Outsourcing is people’s business: Meeting Indescon

Is outsourcing model something new for you? Do you have to deal with it – and think how to influence key employees? Or maybe you have problems with not clearly defined goals and objectives in an outsourcing engagement? Or… Maybe you like Murgh Dansek or Alu Channa Masala and want to extend your network?

If you ask yourself these and similar questions, you should definitely have visited the meeting organized by Indescon and held a few days ago in Frankfurt, Germany. And if you could not attend the meeting, read the story and get the feeling about the meeting, outsourcing, networking possibilities, and Indescon itself.

Hot weather has not deterred us from joining the event which took place in Mayur Restaurant – an Indian restaurant located in Frankfurt (thank you for your hospitality and good food served to us!). Ashant Chalasani, the President of Indescon and Pramod Reddy Atla, Director at Indescon have presented the history of the organisation and its objectives. We could also find out many interesting details about themselves: their coming to Germany a few years ago, their engagement to get the Indians living in Germany together and to establish a community, and their business initiatives, understood as a bridge between Germany and India.

Inside of Mayur Restaurant, source: Mayur Restaurant, http://www.mayur-frankfurt.de

Pramod has also presented the reasons why many outsourcing projects fail. Then we could discuss our experiences regarding critical factors in outsourcing initiatives. The results of this (creative!) brainstorming session are as follows:

How to manage an outsourcing model which is new for you? It is important to be well informed: not only about the advantages but also about possible risks. It makes sense to collect best practice cases and to try to implement them. Learning by doing is crucial as well.

How to influence key employee attrition at the vendor? A very sensitive subject, isn’t it? In fact, people make success happen – and not technology, processes or structures. Therefore it is very important to set objectives, to communicate them (in both: formal and informal way) and to consider the cultural aspects of the undertaking: how different people think, interpret facts (as agreements for instance) and react. Incentives are of big importance, too. In companies with high personnel turnover rate a question can be asked who are the key employees?

How to deal with not clearly defined goals and objectives in an outsourcing engagement? Personal relationship between the vendor and the buyer is very important in this context. It is also possible to have independent party between them both to manage the relation. And once again: communication, communication, communication – as much as possible.

What additional measures can be undertaken to protect intellectual property rights? First, the legal framework is very important here: legal circumstances and system of penalties should help a lot. Many companies ask the question about data security while outsourcing them – in many cases the vendors have even more experience with protection of intellectual property than the buyer. Regarding the question of data security and the way: data – information – knowledge I can recommend you another text: Paper-free office – efficient model for a modern company?

How to deal with a service delivered that does not fulfil the expectations? Our team has come to the conclusion that such parameters as quality, quantity and the delivery conditions should be defined in the service level agreement. However, we cannot precisely define everything and we cannot predict everything. Therefore one thing should be clearly communicated from the first day on: that what is delivered is never a finished product, it makes sense to work in a phase system, where the project in dealt into many phases which are subject of delivery to the client. It also makes sense to express realistic expectations by both sides: the vendor and the buyer. And giving the customer the possibility to manage vendor’s team makes it possible to control the results and the project progress.

Meeting Indescon: Open and creative brainstorming session

The atmosphere of the meeting was very open and interactive and we had a very good networking opportunity. We could exchange our ideas about outsourcing, India, innovative business models as IT flat for instance (that will be for sure a topic of another text I am going to prepare) and many more.

Such meetings will be held every month. And I am really happy to attend the next meeting at the end of September – I will write a small report from this event, too.

Magdalena Szarafin
http://www.szarafin.info

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The Indo-German Software Competence Network (Indescon) e.V. is a network of German and Indian software companies that view India and Germany as potential export and sourcing markets. As Germany’s largest special interest group for the offshore software development services industry between India and Germany, Indescon offers unique opportunities for networking with potential partners in the two countries. The focus is to provide fresh perspectives to member companies that eventually result in growth and profitability. more >>

Paper-free office – efficient model for a modern company?

Workflow software is one of the factors which – according to Thomas L. Friedman – have “flattened” the world and supported globalization and offshore outsourcing. It has also contributed to establishing of the paper-free-office concept and outsourcing digitalization and archiving services. The latest solution helps to cut costs even by 40%

We live in digital era. However, there are still many organizations as private companies and public institutions which prefer the traditional way of printing and archiving documents. The costs of printing and archiving of documents are relatively high and they can easily be reduced. Also the authorization of employees to enter archive areas are neglected in many cases so that employees can see documents which they normally should not have access to. Therefore one of the intelligent solutions is outsourcing.

