Large corporations have benefited from offshore outsourcing initiatives for more than 15 years. These benefits include cost savings and access to skilled and flexible work forces. Advances in technology and enhanced business processes are allowing small to medium-sized enterprises (SMEs) to realise the same benefits.
For firms that decide the benefits to outsourcing outweigh the challenges, outsourcing non-core functions to an offshore centre of excellence has proven to be a viable way to reduce costs and remain focused on core business growth.
After the decision to outsource has been reached, the SME should begin a detailed analysis of its business to determine which processes are strategically advantageous to send offshore. Preparing to outsource can be quite time consuming but by following a structured approach, it can offer an organisation many of the aforementioned benefits.
The outsourcing process can be divided into five stages:
Stage 1 – Analyse budget
Before deciding on the business processes that should be outsourced, the SME needs to first analyse its internal cost structure. The firm should assess the amount paid to local service providers, and then evaluate internal budgets for in-house business processes. Next, the SME should examine both current and future projects, evaluating both estimated and actual cost structures for each project assuming that a local provider would complete it.
Stage 2 – Prioritise opportunities
After thoroughly breaking down the existing and estimated budget for company projects, the SME should prioritise opportunities to outsource. Those processes with the combined characteristics of relatively low risk, high cost and non-core to the business should be initially considered. The SME should concentrate first on quick wins in implementing opportunities.
Stage 3 – Select provider
The next step is to identify a service provider that meets both the technical needs and fits within the cost structure of the project. This is perhaps the most time consuming stage in the outsourcing process, as there are thousands of service providers from which to choose from for each business process. After developing a short-list of providers, the SME must next perform sufficient due diligence in the evaluation process. Tapping external resources such as technical certifications and client references should give the SME a better idea of specific provider capabilities, and the use of industry experts and consultants can speed along the selection process. The compatibility of regional and company cultures must also be addressed.
It is particularly important for an SME to examine the size of a service provider. The large providers may not always be the best fit, as they are used to dealing with very large contracts and often do not understand the unique needs that an SME may have.
Stage 4 – Pilot
The next challenge lies in contractually establishing the relationship and beginning initial projects. It is important during the pilot stage to rely on a well-structured service level agreement to define the relationship and offer project exit strategies. It is important for an SME to keep a certain portion of its core staff in house, as this enables the firm to keep highly regarded knowledge secure and allows it to dictate the vendor’s role in the relationship, not vice-versa. This retained organisation should have clearly defined roles and responsibilities and be the bridge to the outsourcing provider. It may also be beneficial for the SME to keep close contact with the provider through onsite project managers, or at a minimum, frequent site visits and evaluations.
Stage 5 – Re-evaluate/expand
As the SME gains experience with the pilot outsourcing projects, it must ask the following questions: Have our providers delivered the type of product we were expecting? What aspects were successful? What can we do better during the partner selection and project management phases? What have we learned from these initial projects?
After answering these questions, the SME should have a solid evaluation of the partner relationship. If the relationship is successful, continue and expand by returning to stage one for a new cost structure analysis and re-evaluate new business processes that may be ready for outsourcing. If the relationship is problematic, decide whether to mend the relationship or change providers. If the partner needs to be changed, return to stage three and begin again with a new partner search.
With advances in technology and competencies developed offshore, SMEs can begin to realise the benefits formerly achieved by larger companies. Although the process of evaluating outsourcing opportunities is not easy, a structured approach will minimise distractions during the process.
By following the five steps, SMEs will be able to successfully transfer projects offshore. As SMEs begin this process, it is important to determine if external support is required. External support can help navigate through the sea of choices, both technically and legally.