Feasibility Assessment Overview
First, I must assume you have picked up this article because you have encountered competitors who are outsourcing or have read the benefits of business process outsourcing. This article is written to determine if outsourcing is right for you. It will not attempt to sell you on the idea of business process outsourcing and certainly will not encourage it or discuss its benefits. I assume you are here because you have some impression of the cost savings of outsourcing. My goal is to provide you with an understanding of the considerations that must factor into outsourcing decisions.
Perhaps the simplest way to demonstrate the limitations of business process outsourcing is to evaluate from your owner/board on down; who you can offshore/outsource and still maintain the identity of your business and the value it brings to your customers? For example, if you think you can outsource your CEO, I suggest you review your business model to evaluate what value your business brings to its customers. When too much outsourcing is applied to a business model, it loses its identity and can deplete the value of your business. Typically outsourcing core business functions is not a good idea as they distinguish you from your competitors. An external service provider will never understand your business as well as you will and outsourcing services are limited in their ability to innovate.
This should answer the questions I often hear. Can I outsource “sales”, “accounts receivable” or component processes like “lead generation”, “appoint generation”? My general answer to these questions when I encounter them is a categorical NO. You can outsource what YOU guide (document, manage and control). This is different from a KPO (Knowledge Process Outsourcing where the service provider brings domain expertise and offers a packaged solution. You must own your sales process (or any other) because you know your business better than any outsourcer will ever know.
So while outsourcing companies or service providers can offer products like “accounts receivable support” your management process must guide that activity, monitor it closely, ensure the priority and quality of work are excellent just like you would manage a local team. If you don’t, the process will most likely veer away from your priorities, your quality expectations, and your overall business goals. Such situations result in low-quality, brand-damaging business processes where companies are exposed to risk.
There are many examples of run-away outsourcing projects that started only to fail in days, weeks, or months often with substantial damage to the reputation of the business. Own your business process no matter where it’s done.
Good business process outsourcing companies can improve quality business operations while saving you money, but ONLY if you continue to own the processes you outsource. I digress from my goal of outsourcing feasibility, only to provide this caution as a context when you read the following feasibility factors.
Feasibility assessment like this must be done before business process outsourcing – BPO. If you have already decided and outsourced teams and are scratching your head about what went wrong, I suggest the next article in this series called “Outsourcing – Readiness”.
Assessing Outsourcing Feasibility
Collaboration
Once you have gone down your org chart and have determined a team or a person who can be outsourced, evaluate what would happen if you unplugged the team from the rest of your business process. This will give you a clear idea of the communication tools you will need before you consider outsourcing. More importantly, it will allow you to evaluate if an outsourcing organization is capable of handling this component of your business process. If the team or function you are considering requires close moment-by-moment collaboration with outsourced employees, consider the tools to be deployed for such collaboration. The feasibility of outsourcing is inversely proportional to the amount and frequency of collaboration required. I have written a separate “Collaboration Assessment Article” to help you determine the tools required based on the collaboration levels you require. If you would like to read this you can request it here or click on the chat button on our web pages.
Security & Privacy
The most consequential security consideration is legal. If your contracts forbid outsourcing your path is clear. Either change those contract terms with your clients or focus on other areas. Many businesses that depend on US Federal funds are prohibited from outsourcing work related to those projects offshore. Many large insurance carriers similarly have contract terms in their standard contracts that prohibit outsourcing. Most will negotiate these terms into the contracts but with the due diligence required to ensure legal requirements.
An additional dimension of process security is regulatory compliance. At Telegenisys we do a lot of work with healthcare clients. This requires us to sign BAA (Business Associate Agreement) to protect the privacy of our client’s users under HIPAA laws. There are regulatory requirements on defense contractors as well as intelligence agencies in the US that require them to ensure security standards. In Europe, your outsourcing companies must implement GDPR security standards in order to ensure compliance.
