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The IT and IT-enabled service sectors represent
huge growth opportunities, especially for
countries such as China, India, Ireland, and the
Philippines. Cost arbitrage, varying availability
of skilled labour, varying career aspirations,
increasing global connectivity, growing cross
culturalisation, and easier international travel,
all contribute to the pace of growth of these
sectors.
As
specific services grow within industry sub-sectors,
they tend to develop their own unique vocabulary.
There are several detailed and operational
outsourcing terminologies such as TCO, SLA, due
diligence and others. This note throws light on
the vocabulary used by service companies in
Western countries, trying to position themselves
in the evolving and immensely competitive fields
of out-tasking, offshoring, and outsourcing.
What is out-tasking?
An
organisation is said to be out-tasking when it
decides that a certain set of tasks, though
necessary, and even perhaps critical for
continuing business operations, are performed
better by an external service provider. In the US,
companies using others for payroll processing
would be a good example of out-tasking. Though a
third party is doing the work, it is normally
performed in the same geographic location,
generally within the same country. Such simple
out-tasking has time zone and cultural advantages
and also certain short-term community advantages
by keeping the work localised. Out-tasking is a
position achieved by companies that have a high
level of operational or process excellence,
typically in one or more of generic organisational
support functions.
Offshoring
Offshoring is commonly understood to mean out-tasking
achieved using labour or services performed in
other countries. Labour cost arbitrage is often
the major driver for offshoring. Over the past
decade, India-based offshorers have become so
proficient with IT and IT-enabled services that
cost is only one of the factors enabling
offshoring. India has the largest number of CMM
Level 5 assessed and ISO certified organisations—several
of which now offer quality consulting services to
their Western clients as part of their offshore
service offerings.
Every CIO, every senior executive in the
information technology function is not just
peripherally aware but has significant knowledge
of the advantages and challenges involved in
offshoring different types of application
development, support, maintenance, and management.
This is evident in many ways—reducing the number
of middlemen operating between the end-client and
offshore service provider, increasing the number
of client executives from India or other offshore
countries and increasing the number of joint
ventures, captive IT and IT-enabled service
companies in offshore countries.
Outsourcing
Outsourcing is a higher order term and is an
advanced kind of out-tasking. It may include
offshoring as one of its components. Most of the
recent large outsourcing deals necessarily include
offshoring due to specific directives from the
client organisations, given the quality and wage
arbitrage advantages.
How is outsourcing
different?
There are several facets to outsourcing that makes
it different. Outsourcing deals are normally
longer term and involve larger areas of the
organisation initiating the outsourcing exercise.
There is normally a planned transfer of
responsibility both of achieving service levels (application
uptime, turnaround time, business units of work
performed or processed) and agreed levels of total
costs of ownership. Typical outsourcing deals also
involve transfer of personnel from the client
organisation to the service provider organisation.
Outsourcing deals typically involve risk and
reward sharing, pricing based on business activity
or results, and transition of responsibilities and
assets (combinations of intellectual property,
people, facilities, tools and technologies).
Outsourcers achieve lower total costs of
operations and increased quality of service by
utilising
economies of scale, specialist knowledge, and by
creating unique combinations of how the work is
performed. This involves decisions on the kinds of
labour pools, tools and processes used, and by
undertaking efforts that significantly transform
the way the unit of work is performed. A portion
of this combination may involve offshoring, given
the quality and economies involved.
Outsourcing deals may be considered the equivalent
of marriages—great when they work and quite
troublesome when they do not. Outsourcing,
therefore, needs significant senior executive
commitment from the client and the service
provider organisations, an ability to think win-win,
and planning for the long-term. |