Many companies avoid to outsource operations as they are of the opinion that outsourcing brings much risk. For instance, sensitive data, processed by an external service provider, would not be safe any more in their opinion. That can be subject for discussion as data is not equal information and information is not equal knowledge. Let us briefly define the difference between these three concepts.

Data is defined as pieces of information that represent the qualitative or quantitative attributes of a variable or set of variables. Information is a collection of data from which conclusions may be drawn. And knowledge means the confident understanding of information with the ability to use it for a specific purpose if appropriate. (Oxford English Dictionary)

The regulations regarding protection of intellectual property differ from each other in different countries. However, if a vendor processes data, it does not automatically mean that they possess knowledge or even information — does not matter what legal circumstances there are in their country. It is definitely easier to create information or knowledge in-house, having better connection to the business made. Therefore, it could now be asked if the data are really safer while processing them in-house then outsourcing them?

As people like to write their ideas on paper and print them out, outsourcing paper archives to third party definitely makes sense. And that not just for cost reason but also due to security reasons described before. Also additional room gained due to outsourcing of paper archives to external party means that the space can be used to perform business processes.

In many countries companies and other institutions are obliged to archive important documents as for instance tax-related documents or invoices for 5 to 10 years. Construction plans should even be archived for a period of 99 years!

Of course, the solution in form of digital signature has made life easier. But this solution is quite new, used for a period of 2-3 years now. Therefore good practice is to outsource digitalization and archiving of documents to third party, specialized in such services and then making them available for secured download to authorized users. Possible cost reduction in this case amounts even to 40 percent. And more security of data can be achieved as well.

Magdalena Szarafin
http://www.szarafin.info

Business Transformation Outsourcing – What’s that?

Traditionally, in the outsourcing agreements the conditions of the service are specified. However, some outsourcing providers offer more than “just” outsourcing: they do not just bring service defined but they also try to search for opportunities for innovations and process improvements. That is a classical win-win situation, where both parties invest capital but they both benefit from the success achieved. This modern approach to outsourcing is also called Business Transformation Outsourcing (BTO).

Magdalena Szarafin
http://www.szarafin.info
_______________________________________________________
Magdalena Szarafin has immense knowledge of the outsourcing sector and is one of the authorities in shared services and outsourcing industry analysis. Her research interests include insourcing and outsourcing in connection with the value chain. She is an author of many publications dealing with outsourcing, knowledge management and total quality management (TQM).
Magdalena lives in Frankfurt, Germany and she works as an International Management Accountant in a big multinational group, dealing with preparation of financial statements under IAS/IFRS and local GAAP. In her leisure time she prepares a PhD dissertation focused on shared service centers.
Contact her to leverage her knowledge and in-depth BPO and shared service industry penetration experience.

Outsourcing: What do the clients expect?

Flexibility? Cost reduction? Innovations? Risk avoidance? Quality improvements? Any of them? Or maybe all of them? What do companies expect making the decision about outsourcing operations?

A few days ago I visited an interesting conference organized by Computerwoche and held in Offenbach, Germany. Among others, the findings of a study dealing with the expectations and motivation for IT outsourcing and different customer profiles have been presented. This study has been undertaken by Prof. Helmut Krcmar and Dr. Stefanie Leimeister of the Technical University of Munich.

The key finding of the study is as follows: IT outsourcing market consists of different players. The combination of: cost, innovation, technology and business makes it possible to make the market segmentation and to divide the clients into 4 groups: business-efficiency clients, cost-conscious small shoppers, strategists & innovation seekers and IT excellence & reliability clients.

The first group, business-efficiency clients, is service-oriented and expects flexibility and quality improvement. These are bigger companies representing banking, insurance and finance industry, their annual revenues amount to over EUR 10bn and they employ 5000 and more staff.

The cost-conscious small shoppers are focused on cost reduction. They represent electrical engineering, consumer goods industry and IT services. These are middle-sized and big companies, employing 2000-5000 staff and having EUR 1-5bn revenues.

The third group, strategists & innovation seekers, consists of companies from the automobile industry, engineering, and public sector. They are small and middle-sized companies with revenues of EUR 250-500m and under 2000 employees. They expect IT and service innovations, joint product and service development, knowledge transfer from the provider, and access to qualified personnel.

