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 / Autumn 2006 / Issue 44(originally published by Booz & Company)


How to Be an Outsourcing Virtuoso

Labor sourcing, in particular, is a growing challenge. The battle for talent has become intensely competitive in China, India, and other emerging markets. Finding and retaining the right people, especially highly educated employees with the skills to take on complex assignments, is the biggest headache for most service providers, especially in the face of burgeoning demand. “We were very clear we were not going to grow too rapidly in the first two years,” says P.V. Kannan, CEO of 24/7 Customer, a leading Indian BPO provider with relatively low churn rates. “We controlled growth until we understood how to scale without losing quality. Our biggest focus was developing a process for taking new employees who didn’t know anything about call centers or claims processing and making them very competent in a specified time period.” That discipline has paid off; 24/7 is now one of the most highly regarded outsourcing players, with 100 percent yearly growth since its founding in 2000 and exceptionally laudatory service rankings from its customers.

Mr. Kannan’s concern does not stop at 24/7’s walls. He also expresses interest in improving the Indian public education system. “We are talking to competitors about various education proposals. For example, can we just make all our training materials open source? Can 24/7 contribute some of what we’ve learned about quality for everyone to use as a basis for training?” he asks. “How do we create a talent engine?”

Masterful Customers
For most users of outsourcing services, successful design and execution of an outsourcing plan is extraordinarily difficult to pull off, especially when the processes make use of several companies with separate global supply chains and footprints. But it’s possible to do it right, especially given the fundamental power shift in the outsourcing market. The customer is the new king. As global buyers have progressed along the learning curve, they have gained the knowledge and buying power to demand service excellence and significant cost savings from providers. Insights from the leaders we consulted, along with our own experience, suggest that there are five requirements for any company embarking on an outsourcing strategy — approaches that are indispensable to successful execution.

1. Commit from the top and move quickly. Like any transformational initiative, outsourcing requires explicit resolve from senior management. Outsourcing efforts tend to involve multiple functions — many that are decentralized and owned by autonomous divisions — and carry significant implications for spending and for individual staffers. They are thus vulnerable to internal resistance, and senior management’s unequivocal support is essential. Top-down determination can help sweep away much internal resistance. At TXU, Texas’s largest energy utility, C. John Wilder set the tone and paved the way for success. “Our chairman and CEO said, ‘We’re going to move from concept to reality without delay,’” recalls Kris Hillstrand, chief information officer. “This wasn’t an exercise in ‘I wonder if we should do this.’ It was an exercise in ‘We’re going to get this done.’”

For companies that have decided to move forward with an ambitious outsourcing arrangement, the most successful programs are enacted quickly. P&G completed its deal with Hewlett-Packard in only five months. “We had the critical junctures of the deal process scheduled down to the day, down to the hour,” says Mr. Passerini, P&G’s CIO. “I learned a lot of things in that process. For example, large meetings with a lot of people are inefficient because they dilute accountability. For the HP deal, which was very complex, we held well-organized, all-day meetings in which all the key players — 70, 80, 90 people — would call in or come by at appointed times, participate, and then move on. That enabled us to make 30, 40, 50 key decisions in a single day and not bog down the process or the people involved.”

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  1. Amy Bernstein, editor, Outsourcing Thought Leaders: Managing Business without Borders (strategy+business Books 2006): In-depth interviews with the customer and provider executives quoted in this article. Click here.
  2. Anne Chung, Tim Jackson, and Tim Laseter, “Why Outsourcing Is In,” s+b, Third Quarter 2002: Strategic operations outsourcing encompasses core activities, such as manufacturing or logistics, that could substantially affect a business if not performed well. Click here.
  3. Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-First Century (Farrar, Straus and Giroux, updated 2006): The clarion call of globalism — how lower trade barriers, reduced political resistance, and technological advances have transformed business across the world.
  4. Alex Kandybin, Martin Kihn, and Cesare R. Mainardi, “Reinventing Scale: How to Escape the Size Trap,” s+b, Second Quarter 2002: Outsourcing can be a useful tool in applying the concept of scale differently across different parts of a business to unleash real power and unlock hidden value. Click here.
  5. Bill Lakenan, Darren Boyd, and Ed Frey; “Why Cisco Fell: Outsourcing and Its Perils,” s+b, Third Quarter 2001: Warning signs from the last wave. Click here.
  6. Tim Laseter, “When Offshoring Isn’t a Sure Thing,” s+b, Fall 2004: How transportation costs, labor intensity versus capital intensity, and market responsiveness play into decisions about offshoring. Click here.
  7. For more business thought leadership, sign up for s+b’s RSS feeds. Click here.
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