Outsourcing2.0 - Outsourcing Institute

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Mainframe
Outsourcing is for
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“The trend is unmistakable: more middle-market and small companies
are in fact turning to outsourcing,” said Gene Marks, the author of The
Complete Idiot’s Guide to Outsourcing and the owner of a Pennsylvania IT
consulting firm. Outsourcing, when done right, delivers potent benefits,
he said, and they go far beyond the cost savings that are often what first
attracts a small business owner to the idea. Improved performance
— targeted skills delivered effectively, punctually — are the more endur-
ing goal. “Outsourcing 2.0 is about core competencies,” said Gurpreet
Dhillon, a professor of information systems at Virginia Commonwealth
University. “In Outsourcing 1.0, it was all about saving money. Now,
companies want to concentrate on what they do well and outsource what
is not central to the business. ” Experts quickly tick off multiple areas
where outsourcing is already gaining traction in the middle market:
• Accounting “Fewer and fewer small and midsize businesses are doing
accounting in-house,” said Marks. Plentiful suppliers exist to provide
this service, and they do it at cost-effective price points.
• IT consulting From setting up computer networks to troubleshoot-
ing ailing computers, more small businesses are looking outside for
answers. Few businesses will be dealing with such issues themselves
within a few years. “There is no point in doing IT in-house,” said Dhillon.
• Sales and marketing “This area is ripe for outsourcing,” said Marks.
More suppliers are turning inbound call centers into outbound ones,
where their staff prospects on behalf of other companies. Often, these
call centers seek not so much to close a sale as to set up appointments
for employees of the contracting firm.
Marks said that once a business decides to investigate outsourcing, it will
likely turn up many business processes that lend themselves to being
done by outsiders. The key question for any company contemplating out-
sourcing, said Dhillon, is this: What are our core competencies? With that
question in mind, it becomes easy to sort through the business’s recur-
ring to-do list and decide which areas are prime for outsourcing, either to
domestic third parties or overseas.
Loss of control is, of course, a primary obstacle to outsourcing initiatives,
said John Willmott, the CEO of NelsonHall, a London-based firm that
analyzes outsourcing trends. In many smaller businesses, top executives
are usually accustomed to overseeing personally almost all that happens
in their company. But once these executives focus on the benefits of turn-
ing over non-core processes to outside vendors for which these are core
skills, they begin to appreciate that outsourcing frees them to focus on
the activities that make the firm money and that let it distinguish itself in
the marketplace, Marks said.
One reality of outsourcing is that it may prove to benefit smaller busi-
nesses most of all. “They really stand to gain,” said Dhillon, who reasons
that the more they outsource peripheral functions, the more they will be
able to focus on what they do well.
Agreementiswidethatsmallandmidsizebusinessesarerelatively
latetoclimbaboardthistrend,butexpectationsareforvigorousadoption
inthenearfuture.“Weareonlynowenteringthefatpartofthiscurve,”
saidMichaelJanssen,anexecutivewiththeHackettGroup,anAtlanta-
basedstrategicconsultingfirm.“Wearejustatthebeginningofout-
sourcing.Globalizationisdrivingthis,andthetrendwillrundeepinmost
organizations.”
GOING GLOBAL: OUTSOURCING QUICKENS THE PACE
DriveCam, a small San Diego-based company, had the product and the
sales leads, but it also had a big problem: turning those leads into dol-
lars would require significant foreign language skills in multiple Asian
languages, from Mandarin to Cantonese, with Korean, Japanese and
several others thrown in. “They had exhibited at a trade show and found
themselves overwhelmed with inquiries from Asia,” said Kevin Bolen,
chief marketing officer at Lionbridge, a Waltham, Mass.-based company
that staffs 50 locations around the world and specializes in localization
and globalization services for its clients.
DriveCam’s product is an innovative windshield-mounted camera that
continuously records video and audio inside and outside a moving vehicle.
The data is saved only when there are sufficient g-forces — as in an acci-
dent or a near miss. A benefit of the product is that, when properly used,
it can help commercial drivers and their supervisors identify patterns of
risky behavior (like tailgating) and take steps to correct them. The tech-
nology also helps companies defend against unwarranted claims of fault.