The next consideration which most businesses face is competition. If your business is doing things differently and this creates additional value for your customers, you may need to keep your data and methods confidential. I consider these filters in the feasibility consideration. They also help you create requirements for any work you outsource. Most companies require NDAs but lack the enforceability and auditability of these needs. Having an NDA is the FIRST step to developing an outsourcing model that ensures business security needs. Look at our readiness discussion to gain more insight into implementing auditable security standards.
The consequences of poor decision-making in security can result in losing control of your intellectual property. NDA’s with a foreign company means almost nothing according to the FBI. It’s important to know WHO will ensure security and how enforceable are agreements with them. Care and planning are therefore fundamental to this evaluation.
Business Strategy
Business reasons for outsourcing a business process are many. Lack of staff availability, human resources management capabilities, cost of staffing, scalability concerns of a growing business, requirements to induce more quality controls, better third-party audit mechanisms among others are good reasons to consider outsourcing. Unless carefully planned out, these and other business objectives will add risk, particularly in a remote environment. Recognizing that outsourcing is a tactic, not a business strategy helps a bit. If the business strategy is to become more competitive by lowering costs while maintaining (or improving quality) then clearly outsourcing plans must output quantifiable quality and cost savings improvements.
Calculating ROI
One of the key failures in evaluating outsourcing is to look at the “Outcome Model” of outsourcing. Simply stated it goes like this:
The current cost to process a case is $2.75. After outsourcing projected cost is $1.50. Therefore reduced cost per case is $0.75. While this may be a motivator a lot depends on how this is calculated. Raw costs evaluations are clearly myopic for many reasons. There is typically management and control required for an outsourced team. There are training time and startup costs. There are employee tenure and re-training factors. This makes a well-thought-through cost evaluation a bit more complex.
No ROI is valid unless the initial increase in quality assurance costs is imposed on the ROI model. Successful teams are CLOSELY monitored initially to ensure they are delivering quality before being released to a more normal quality assurance process. In order to reduce costs, reliable and durable implementation of the business process is fundamental.
Managing Outcomes
In the past decade, more jobs have been outsourced offshore than were warranted. This means failures are common and only sometimes publicized. To prevent failures a business must consider remote outsourced teams as their own people. Our most successful outsourcing clients know their supervisors, caseworkers, callers, analysts, etc. by name. They monitor the quality of work and are just as vested in team success as their local teams.
This means resisting the outsourcing of senior management and staying focused on business objectives. Well-integrated outsourced and insourced teams are managed together. Teams must integrate well using collaboration tools, visits, and direct communication, to ensure monitoring and feedback. This is hard work. In some cases, it can be harder than managing local teams due to time differences and cultural challenges among other factors.
In order to tap the benefits of outsourcing, there are no shortcuts in investing in processes set up to deliver excellence.
Business strategy and consequential budgets must incorporate a holistic view of implementing outsourcing. If you are interested in the ROI models we use contact us here or click the chat button on our web pages.
Business Process Maturity & Complexity
Simple processes do not require much to outsource. Our rule of thumb is that if a process takes one day to train, it’s simple. This means one day with all possible outcomes and Q&A. I will not address such processes as they are almost all service products that are packaged and are simple to implement.
If a business process has complexity and requires business rules, a prototype should be implemented locally. One of my clients recently tried an experiment. They started with a high complexity process and broke it down into subsets. They started with task 1 out of about 20. Each task had 20-30 variations. In an effort to get started rapidly they decided video screen recordings would be adequate to develop expertise and they would build up this expertise a little at a time. They are still a client but they do not care to repeat the months of pain they went through as they developed their own documentation of the process. This reinforces our new rule, don’t outsource something you have not documented well. In this case study, the client had an idea of local team metrics but they lost perception of productivity as components of their full process were added. Ultimately they arrived at two teams doing a different part of each process with half the productivity. Finally, they unified the teams. The pain and cost of this could have been avoided by comprehensive and clear documentation of the process. In more complex processes with hundreds of business rules, documentation is critical in achieving the results required. We have developed workflow models and project management templates to ensure documentation completeness and we develop metrics (including productivity) on a timeline with new clients. This allows them to see the steps and time involved in developing an outsourced solution. This kind of thinking must go directly into your ROI model to develop a clear picture of what outsourcing can do for you.
