Outsourcing? A Global Scenario Of Multi Sourcing

The global outsourcing scenario is fast moving and quick changing. It is found that many of the leading companies are now switching away from multiple year mega contracts to single vendors. Companies are trying out a new variant of outsourcing called multi sourcing. Multi sourcing involves allocating separate IT functions to multiple vendors. Growing disenchantment with traditional outsourcing is due to its failure to deliver innovations or significant service improvements as expected. The tilt in favour of multi sourcing is mainly on account of ‘best in breed’ effect that it offers. Placing all the eggs in a ‘large contract to single vendor’ basket is no longer considered prudent. The obvious advantage of sharing the pie among several vendors is a huge reduction in operational risks.

The multiple benefits of multi sourcing can be summarized as follows:

  • Fosters competition among vendors. The buyers are able to negotiate price and service levels to their best advantage.
  • It supports a mix and match approach. The client can achieve ‘best of breed’ solutions through allocation of different tasks to different suppliers based on their relative merit and expertise in the field. In this way, the highest quality of services in the market can be tapped.
  • Risk is spread across a number of vendors. No longer is a business dependent solely on the performance of a single vendor. The process of removing a failing vendor is far more easier.
  • The best practices adopted by each vendor can be shared among all the other vendors to improve overall performance levels.

Multi sourcing deals with many challenges. Managing multiple vendors is of more perplexity  than dealing with a single vendor. It requires a wide variety of services to be demarcated, tracked and measured while retaining a holistic view of the company’s IT infrastructure, goals and objectives. Experts suggest that creation of an outsourcing strategy linked to overall business goals is important. In order to reap the benefits of working with experts, diversifying risks and garnering cost savings the companies must manage their multiple vendors well.

Some of the best practices adopted by global enterprises while managing multiple vendors are:

  • Establish an outsourcing governance team with special skill sets and experience to choose the best vendors and chart out a suitable multi sourcing strategy.
  • Develop a holistic view of all the providers and their relationship with each other. Set up a metric based mechanism to coordinate the efforts of multiple vendors.
  • Ensure accountability among vendors by establishing rules that demarcate responsibilities between vendors, define interaction for service delivery; provide incentives for adherence and penalties for non-compliance.
  • Use collaboration tools, meetings and forums across all the providers so that they can communicate with each other and the client.
  • Select one of the providers as a leader to facilitate coordination among all the members of the multi sourcing set up or partner with an outsourcing deal manager to maximize the business value derived from multi sourcing.

The Indian BPO industry too is welcoming the trend with open arms, for it has given scope for many small players to enter the fray. Many of these players were hitherto incapable of handling the diverse nature of work required by the major contracts comprising wide spectrum of knowledge and expertise. Multi sourcing has given them an opportunity to reach out for a slice of the pie in their niche areas. This is a win-win situation for both the customers and suppliers of core competency services.

HR outsourcing – the fastest growing segments in the industry

HR OUTSOURCING has become one of the hottest business buzzwords of the decade, and is expected to head the list of fastest growing segments in the outsourcing industry. It is found that more than two thirds of big size companies in U.S and Europe now outsource at least one major HR function to outside vendors. In India too, most big players and many of the mid-size to small companies have jumped into the fray, and their ranks are fast swelling. In its inimitable style, India is turning into a burgeoning global market for HR process outsourcing, and the economic impact scores a huge positive – considering that outsourcing has created more entry level jobs than most of the other sectors put together and has brought in big bucks to fill our coffers.

The perceived reasons behind the growing popularity of outsourcing are not hard to discern- reduced costs, better service and greater expertise. The growing complexity of HR software means that highly trained clerks are required to handle them, and it is more convenient for companies to outsource the service, rather than take on the headache of recruiting and training staff for the purpose. It also frees companies from administrative burden, allowing HR to focus more on strategic issues.

HR processes that are outsourced can range from purely transactional ones to strategic consultancy. Commonly outsourced HR functions include routine administrative processes like payroll processing, data entry, execution of recruitment and training programmers, resume management, compensation, employee communications, pension plans, leave administration and HR data analytics. At a time when most companies have restricted themselves to outsourcing process driven HR tasks, some market leaders have gone ahead with outsourcing even hiring policies, compensation, pay structure, and recruitment decisions.

Although the trend of outsourcing seems to be catching up in business circles, detractors point out that outside vendors often fail to satisfactorily deliver the goods when it comes to customer service. And while the predictability of cost may work out to the company’s benefit in the long run, it is doubtful that outside vendors will be perceptive or as motivated to address pressing employee issues as in-house HR personnel. Critics also contend that outsourcing of HR sends out the message that employee related activities are expensive non-core activities that need to be shipped out, resulting in the active disengagement of employees.

Despite what critics say, HR outsourcing is a trend that is here to stay for some time to come. Global markets and a changing mindset on how business ought to be run dictate that organizations shed non-core obligations that hamper their focus on core vision and key goals. And day-to-day HR administration is considered one such necessary evil. Outsourcing per se is a viable and economical option to keep the administrative machinery ticking away while keeping it conveniently out of sight. The right vendor can make the difference between an outsourcing decision that creates value, and one that burns your fingers and pockets.

