Outsourcing business processes

Outsourcing Business Processes

Summary

This paper captures the most prominent services and issues associated with today's outsourcing environment. Outsourcing is the modern business term for having other companies accomplish basic business processes rather than doing them inhouse. While outsourcing has always been an important business option, modern technical capabilities are fast making outsourcing a critical requirement in competitive, cost conscious industries. However, our recent experience with terrorist challenges indicates that a second look is needed to ensure that outsourcing risks are still acceptable.

This paper (1) benchmarks classical (but modern) outsourcing methods to provide a starting point, (2) notes what information system services are being outsourced, (3) provides examples of how those services were being promoted and leveraged, with some comments on terrorist related risks, and (4) indicates how the experts suggest that outsourcing, if it is reliable and secure, should be addressed in contracts (incentives). An awareness of these basic aspects of outsourcing is important to the business analyst or consultant.

Benchmarking Modern Outsourcing

Charles L. Gay and James Essinger (2000) provide not only a generic (non-high-tech) framework within which to view modern, high-tech outsourcing, they also provide this framework from the British perspective, often using United States companies as examples. They list numerous benefits and hazards of outsourcing, only indirectly considering terrorist acts, and they explore the different business relationships that apply in the world of outsourcing. Based on their perspectives, we can conclude that outsourcing is a well developed but also complex topic, one that is often over simplified and, thus, is often improperly implemented.

Nevertheless, with the British framework in mind, one should view the numerous and quickly evolving high-tech extrapolations of outsourcing as less intimidating and, also, less risky from a business perspective, at least as view from their pre-September thinking. With a few rather obvious guidelines in place, a business consultant (certainly an information technology business consultant) should be able to recommend to a client what aspects of the client's business can and should be outsourced. The consultant can also be very helpful in selecting an appropriate source of thos...

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...centive. Thus, incentives should be viewed as business investments in which the return on the resources invested is expected to make the investment worthwhile. Incentives are likely to increase good will and encourage both parties to overlook petty issues, resulting in a win-win situation. Competitive bids from outsourcers are more likely to win the contract if their proposal reflects good business investment incentives. Types of incentive include reciprocal business actions such as pooling core competencies (synergism). For example, EDS outsourced its network to WorldCom, and WorldCom outsourced its information technology capabilities to EDS, increasing the amount of business and business efficiency for both companies. (Bender, 2000)

Another type of incentive is a joint venture established to pursue a new idea. Each company applies its best talent and efforts and shares in the profits. This type of incentive can be presented in a way that makes the consulting costs appear to be zero, although the consultant will share in the profits resulting from the joint venture. The approach to contracts and incentives masks the fact that a bilateral outsourcing contract has been established.