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The Building Blocks of A Successful Outsourcing Process

Knowledge about outsourcing process becomes vital as globalization is pushing every coners of the wolrd together. Here is a piece of value knowledge at your disposal.
By Samuel Vu | EnvZone Staff
on June 28, 2019 | 8 min read
Image credit: Mulesoft

Outsourcing Benefits and Its Trends in 2019

Outsourcing is the activity of one company to transfer a part of its business process to an external vendor who could either be an internal or offshore vendor. There are many ways that an organization can gain benefits from an outsourcing contract ranking form reducing or controlling costs, expanding its capacity, improving the end product or service to manage business environment and speed up organizational transformation. 

According to an article published by Deloitte, states that of all the outsourcing venture that occurred in 2027, 31% of them are in the form of IT services. And will continual growth and innovation in the technology sector, this number is expected to keep increasing in the future. Here is some useful information about outsourcing trends in 2019 provided by Outsourcing Insight

  • Cloud Computing
  • Information and Data Security is Still Remains on Top
  • Artificial Intelligence and Robotic Process Automation
  • Wider Use of Cloud Technology
  • Rise in Virtual Employment
  • Outsourcing will be a Success Key for the companies
  • Digital Transformation of Traditional Communication
  • Rise in Freelance and Independent Outsourcing Services

If you are a startup trying to find your way for outsourcing or a well-established company freshly comes to the solution of outsourcing, what would be the most fundamental procedure for you to have a fruitful outsourcing venture?

What is the Outsourcing Process for Your Work?

1. Identify the Internal Task for The Outsourcing Process.

Identify a specific task or project for your outsourcing process could be both easy and difficult. That means it is really easy to know what you can not do and need external assistance, but to determine whether another group can perform a task in your workflow better than your current or new-hired employee for a job can be a huge stumbling block, especially true when you’re used to do everything yourself. And let’s face it, a lot of business owners are dictators.

However, there will always come a time when you should outsource a task whenever you can. Here are a few questions you can ask yourself the next time you’re wondering whether or not to outsource a task.

  • Is doing this myself going to keep me from attaining the ultimate efficiency?
  • Am I ready to trade between the control of the task or project and the mariginal profit could be gained?
  • Is this a task where I’m either terrible or only slightly competent? Would the other party be more excellent than me in carrying out the task?
  • Is doing this task myself going to be a complete waste of time, energy and resources?

2. Set Light on Objectives and Goals.

Every winning outsourcing process begins with a clearly defined objective and measurable goal. Objective provide the director and the venture with the right mind set and the right reason for an offshore program, set light of the business value of the project, and draw out a working framework for making decisions about which vendor to work with, which outsourcing process model to use, what projects to out source, and what levels of risk to assume, and prepare for.

Besides that, objectives and goals also provide the supervisors with the context in which the result can be evaluated, feedbacked, and improved. In this case, the goals and objectives should ideally in the form of numerical or measurable, and as specific as possible.

A properly stated objective, for example, might be: Increase an end product quality by $5, and enhance productivity by 3 percent with a maximum cost incurred of $200 million. The interesting thing about these objectives is that they are unbiased business objectives, which don’t necessarily point to an offshore solution. An offshore outsourcing solution is chosen if it is the optimized one among the alternatives. That also means offshore outsourcing is not always the solution to every business problem or opportunity.

Initiating an offshore outsourcing program without any meticulous defined business objectives can lead to miscalculated management decisions, uncertainty of performance characteristics, and ambiguous business value. Furthermore, an unfocused or mismanaged offshore outsourcing process can incur more IT cost, waste more resources, and increase more risk of lost business opportunities than doing the project by yourself.

3. Be Realistic with Your Expectations 

Now, you have the objectives and goals of the offshore outsourcing project, and that is good, but still not enough. The next step is to ensure that all those aims are realistic and feasible enough regarding the current business situation, your capacities, and your managing ability.

Many companies have been unable to put through the first year of their offshore outsourcing project due to unrealistic goals. As a manager, you need to see the venture as a long-term investment in which sustaintial benefit might come after a period of loss. For example, replacing those too ideal prospects of 40 to 50 percent or even 60 percent of saving on IT cost by a more modest number of maybe 15 to 30 percent for the first year expectation. Even then, you still have to be aware of the possibility of “hidden” cost that would fall out of your current point of view, and minimizing your first year benefit. It is normal for a long-term project to have a rough beginning, but it is not normal for a manager to expect a huge initial gain from it.

A cautious, realistic set of expectations ensures continued support for your offshore strategy. You need a careful ROI analysis reflecting a conservative approach and timing of the benefits.

An ROI analysis evaluate the efficiency of an investment or compare the efficiency of a number of different investments that would give you the optimal solution for a business problem. In its simplest form, an ROI evaluate how much a company must invest in the form of total costs (including compounded interest), the timing of those investments, the opportunity cost of both time and resources committed to the project as well as the value and timing of all benefits that come from those investments over a fixed period of time. A greatly simplified ROI calculation would look like this: ROI = [Total Benefits] - [Total Costs].

As stated earlier the period of investment here is not one year, especially the first year. You need to take the analysis on a broader time span for it to deliver the right answer.

4. Count the Costs. 

After ensuring the realistic aspect of your expectations, you need to attach each of those expectations to a corresponding cost. With the pressure os cost reduction by the act of putting expensive skilled position aboard, the real cost involved might be over-looked.

Here are some typical “hidden” cost that possibly add into your actual work:

The Building Blocks Of A Successful Outsourcing Process-Fig 1
Image credit: EnvZone

The percentage of hidden cost is not large but it is noticeable and could present a problem if is not considered, normally amount from 15 to 60 of the outsourcing process depending on how well the strategy is carried out. This number can be minimized as best with good management and accurate approach. Whatever the story is, the important thing is that you need to expect the existence of these expenses, account for them in the total cost of an offshore outsourcing strategy, and repair for them.

It is a practical efficiency to centralize the majority of your overhead costs rather than to distribute them to each project budgets. This practice help distinguishes between the execution teams and the decision to embrace a certain business model, which will encourage projects to take advantage of the benefits and cost-savings of cutting down labor rates without burdening early adopters with an inordinate share of the startup costs.

5. Working with the Vendor.

Provided from a vendor point of view, these are the step that would typically required for an initial relationship with a vendor:

  • Provide them a job description of the person that you want for the outsourcing task.
  • Ensure that the vendor have a talent acquisition team to match the resource with the job description that has been provided.
  • Create a project plan and agree on the dates and time and that how it goes.

Conclusion

As the trend toward a more globalized market continue to increase, it is important for each and every company to put their business on an international scale. The easiest way to achieve this is through offshore outsourcing which could bring the companies great benefits from localization advantages.

Among all the top offshore outsourcing nations, Vietnam stands out as a favorable choice for IT companies around the globe due to various potentials and superiorities.

Check out this video for an insightful overview of Vietnam: A 35,000-Ft View of IT Outsourcing Landscape in Vietnam

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