And finally, the group consisting of IT excellence & reliability clients has different motives: IT focus (better and modern IT, cutting edge technology) and/or business focus (quality improvements, qualified personnel, risk avoidance). They represent small companies from manufacturing industry, which employ under 500 staff and generate EUR 50-500m revenues.

The study was conducted among German companies, however, future studies in other countries are planned.

Magdalena Szarafin
http://www.szarafin.info
_______________________________________________________
Magdalena Szarafin has immense knowledge of the outsourcing sector and is one of the authorities in shared services and outsourcing industry analysis. Her research interests include insourcing and outsourcing in connection with the value chain. She is an author of many publications dealing with outsourcing, knowledge management and total quality management (TQM).
Magdalena lives in Frankfurt, Germany and she works as an International Management Accountant in a big multinational group, dealing with preparation of financial statements under IAS/IFRS and local GAAP. In her leisure time she prepares a PhD dissertation focused on shared service centers.
Contact her to leverage her knowledge and in-depth BPO and shared service industry penetration experience.

Key issues you wanted to know about shared services

It is about standardization, managing complexity, controlling cost, profitable growth, and performance – it’s all about the way a modern corporation is doing

Shared services – old wine in new skins or something really new? Well, it doesn’t actually matter. They enable organization to standardize the processes, manage complexity, reduce costs, ensure profitable growth and performance… – do you want to achieve something more?

Here some findings characterizing the shared services approach:

Issue 1: Location. While choosing a location for their shared service center, corporations take the following criteria in consideration:

• Availability of qualified personnel,
• Local cost structures,
• Experience already gained regarding the location,
• Integration with the company infrastructure,
• Political stability,
• Life quality,
• Transport and technology connection.

Issue 2: Benchmarking and measurement. Benchmarking and measurement are the MUST while establishing and running one or more shared service center(s). Benchmarking allows to compare the service provision with the best in class. The measurement mostly occurs using agreed key performance indicators (KPIs). The amount of KPIs chosen differs from corporation to corporation, the experience shows than 10 carefully chosen KPIs will deliver the best results.

Benchmarking can be used to achieve different objectives including:
1. Improvements in performance,
2. To align the processes with these used by the best ones enabling organization to become world class with processes.

Issue 3: Shared service center – challenges and opportunities. The following issues are to be carefully considered while establishing and running a shared service center:

1. Precise definition of objectives (is our shared service center to be a profit or a cost center?)
2. New organizational structure and considering of formal and informal groups of influence – how will the new organization look like and who is going to play the leading role after the shared service center has been established?
3. Product and service dimension – what products and services will be delivered at what prices? Considering quality and time of delivery issues is a very important matter, too.
4. Measurement and benchmarking to ensure that the shared service approach delivers more value comparing with alternative options (like outsourcing or traditional solution) and learning from the best in class.

Magdalena Szarafin
http://www.szarafin.info
_______________________________________________________
Magdalena Szarafin has immense knowledge of the outsourcing sector and is one of the authorities in shared services and outsourcing industry analysis. Her research interests include insourcing and outsourcing in connection with the value chain. She is an author of many publications dealing with outsourcing, knowledge management and total quality management (TQM).
Magdalena lives in Frankfurt, Germany and she works as an International Management Accountant in a big multinational group, dealing with preparation of financial statements under IAS/IFRS and local GAAP. In her leisure time she prepares a PhD dissertation focused on shared service centers.
Contact her to leverage her knowledge and in-depth BPO and shared service industry penetration experience.

Zero-defect quality: Management tools to meet the challenges of tomorrow

Can a shared service center be better, i.e. more efficient (quantitative aspects) and more effective (qualitative aspects)? How can performance be measured? What is the gap between our shared service center and the best ones?

Did you know that the most enterprises manage their shared service centers in form of cost centers, while a profit center model would be better for them in terms of delivering of the value added for the whole enterprise, customer orientation, operative cost cuts and shorter period of amortization? And although such instruments of continuous improvement as six sigma and total quality management (TQM) contribute to increased productivity and process standardization, only a few companies can successfully use them. The most shared service centers have relative big potential of improvement regarding the process and service standardization. Companies also experience problems with implementation of a complex internal control system, which could support them to transparently measure the performance and to deliver relevant information for strategic and operative management.