Lionbridge entered the picture when DriveCam outsourced to the
Waltham company the project of creating collateral materials to sup-
port DriveCam in multiple Asian languages. How long would it take a
Outsourcing
2.0
Outsourcing extends to small and
medium-sized companies
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small US-based company to assemble a team of 6 to 10 Asian-language
specialists? This question, posed by Bolen, drives home how Lionbridge’s
outsourced solution helped DriveCam. “Our estimate is that we enabled
DriveCam to get to market in Asia literally several years faster than if
they had gone this route on their own.”
“An outsourcing client wants to know it is getting the A-team for its
project. That has traditionally been a problem for smaller companies,”
said Satish Maripuri, Lionbridge’s COO. “Companies like ours are starting
to show that midmarket firms now have right-size outsourcing solutions
available to them.”
FROM RUSSIA WITH TALENT: OUTSOURCING SPREADS
“We are about value. That is our promise to clients,” said Arkadiy Dobkin,
the CEO of EPAM Systems, which is headquartered in Lawrenceville, NJ,
and ranks as the leading provider of software engineering outsourced
services in Eastern Europe. While other companies have rounded up tal-
ent in Asia, Dobkin — who grew up in the former Soviet Union — has put
his company’s focus on recruiting IT talent in Russia, Belarus, Ukraine
and Hungary. His staffing totals more than 2,000 IT professionals in East-
ern Europe and, he said, that gives him a higher head count in the region
than any other competitor.
Are Eastern European IT professionals more expensive than those
in India or China? No; what’s surprising, even to some outsourcing
professionals, is that they are not costlier. Said Dobkin: “Total costs are
very comparable from region to region.” Nonetheless, EPAM’s clients
are not necessarily seeking rock-bottom pricing. More important to
many is high-quality talent along with a focus on meeting deadlines
— completing projects on time and on budget. That has become critical,
particularly as South Asia is experiencing labor shortages in some highly
skilled sectors, which have delayed project completion, while “there are
currently no labor shortages in Eastern Europe,” he said.
Another trend from which EPAM is benefiting is that clients are seeking
todiversifythe“where”oftheiroutsourcingtoavoidunexpectedlocal
difficulties,frompoliticalunresttomonsoonflooding.Inthespiritof
puttingone’seggsinmultiplebaskets,theyarelookingtohedgegeo-
graphicalrisks,and“EasternEuropehasemergedasaregionwhere
morecompanieswanttoputprojects,”saidDobkin.
EPAM’s expertise has drawn a diverse mix of clients, including many
US companies that are focused on IT (like Microsoft and Sun) but also
nontechnology companies ranging from the London Stock Exchange to
Empire BlueCross BlueShield.
Mr. Dobkin says the trend is inevitable: “Clients continue to seek the
right talent at a good price, and they are finding that in the former Soviet
Union,” which for years put its highest emphasis on technical education.
“The talent pool is remarkable,” said Dobkin, who indicated that clients
find that EPAM’s Eastern European-based staff is fully versed in the
most challenging technical issues. “Clients go to Eastern Europe for the
talents available, the skills and the work ethic.”
MAINFRAME MAINSTAYS
Who will you call when your mainframe computer
sputters, but upgrades are neither affordable
nor available? That is exactly when Arthur Kurek,
president of the Leonia, NJ-based Alicomp raises
his hand and politely whispers that a shrewd step,
already pursued by hundreds of companies large
andsmall,istooutsourceallmainframecom-
putingtoAlicomp.“Wedoverylittleselling,little
marketing,butwekeepgrow
ingbecausethisisa
solutioncompaniesneed,”hesaid.Oncetheonly
computersaround,mainframes—hugeboxeswithmammothcomput-
ingpower—winadiminishin
gmarketshare,butwhattheydoisstill
missioncriticalformanyUSbusinesses.Thereinresidesaproblem
or,actually,two.Mostcompaniesarerunningfewerapplicationson
mainframes(muchdatacrunchinghasmigratedtosmallerservers
anddesktopcomputers),sotheyfindithardertojustifybuyinganew
mainframeevenwhentheexistingunitdoesnotquitecutit.Theother
issueisstaffing:adwindlingpoolofprofessionalsismainframesavvy,
andmanybusinessesfinditeverhardertorecruitandretainthestaff
theyneedtokeepamainframehumming.