Dependence on Contextual Knowledge
Contextual knowledge is a double-edged sword. It can create a “value add” for your clients but it can be toxic to outsourcing. Contextual knowledge is social and cultural but what I am referring to here is implicit rules that clients may think are “obvious” and therefore do not need to be explicitly documented. About 60% of Telegenisys work is in the healthcare space which requires strict adherence to HIPAA laws. Such teams are discouraged from being innovative about contextual problem solving during work. They follow rules to limit liability. Our process engineers have to frequently engage to elaborate context so that procedure can be followed literally rather than allowing outsourced teams to creatively solve problems. This creates the final limitation to feasibility. If too much creative problem solving is required, work outcomes may be unpredictable.
One way to address this challenge is to painstakingly elaborate each procedural rule. While such elaboration can slow down training and deployment, it is necessary for areas of work that require precision and predictability of work outcomes.
Experience with Business Process Outsourcing Helps
Experience with BPO companies or even one third-party service provider in business process outsourcing can help in understanding business process logistics. When successful companies use a balance of SLAs (Service Level Agreements) and reporting metrics to develop a process model that keeps the BPO o provider on track. Remote teams require a bpo company to be responsive to client concerns rapidly. With care and experience, BPO service providers can achieve improved customer satisfaction in partnerships with their clients.
Domestic, nearshore, and offshore BPO providers
Selecting a BPO provider with domain knowledge increases the probability of success. Intelligence-based due diligence is necessary especially when selecting an offshore BPO vendor. Examining domain knowledge of an outsourcing provider is a challenge that can require local presence especially if a business operation required rapid and significant collaboration.
A brief introduction to readiness factors
- Process readiness is the next in this series of articles and it covers the preparation for outsourcing.
- Procedure documentation
- Training Program Maturity
- Testing and certification
- Easily trackable and auditable results
- Frequent and mature reporting to ensure quality & productivity
- Well defined and tested metrics
- Idle time controls & reserve team capacity
- Process Subset controls (multi-team details exposed)
- Implementing methods management using Asana as a project tool
- Continuous evaluation mechanisms
- Uptime
- Disaster Planning
When are you really ready?
When teams are working smoothly onshore you may have a process that can be outsourced offshore. Outsourcing processes that don’t work well locally increase the chances of failure significantly if transported without the development of deployment systems.
Readiness
While it may be feasible for a process to be outsourced, readiness assessment is necessary. If a business is not ready, even the best thought out and carefully considered outsourcing initiatives can fail. To prevent these mistakes Telegenisys embarked on studying readiness and has created a list of factors that must be considered prior to outsourcing a business process. These elements form a robust foundation upon which work functions and teams can be outsourced. To read about readiness click here
Diving In
If you are reading this paragraph about diving in, it means you have a strong desire to move to the next step. Before you look for outsourcing companies consider reading “Business Process Outsourcing – Readiness”. This was written to improve your chances of success in outsourcing, regardless of whether you are currently outsourcing or considering it.
I wish you the best in your objective of profitability and improving your business valuation. If you need to reach me for comments on these articles, suggestions on how to improve them, or to discuss your needs you can contact us here
Note: This article is written to engage companies considering outsourcing of a process. There are many outsourcing products you can purchase in collections, accounting, graphics development, etc. where you define your needs and the outsourcing company simply does that work. These light engagement products are considerably simpler to outsource than a business process
Mark Merani has been involved in deploying remote teams for business process outsourcing projects since 1999 at Telegenisys. He has been involved in all steps of the process from due diligence, RFP to set up remote teams that perform with durable excellence. He can be contacted here
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