But: over 50 per cent of shared service centers use benchmarking as the instrument to measure performance. There are some performance measure tools available online, which deliver the gap analysis between our shared service center and the best in the class.

As the findings of a current study of The Hackett Group show, 65 per cent of companies could cut the costs of the finance function by minimum 21 per cent implementing the shared service organisation model. In some cases the cost reduction was up to 60 per cent. The Hackett Group expects the use of shared services to grow in the coming three years by 50 per cent.

For a shared service center to be successfully implemented, good leadership is needed. The reason why shared service center projects can fail is among others not sufficient support offered by the top management.

Six sigma, leadership for shared services, centralisation within decentralisation, the question of efficiency and effectiveness, profit center vs. cost center, process and systems harmonization, shared services vs. outsourcing and many other interesting topics will be presented in form of presentations, round-table discussions and case studies during the event “Financial Shared Services 2009” organized by Axiom Groupe and held on 17-18 September 2009 in Barcelona, Spain.

Why not learn the way to zero-defect quality and prolong the summer, spending a few days in Barcelona?

Magdalena Szarafin
http://www.szarafin.info
_______________________________________________________
Magdalena Szarafin has immense knowledge of the outsourcing sector and is one of the authorities in shared services and outsourcing industry analysis. Her research interests include insourcing and outsourcing in connection with the value chain. She is an author of many publications dealing with outsourcing, knowledge management and total quality management (TQM).
Magdalena lives in Frankfurt, Germany and she works as an International Management Accountant in a big multinational group, dealing with preparation of financial statements under IAS/IFRS and local GAAP. In her leisure time she prepares a PhD dissertation focused on shared service centers.
Contact her to leverage her knowledge and in-depth BPO and shared services industry penetration experience.
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Axiom Groupe is a leader in production and communication, delivering business intelligence and strategic information. Offering e-marketing solutions, best practice conferences, business training, sales incentives, in-house training, first class corporate hospitality and privileged membership services to European executives, Axiom Groupe provides a significant competitive advantage for enterprises. more >>

Think to outsource operations? Why not to Poland?

In the past few years a new outsourcing wave has come: after successfully outsourcing of production function to the countries of Central and Eastern Europe, big multinational groups have come to the conclusion that also other functions, for instance the administrative ones can be relocated to CEE.

The preparation for the EU entrance and then the entrance to EU has made the CEE countries more stable and thus more attractive for foreign investors.

There are some important reasons why companies from Western Europe choose the CEE region as their nearshoring destination:

• membership in the EU: this requires the same legal and institutional framework,
• performance/cost factor: employees in CEE region are well-qualified and do qualified work at lower hourly rate than the Western European employees,
• destination: key CEE locations can be reached within a few hours time,
• cultural background and language skills: Poland, Czech Republic, Hungary and other CEE countries have similar cultural background to that of Western Europe. Many people (mainly the younger generation) speak fluently 2 or 3 foreign languages.

According to NIB (National Irish Bank) Poland ranks second worldwide (after India) in terms of attractiveness to foreign investors. Comparing with Hungary, Czech Republic, Slovakia, Slovenia, Croatia, Poland in on the top of the most attractive BPO destinations. That for good reasons.

The population of Poland amounts to 38.2m. Poland is the biggest market in CEE region in terms of population. The capital town, Warsaw has 1.7m residents.

The GDP growth of Poland was 6.2% in 2006, 6.7% in 2007 and 4.8% in 2008. The unemployment rate decreased from 15.1% in 2000 to 9.5% in 2008.

Warsaw belongs to the most attractive towns in Central and Eastern Europe regarding wages and salaries, comparing with other capitals, as Budapest, Prague or Bratislava.

Poland is located in Central Europe, that is a good location in terms of offering goods and services to both: Eastern and Western parties. Berlin, Moscow, Vienna, Bratislava, Kiev, Vilnius and Minsk can be reached within a few hours from Poland – by rail, car or by air.

Poland also possesses a very good system of education. There are almost 500 universities and other types of higher education schools in Poland and about 2 million people study there. Almost 50% of population between 19 and 24 are students. The fact that big corporations locate their R&D centers in Poland and Polish specialists are very welcome in multinational groups in the country and abroad shows their recognition to high quality level of their educational background.

