where we are now, it's less about outsourcing and the question of do we go to India. It's more about does it make sense to have a small or large portion of our outsourcing portfolio not in the US and it probably does for most organizations. So the question now is where.
Do you go to India because that's where everyone has been going forever or do you go to newer places like Eastern Europe or Latin America? Not only do you have cost savings there, but its closer proximity, less of a time zone issue, and a place more people are attracted to going every couple of months on a site visit. When you mention India to some people, it’s a business trip. When you mention Brazil, they say ‘this could be a dual purpose trip’. The biggest challenge now is the world is your oyster and you have to determine where to go.
How does one determine where to outsource? That's where you have to do your homework. If you can, bring in an advisor. That's your best bet but it will also cost the most. A more affordable option is to just be very active within whatever networks you participate. There are many people that are leveraging our network to get a sense of what's happening where whether it is China, India, or Eastern Europe. You can also do some research through our network or through many other organizations to get a sense of what people are doing or more specifically what people are within your industry. This will give you a sense of where you can find high value, high cost savings, and low risk options.
Other factors to consider are not to put your eggs all in one basket. It's no different than a stock portfolio strategy -you want to diversify a bit. Most organizations I'm speaking to are doing some things in India, some things in South America, and some things on shore. It's a matter of a mix, and your ideal mix is going to vary depending on your company and temperament, risk tolerance and needs.
India has become a very popular place for software development, call center and telemarketing functions but now many companies are looking at alternative markets such as Brazil, Russia, India and China. Why are these markets appealing and why does outsourcing to these regions make sense?
Some of it is more supply driven and some is more demand driven. If you go back 15 years, India was the only location for the most part. And India, like any destination, has things they are very good at and things they are not so good at. Some people went to India for application development and were happy with that. Others went to India and were less than happy with their call center activity at the time. Right around that time people were starting to look at places like Ireland. Then all of a sudden the Philippines started to become the rising star and they've become very well known as experts in the call center.
What happens is it’s like any other market. There's only one big game in town and suddenly other organizations evolve and they have their own specialties. For IT, people might rattle off a few destinations they feel would be ideal but for call centers that same group would have a slightly different list.
It's really a matter of creating a matrix to determine the factors that are important to you and then to weight those factors. How important is time zone? For some people it may be irrelevant, for some it maybe critical. The same is true for cultural compatibility and language. It’s a matter of knowing what you need and asking the right questions.
One thing that came up from a roundtable I had last week is it is important that you don't fall into the trap of thinking that the rate that you pay will be your cost. It’s not that simple. If a resource costs $35 per hour, and another is $28 per hour, you might look at that and say “wow, they're less expensive.” But that's not the true cost; that's a portion of the cost so you really want to make sure that your team has created a formula that gives you a sense of the total cost of outsourcing to a particular region.
A formula may combine the hourly rate plus an estimation of how many hours it will take to complete a project. In other words, the more expensive rate may take fewer hours based on their experience and expertise. Another consideration is how much travel is involved in a particular situation. One situation may require quarterly travel and another might require monthly travel, so that needs to be factored in.
It’s similar to when I bought my first boat. I cut the check and was happy, but I found out that was just the beginning of what that boat was going to cost me. There was the slip, the gas, the maintenance, the food for weekend visitors, etc. It's the same with outsourcing. The rate is a critical component, but when I think about the total cost of outsourcing, it's only part of the formula.
I heard you have an exciting line up of road shows across major cities where guests can learn about more about outsourcing to support decision-making. Tell me about the seminars, where they are being held and what attendees can expect to learn.
Outsourcing has been around for quite a while now and we've been doing some research to find out why there are so many dysfunctional outsourcing relationships. What we found is that outsourcing has changed significantly, and the world overall has changed significantly, but people are still doing this the same way they did as they did back when we started.
I coined the term ‘Outsourcing 2.0’ and refer to it as the new way to buy, sell and manage outsourcing. This is really about the new way to get this done, and if you're doing it the old fashioned way, this is where you're going to come and get your upgrade.
That means if you're on the practitioner side, we're going to share with you the latest trends, best practices on how to procure outsourcing and select a vendor, the latest trends and best practices around transition and why we believe relationship management is the new Holy Grail.
For the service providers, a majority still struggle in their attempts to sell and market in this space. We're going to share with the service providers what the best of the best are doing to increase their exposure, tighten up their value propositions, develop proposals that are winning, and shorten their sales cycles. We’re also going to share how marketing teams are leveraging some things that were not on the scene six or seven years ago such as how you can use social networking to increase your exposure and business development opportunities.
This will not be a typical gathering for a couple reasons. One is the compelling content. It's going to be about the new outsourcing and how it can help you and why you should care. What we’ve always done for all members of the ecosystem, and will continue through this road show series, is to ensure there is a lot of networking, collaboration, and sharing. These are local intimate gatherings where people can learn, connect and develop regional relationships.
We committed to our members that we would be doing 20 of these local gatherings in cities such as Chicago, Dallas, DC, London, Miami, New York, and San Francisco. For more information, visit outsourcing.com.
I understand you’re an avid tennis player. What lessons have you learned on the court that can be applied to business?
I like singles tennis because it's high energy, fast paced and very interactive. It's very similar to what I like in business and I can draw parallels to that in things we're doing at OI both in our events and at our Web site. Most people are looking for something that is compelling, high energy, and interactive. Like tennis, business is fast paced and highly competitive. I love it.