Whether you are a large company or a small business owner, you could benefit from some of these tips offered by The Detroit Online on evaluating service providers for outsourcing.

In an industry like HR outsourcing, where information is sensitive and cash flows are high, credibility and reliability are the foundations on which a relationship can be established. Look for vendors with a track record of outstanding service. Make sure that the service provider is a well managed, financially stable company, particularly if the service provider is a startup. Verify financial statements and ask for references from current and past clients. Fly-by-night operators can result in loss of trust and credibility apart from financial losses for the organization. It is important to be thoroughly acquainted with the technical and technological credentials of the vendor before making a decision. Scrupulously verify references, licenses, and industry trade association affiliations and other accreditations.

If the outsourcing partner will be handling sensitive information such as payroll, insurance or health-care paperwork, find out how it monitors privacy compliance, and ensure that it is efficient and in accordance with legal regulations. At a time when there are growing complaints of breach of privacy, it is especially important to verify the credibility and track record of your outsourcing partners.

Ask about the kind of introduction, training and assistance that the vendor offers to employees. Discuss with your employees about the kind of assistance they would like to have from the vendor. Arrange a face to face meeting with the vendor and collect information on technical support, service standards, how to address issues after hours and any other details that may be of concern to employees. Initially the vendor should dedicate personnel on site to offer assistance to employees with related forms and software, apart from being available to answer questions, addressing concerns and providing clarification.

Lastly, if you are outsourcing to a single vendor, then consider outsourcing a suite of those services that logically go together.

For example, HR administration, payroll and benefits naturally go together. A vendor outsourcing strategic HR consultancy, administrative services and technical support on the other hand, may be a bit of a far call. In such cases, the organization is better off looking to niche service providers who can provide better service and more value for money.

Optimize the benefits of outsourcing

TECHNOLOGY outsourcing has been around for more than a decade now, but as more and more companies look to reduce cost, add value to the bottom line and create efficiency in business processes, outsourcing has fast turned into the way forward for businesses across all major sectors. A few years ago,when the market was still in its infancy, the players were few and far between. One or two big names and a couple of startups were all there were to choose from. But the situation now is a complete volte face. The market is flooded with players- big and small- catering to every niche need and budget, and for businesses, the focus has shifted from finding a suitable vendor to getting maximum value for their outsourcing investments.

Here are a few considerations to borne in mind when comparing vendor capabilities and deciding whether or not an outsourcing arrangement is translating into maximum value for money.

Although cost is a key driver for outsourcing decisions, it is important to remember that getting maximum value for money need not necessarily translate into huge cost savings all the time. An outsourcing deal that focuses exclusively on cost savings runs the risk of leaving behind other significant benefits. In fact, lower costs alone are no guarantee of success. Apart from economic benefits, most businesses seeking to outsource look for a number of advantages from prospective outsourcing partners including expertise, operational effectiveness, flexibility, industry knowledge, and trustworthiness. It is important to have a clear understanding of your objectives and getting your priorities right in undertaking an outsourcing arrangement. Equally important is a careful evaluation of the capabilities and offerings of the potential outsourcing partner.

Some of the key questions to be answered in evaluating an outsourcing partner include :

  • Are the costs economical, and are they justified by the returns they bring in?
  • Will the organization have ongoing control in governance and management?
  • Does the potential outsourcing partner have a credible track record?
  • Does the outsourcing partner have the right personnel, skills, knowledge and infrastructure to support your organization’s needs?

Quality vendors will be willing to partner with you jointly in defining performance metrics and governance, and will demonstrate flexibility to meet your needs. Active involvement and clear well defined policies for governance is needed to manage the outsourcing relationship effectively and to derive maximum value from the association.

To avoid misunderstandings later on, it is important to clearly define roles, accountabilities, expectations, and the governance process for managing the relationship at the contractual stage itself. Avoid partnering with vendors that seem inflexible or those that don’t quite match with your organization’s cultural ethos and values.

For businesses already outsourcing, it is important to incorporate a wide range of business outcomes including improved profitability and management focus, enhanced speed to market and increased revenue as metrics to track vendor performance, rather than completely lumping it on financial costs.

Apart from agreed compensation, it is also common for businesses to use shared risk/reward arrangements as incentives for higher performance. Risk/ reward arrangements are often dangled as carrots to encourage vendors to deliver more value, align outsourcing results to corporate objectives and elicit performance beyond contractual mandates. In other situations, incentives are also used as inducements to take on especially challenging tasks that carry a high element of risk or uncertainty.

In the end, successful outsourcing associations go beyond vendor-client relationships and turn into longstanding partnerships. Finding the right partner is critical of course, but continual assessment, adjustment and rethinking of priorities is needed to manage the relationship successfully in the long run. The right partner and sophisticated outsourcing practices can help you derive maximum value and satisfaction from the outsourcing process.


Source: Aviram Netz

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