“That is where we come in,” said Kurek, who noted that Alicomp (a divi-
sion of the New York-based Amalgamated Life Insurance, which spawned
Alicomp in the belief that with more companies using a mainframe
resource, costs would drop for all as efficiencies rose) offers a range of
services and solutions that businesses attempting to operate their own
mainframe computing centers find it difficult to rival.
“We offer sophisticated data recovery solutions in the event of disasters,
we know how to remain compliant with HIPAA [which sets standards for
privacy of health care-related information] and Sarbanes-Oxley [which
imposes data retention requirements on public companies], and we pro-
vide all these services at a price that a company doing it for themselves
would find very difficult to match. We also have a sophisticated technical
staff that, again, most companies could not match on their own.
“For many businesses, outsourcing mainframe computing increasingly is
the right choice,” said Kurek. “It is cost effective, and we also offer scal-
able solutions that can grow rapidly if a client’s needs grow.”
Ask the Expert: Frank Casale,
The Outsourcing Institute
Mostpeopledidn’tevenknowwhat“outsourcing”
meant10yearsago.Todayithasbecomeaglobal
forcethatistransformingeconomies,changing
livesandreshufflingwealth.Wheretheworkgets
donenowisalwaysonthetableasanegotiating
topic,andonemanwhohasseentherealityand
thepowerofoutsourcingisFrankCasale,CEOand
founderofTheOutsourcingInstitute,perhapsthe
leadinginformationresourceinthefield.Theimpor-
tantfacttoday,saidCasale,isthatoutsourcingis
enteringamorepervasivephasewheresmalland
midsizecompaniesatlastjointhemovement.Callthisjumbleofnew-
styleprocessesthenextgenerationofoutsourcing,andthisisanarena
whereCasalehasplentifulinsightstoshare:
Is there an inevitability to outsourcing today?
Thereisanexpressionyou’veprobablyheard,thatwhenabellhasrung,you
cannotunringit.That’swhereoutsourcingistoday.Peoplearedoingit.Yes,
itisalsotruethatinsomeorganizations,managementisbringingsome
processesbackin-house.Withoutsourcing,themanagementskillislearn-
inghowtouseitforyourorganizationandinvestingthetimetodoyourdue
diligenceupfrontandunderstandwhereandhowoutsourcingwillbenefit
yourcompany.
How mature is outsourcing when it comes to small and
midsize companies?
We’re still at an early stage; there are a lot of people looking into it. The
market is starting to gel. There’s a tremendous opportunity for small and
medium-size companies to outsource. This is creating a roster of service
providers that are targeting midmarket and small companies. This is a
huge change. In the past, you didn’t want to be a small company call-
ing an outsourcing provider that only does business with big companies,
right? A whole new micromarket is being created. The midmarket
organizations are where the Fortune 500 were in the late 1980s. What’s a lesson that needs to be learned to really get
Outsourcing 2.0 in gear?The mentality of many organizations needs to change to see outsourcing
as collaboration with a service provider as opposed to treating them like
a supplier, which is one thing if you are drop-shipping computers. It is
another thing if you are entering a four-year multimillion dollar deal for
a third party to handle your HR back office. Enlightened clients develop
truly collaborative relationships with their service providers.
What kind of outsourcing do you think is the least likely to
take hold in the near term?
Iamtemptedtosaythatthereisnoprocessorfunctionthatisoffthetable.
Itisallpartoftheevolution.ThinkoftheInternet.Howmanyofussaidwe
wouldneveruseourcreditcardontheInternet.Weprobablysaidthatin
1999.Nowlookatus.Similarforcesaregatheringsteamwithoutsourcing.
Peoplearefiguringouthowtomakeitreallyworkfortheirorganizations. This advertising supplement is sponsored by participating advertisers. The promotional
material was prepared by Robert McGarvey and did not involve the reporting or editing
staff of The New York Times. ©2006 The New York Times
“Mid-market firms now
have right-sized
outsourcing solutions.”
“Formanybusinesses,
outsourcingmainframe
computingincreasingly
istherightchoice.”
Arkadiy Dobkin
Frank Casale