Outsourcing Business Processes

Outsourcing Business Processes

Summary

This paper captures the most prominent services and issues associated with today's outsourcing environment. Outsourcing is the modern business term for having other companies accomplish basic business processes rather than doing them inhouse. While outsourcing has always been an important business option, modern technical capabilities are fast making outsourcing a critical requirement in competitive, cost conscious industries. However, our recent experience with terrorist challenges indicates that a second look is needed to ensure that outsourcing risks are still acceptable.

This paper (1) benchmarks classical (but modern) outsourcing methods to provide a starting point, (2) notes what information system services are being outsourced, (3) provides examples of how those services were being promoted and leveraged, with some comments on terrorist related risks, and (4) indicates how the experts suggest that outsourcing, if it is reliable and secure, should be addressed in contracts (incentives). An awareness of these basic aspects of outsourcing is important to the business analyst or consultant.

Benchmarking Modern Outsourcing

Charles L. Gay and James Essinger (2000) provide not only a generic (non-high-tech) framework within which to view modern, high-tech outsourcing, they also provide this framework from the British perspective, often using United States companies as examples. They list numerous benefits and hazards of outsourcing, only indirectly considering terrorist acts, and they explore the different business relationships that apply in the world of outsourcing. Based on their perspectives, we can conclude that outsourcing is a well developed but also complex topic, one that is often over simplified and, thus, is often improperly implemented.

Nevertheless, with the British framework in mind, one should view the numerous and quickly evolving high-tech extrapolations of outsourcing as less intimidating and, also, less risky from a business perspective, at least as view from their pre-September thinking. With a few rather obvious guidelines in place, a business consultant (certainly an information technology business consultant) should be able to recommend to a client what aspects of the client's business can and should be outsourced. The consultant can also be very helpful in selecting an appropriate source of those services as well as make suggestions as to how to approach outsourcing contractually. This requires some preparation and awareness, but it only involves alerting the client to possibilities as part of an analysis of business functions, some of which may now be considered from a new security perspective.

Outsourcing Today

Exploring the Internet for outsourcing information consistently leads to the obvious. For example, outsourcing has become a major element of the high-tech startup environment over the past couple of years. There have been (and are) many new high-tech companies trying to convince low-tech companies of the advantages of e-business. Indeed, many high-tech outsourcing marketers touted services to their high-tech peers, proclaiming the advantages of focusing on their high-tech core-business while outsourcing everything else. Of course, much of this was easier to sell prior to September, before security and reliability became a central concern throughout the industry.

High-tech to high-tech marketing results from the emergence of high-tech access to cheap labor (e.g., programming, data entry, and accounting) from other countries, more immediate access to state-of-the art software (discussed below), and access to expert problem solvers for future non-core business issues that make outsourcing attractive from a risk-sharing perspective. Unfortunately, some of these overseas labor cost savings advantages are decreasingly attractive due to other problems, including the emergent security issues but also including recent realizations of new problems.

The new set of problems include the downstream operating and maintenance regimes, regimes that require an increased communication level, perhaps to make up for past poor communications. For, example, based on personal experience at IBM with support from India, there is increased frustration due to poor issue response, poor access to programming details, and the difficulty of communicating operational problems that need early correction.

Value vs. Risk

Nevertheless, technology managers and outsourcing consultants still need to consider several other outsourcing risk factors, such as the potential for legal complexities, for reduced flexibility, and for crises such as unforgiving business database disasters. Recent terrorist activities argue against consolidating multiple-company outsourced components to achieve economies of scale. Creating larger "targets" can increase risk as well as save money. Not only is physical plant and personal security now more important than ever, the Internet itself and linking enterprises around the world in any architecture need to be considered. Internet exposure and enterprise intranet exposure are to data disasters what the post office is to anthrax.

Most importantly, there are currently more unproven outsource service providers than there are proven providers, so the consultant must look at provider track records, not just offers to outsource business processes in "cutting-edge" environments. Many experts are cautioning business owners and information processionals to let the current outsourcing environment settle out around a few proven outsourcing companies before committing their companies to these superficially attractive offerings. (Terdiman, 2000)

The Biggest Economy Breeds the Most Outsourcing

Our British friends (Gay et al, 2000) point out that the United States, being the world's largest economy, also has the most capabilities and opportunities for outsourcing in the world. Some of the more substantial companies have started advertising outsourcing services directly, either on the Internet or through information inserts (advertising) in magazines, hoping to get attention for themselves and for carefully selected companies that have complementary skills and resources to offer. An impressive example of this type of advertising (36 pages) is found in the May 29, 2000 issue of Fortune magazine.

The outpouring of outsourcing advertising in hardcopy magazines is consistent with what is going on with the Internet. The high-tech revolution has resulted in dramatic business model shifts as more and more business go online as e-businesses, with United States companies