According to PAIZ (Polish Information and Foreign Investment Agency), foreign companies invested EUR 15.7 bn in 2006, EUR 16.7 bn in 2007 and EUR 11.0 bn in 2008 in Poland. The leading investors are the German (17% of the whole investment volume), the French (11%) and the Dutch companies (10%). There are many attractive incentives for investors, motivating them to invest in Poland. Also the tax rates are relatively low in Poland, CIT rate is 19% for instance.

According to PAIZ, Poland does not intend to compete with India with labour costs but with the possibility to provide more technology advanced projects. As the demand for high-qualified specialists in India in very high, there is the lack of them experienced in the market, which can now be fulfilled by Polish specialists.

Magdalena Szarafin
http://www.szarafin.info

____________________________________________________________

Magdalena Szarafin is a Polish economist, residing in Frankfurt, Germany. She works as an international management accountant in a big multinational group. In her leisure time she prepares a PhD dissertation focused on shared service centers. Her research interests include insourcing and outsourcing in connection with the value chain. She is the author of many publications dealing with outsourcing, knowledge management and total quality management.

BPO vs. Protection of Intellectual Property

In contemporary information society data management and intellectual property protection have been an important competitive edge. Knowledge about markets and trends, products and services, competition and own R&D, customer and employees data is much more important than the fixed assets possessed.

Many companies avoid to outsource operations as they are of the opinion that outsourcing brings much risk. For instance, sensitive data, processed by an external service provider, would not be safe any more. That can be subject for discussion as data is not equal information and information is not equal knowledge.

It makes now sense to understand what is the difference between these three concepts.

Data is defined as pieces of information that represent the qualitative or quantitative attributes of a variable or set of variables. Information is a collection of data from which conclusions may be drawn. And knowledge means the confident understanding of information with the ability to use it for a specific purpose if appropriate. (Oxford English Dictionary)

In different legals systems different regulations regarding protection of intellectual property apply. However, if a vendor processes data, it does not automatically mean that they possess knowledge or even information — does not matter what legal circumstances there are in their country. It is definitely easier to create information or knowledge in-house, having better connection to the business made. Therefore, it could now be asked if the data are really safer while processing them in-house then outsourcing them?

However, BPO companies recognize the problem of the lack of trust dealt by their customers and react respectively. Nowadays it is for instance almost impossible to meet an employee at a BPO organization who deals with data of competiting companies. Many BPO companies try to divide people working for different competitors into different offices. Also signing of confidentality agreements is a standard procedure in BPO industry.

Magdalena Szarafin
http://www.szarafin.info

_______________________________________________________

Magdalena Szarafin is a Polish economist, residing in Frankfurt, Germany. She works as an international management accountant in a big multinational group. In her leisure time she prepares a PhD dissertation focused on shared service centers. Her research interests include insourcing and outsourcing in connection with the value chain. She is the author of many publications dealing with outsourcing, knowledge management and total quality management.

Public sector to outsource

Public sector has been subject of transformation in many countries for a few years. Under the pressure of tax payers, decision-makers have come to the conclusion that public institutions would deliver high-quality service at the same or even reduced tax burden if they try to act similar to private companies.

If private companies use outsourcing and are successful, also government institutions can do the same.  It is a possibility for them to reduce costs, increase quality and improve performance. Outsourcing also offers them the possibility to create new jobs or get the existing jobs remain in the private sector.

However, offshore outsourcing by public sector is a subject of discussion of many citizens who are of the opinion that one of the task of the government agencies is to contribute to job creation or job retention at least. Therefore, offshoring by public institutions can be seen as politically incorrect.

That is why it is important for the public institutions to choose the suitable vendor in their own country. Such a solution can be a supplement to traditional government measures as subsidies for companies creating jobs in regions with higher unemployment rates.

An example of Washington National Library is very interesting in this context. The Library as a public institution wanted to outsource digitalizing and archiving of documents to a national service provider. Therefore Lakota Technologies, South Dakota has been chosen. The region of South Dakota has not as good cost structure as India or China, however, it offers better cost structure than other US regions.

Magdalena Szarafin
http://www.szarafin.info

_______________________________________________________

Magdalena Szarafin is a Polish economist, residing in Frankfurt, Germany. She works as an international management accountant in a big multinational group. In her leisure time she prepares a PhD dissertation focused on shared service centers. Her research interests include insourcing and outsourcing in connection with the value chain. She is the author of many publications dealing with outsourcing, knowledge management and total quality management.