Crash Course in... outsourcing

Your business is running smoothly, but overheads are uncompetitive. Is it time to move some functions to a market where labour is cheaper?

by Alexander Garrett
Last Updated: 09 Oct 2013

Start with strategy. 'Don't offshore just because it sounds a good idea,' says Martyn Hart, chairman of the National Outsourcing Association. 'Start with a sourcing strategy that identifies your business drivers and how they can best be delivered.'

Weigh the real costs. Cutting payroll cost is an obvious attraction, with 40% to 60% savings typical. But tot up the additional costs of management, training, travel and telecom/IT infrastructure before you decide. Chris Gentle, associate partner at Deloitte, says benefit is obtained from economy of scope, not just economy of scale: 'The higher the proportion of your business moved offshore, the greater the benefit.'

In-house or out? Deciding whether to outsource or set up a 'captive' operation overseas is important. Says Tim Lloyd, managing partner of offshoring specialist Alsbridge: 'Firms are more likely to outsource if they've done it before and if there are suppliers available with the expertise and the cultural match required. If you're an entirely UK-based company, it's a hell of a stretch to think you can go 6,000 miles and set up a new operation from scratch.'

Look for a cultural fit. India's low-wage, skill-rich, English-speaking workforce makes it a natural for much offshoring from the UK - but it doesn't fit every bill. 'If you need people who can build a rapport with your customers over high-price purchases, it may be better to look at, say, South Africa or New Zealand,' says Hart. Shop around.

Take simple steps. The simpler the processes offshored, the less there is to go wrong. If you want to re-engineer at the same time, you create an added uncertainty. Says Lloyd: 'In my experience, it's best to lift and shift, then do the transformation over time - with the benefit of the labour arbitrage.'

Communicate openly. Tell your people what you're planning and why you're doing it. If they understand that you can't recruit the right skills in the UK, or that the competitiveness of the organisation is at stake, they may support it. Follow the consultation rules in the EU Acquired Rights Directive.

Focus on compliance. Data privacy is a big issue when moving operations overseas. 'A £10,000 credit-card limit might not be such a big deal to someone in a UK call centre,' says Hart, 'but in India it could represent a few years' salary, so the temptation for fraud is high.' Building in the necessary controls is a key part of the transition.

Work out reasonable service levels. Don't sacrifice performance or demand unrealistic improvements when going offshore.

Do say: 'Moving a strategically chosen part of our operation offshore will make us more competitive and ensure a brighter future for our people everywhere.'

Don't say: 'If we airlift everything to Mumbai we'll save a shed-load of cash. We can work out the details later.'

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today