First Post

Outsourcing - The first thing which comes to mind is, at least these days, India and cost cutting and how companies around the world are actively seeking Indian outsourcing partners to make use of this phenomena. Obviously there are iinumerable advantages to the whole chapter and nobody can deny that. Or is it...One of the surveys carried out by Accenture stated that though 65% of the clients felt that outsourcing has been successful, 82% of those 65% had no means or metrics to measure that success. I have no idea how they defined success. To me that would be one more post to discuss about that. But today I am going to restrict myself to some of the challenges outsourcing poses. Yes I am going to start my blog with difficulties in outsourcing and not harp on those exotic advantages everybody talks about.

Now when we talk about challenges in the outsourcing, there are 2 different kinds of challenges which any client faces when he thinks of outsourcing some of its functions. First one is selecting the vendor, which trust me more often than not is the most difficult part and then comes problems once outsourcing contract has been signed.

In this particular post I am going to discuss about the principal problems which the clients face when selecting the vendor.

The first one is immense effort, time, energy, resources and cost (there are more, I am just restricting myself to these important ones for now) into the outsourcing procurement process.
Because of the past bad experiences and high rate of failures in the outsourcing contracts, the selection processes that are now being used are rigorous and contract negotiation is fierce. Obviously this is being done not to repeat the past mistakes and incorporate the learnings of the past exercises. The services today which need to be outsourced are well specified, clear performance metrics are identified and then the right partner is selected. I am not saying that clients should not do this. In fact this is the way it should be done. But my only problem is the time it takes to do all this. All of us know sometimes this exercise takes upto 1 or more years which I think is excruciatingly slow and painful.

Second one - Though I have clearly stated that clients take up lot of time identifying the services needed to be outsourced and metrics which they would use to measure the success of it. But think again, time and again, we have seen that thats one of the most difficult aspect and may be thats the reason it takes up lot of time. But the problem still remains. Difficulty in specifying functions and mesuring success of it. I know there are lots of parameters which are considered before a service is outsourced but still there are lots of examples in which after outsourcing services to a vendor, client has eventually got it in house.

Third one - this, after the emergence of Indian players, is diminishing slowly but still very largely prevalent - small number of big suppliers who are allowed to bid for the large contracts. As I said due to Indian players more and more companies these days are actually breaking the contract into multiple small ones, which is creating room for small players as well. But even today particularly for the large contracts, only few very large global companies qualify to bid for the contract. Obviously if the contract is large, then the client wants some sort of security from the suppliers and hence they look at orgainization and financial size and stability for their assurance. The majority of the bidders, because of their small size are excluded (this list includes indian companies as well). The biggest problem with this approach is clients have to deal again with the same players with whom they had problems earlier.

Fourth one - this, again with the emergence of Indian players who are willing to accept work at any cost and conditions, is diminishing - vendors more adept at negotiating outsourcing contracts as this is what their expertise lies in. They do this on daily basis. Close to 10 contracts annually and what about the clients. They might have done this once or twice before. Who is at disadvantageous position? If we leave the Indian players out of the picture, then more often than not, vendors eek out a much better deal for themselves and clients keep thinking vice-versa.

These, I think, are the problems mostly faced by the clients before the outsourcing engagement has been signed. I will write about the problems faced by the clients after the outsourcing engagement in the different post. It should be up in 2-3 days or may be sooner.