SQLAuthority Author Visit – IT Outsourcing to India – Top 10 Reasons Companies Outsource

Yesterday I had meeting with few of the leading outsourcing companies in Ahmedabad, India. Regular readers of this blog knows that I am currently in India handling large scale outsourcing assignment. My responsibilities includes managing application development, system architecture and database architecture. The purpose of meeting was to exchange the views and learn methodologies from one another regarding how to provide quality service to offshore clients.

There were about 10-15 Sr. Managers from different outsourcing company. The conversation was excellent and we all felt that we have learned a lot from each other. Two major things discussed were quality of products and quality of developers. There are many reason to outsource however the major reason to outsource any product is “get the product done (completed)”. Managers were concerned about so many online rip-off websites clamming as large scale outsourcing companies and listing fake projects. It is common for rip-off companies to claim big and provide nothing. It is very important and crucial for businesses to not to be involved with them.

Outsourcing is about trust, collaboration and success. Helping other countries in need has been always the course of mankind, outsourcing is nothing different then that. With information technology and process improvements increasing the complexity, costs and skills required to accomplish routine tasks as well as challenging complex tasks, companies are outsourcing such tasks to providers who have the expertise to perform them at lower costs , with greater value and quality outcome.

There were many things discussed, I will gradually write them on this blog. After meeting many good industry leaders I was very pleased and felt satisfied that we all care about outsourcing and reputation of the country. One proposal I had made in meeting was to write article about how to find rip-off companies. We will be discussing that in the next meeting. As this was first meeting we discussed Top 10 Reasons Companies Outsource Source: The Outsourcing Institute Membership, 1998

If you are interested in joining this meeting as well as finding good outsourcing company, send me email and I will forward your email to right person. There were few independent contrasters who were available to hire and some senior managers of Multi National Companies (MNC) available in meeting only for advise and discussion. At the end experienced well shared and meeting ended with food in nearby restaurant.

Following article is taken from Survey of Current and Potential Outsourcing End-Users The Outsourcing Institute Membership, 1998

1) Accelerate re engineering benefits
Re engineering aims for dramatic improvements in critical measures of performance such as cost, quality, service and speed. But the need to increase efficiency can come into direct conflict with the need to invest in core business. As non-core internal functions are continually put on the back burner, systems become less efficient and less productive. By outsourcing a non-core function to a world class provider, the organization can begin to see the benefits of re engineering.

2) Access to world class capabilities
World class providers make extensive investments in technology,methodologies, and people. They gain expertise by working with many clients facing similar challenges. This combination of specialization and expertise gives customers a competitive advantage and helps them avoid the cost of chasing technology and training. In addition,there are better career opportunities for personnel who transition to the outsourcing provider.

3) Cash infusion
Outsourcing often involves the transfer of assets from the customer to the provider. Equipment, facilities,vehicles and licenses used in the current operations have value and are sold to the vendor. The vendor then uses these assets to provide services back to the client. Depending on the value of the assets involved, this sale may result in a significant cash payment to the customer.

When these assets are sold to the vendor,they are typically sold at book value. The book value can be higher than the market value. In these cases, the difference between the two actually represents a loan from the vendor to the client which is repaid in the price of the services over the life of the contract.

4) Free resources for other purposes
Every organization has limits on the resources available to it. Outsourcing permits an organization to redirect its resources, most often people resources, from non core activities toward activities which serve the customer. The organization can redirect these people or at least the staff slots they represent on to greater value adding activities. People whose energies are currently focused internally can now be focused externally – on the customer.

5) Function difficult to manage or out of control
Outsourcing is certainly one option for addressing this problem. It is critical to remember that outsourcing doesn’t mean abdication of management responsibility nor does it work well as a knee jerk reaction by a company in trouble.

When a function is viewed as difficult to manage or out of control, the organization needs to examine the underlying causes. If the requirements expectations or needed resources are not clearly understood, then outsourcing won’t improve the situation; it may in fact exacerbate it. If the organization doesn’t understand its own requirements, it won’t be able to communicate them to an outside provider.

6) Improve company focus
Outsourcing lets a company focus on its core business by having operational functions assumed by an outside expert. Freed from devoting energy to areas that are not in its expertise, the company can focus its resources on meeting its customers’ needs.

7) Make capital funds available
There is tremendous competition within most organizations for capital funds. Deciding where to invest these funds is one of the most important decisions that senior management makes. It is often hard to justify non-core capital investments when areas more directly related to producing a product or providing a service compete for the same money.

Outsourcing can reduce the need to invest capital funds in non-core business functions. Instead of acquiring the resources through capital expenditures, they are contracted for on an “as used” operational expense basis. Outsourcing can also improve certain financial measurements of the firm by eliminating the need to show return on equity from capital investments in non core areas.

8) Reduce operating costs
Companies that try to do everything themselves may incur vastly higher research, development, marketing and deployment expenses, all of which are passed on to the customer. An outside provider’s lower cost structure, which may be the result of a greater economy of scale or other advantage based on specialization, reduces a company’s operating costs and increases its competitive advantage.

9) Reduce risk
Tremendous risks are associated with the investments an organization makes. Markets, competition, government regulations, financial conditions and technologies all change extremely quickly. Keeping up with these changes, especially those in which the next generation requires a significant investment, is very risky.

Outsourcing providers make investments on behalf of many clients, not just one. Shared investment spreads risk, and significantly reduces the risk born by a single company.

10) Resources not available internally
Companies outsource because they do not have access to the required resources within the company. Outsourcing is a viable alternative to building the needed capability from the ground. New organizations, spin-offs, or companies expanding into new geography or new technology should consider the benefits of outsourcing from the very start.

Reference : Pinal Dave (https://blog.sqlauthority.com) , Survey of Current and potential outsourcing End-Users The Outsourcing Institute Membership, 1998