Outsourcing -Some Facts   A study found that out of every 1 dollar outsourced, only 31 cents comes to the outsourced country. The rest is captured by the Western Company...

Outsourcing -Some Facts

A study found that out of every 1 dollar outsourced, only 31 cents comes to the outsourced country. The rest is captured by the Western Company in terms of savings and dividends. Most of India’s outsourcing sector is directly and indirectly owned by Western private equity players, who also use their influence within client companies in the West to outsource work. In addition in some sectors outsourcing helps to bridge resources shortage gaps to make those domains sustainable. The excesses of outsourcing happens when middle management start outsourcing for a short term quarterly benefit, without retraining it’s workers and in order to get the tab of “successfully managed an outsourcing/transition process” on their resumes. To some part American tax policies are responsible for those excesses. Also countries that benefit from outsourcing become more stable allies and in turn provide emerging markets for Western Manufacturers. At best it can be termed as a transfer of value between Western workers to Western investors via outsourcing staff.

Outsourcing – What Works , What doesn’t

A healthy outsourcing project outsources only required number of projects, has proper time for transitioning, has an on site co coordinator, and is adequately priced. If the contract squeezes the vendor, the vendor may cut corners and drop quality (he has American investors to answer to!). If the price is too lavish, the outsourcer will be disappointed in lesser cost savings and the hidden costs especially traveling and training.

The worst type of outsourcing transition is some people will transition in three weeks what they have learnt in three years to a bunch of consultants flying in, and will then be fired. This leaves everyone confused on the vendor side especially as most transition projects end up doing most of the documentation themselves . The resentful employees (and rightly so) share the bare professional minimum information and there is no team work here.

The best outsourcing projects that I have seen work are ones in which the vendor team is treated as a member of the company that happens to sit in India, thus can provide round the clock coverage due to time zone differences. The vendors are usually eager to learn, and if the outsourcing team is secure in transferring knowledge they generally pass along the soft informal tricks and trades of the process as well (for e.g. do not use table A from DW X, use table B, as it is more accurate). These contracts are generally adequately priced as ell. Remember your vendor team gets approx 20 to 33 % of billings only (for 100 dollar invoice only 30 dollars will go the team salary), the rest goes in overheads, investor returns etc. So an adequate billing rate ensures that your of shore team has more food with some jam on the table, thus will stick with you longer. An important check is to ask from your vendor before the contract starts to give the exact ratio of billing to salaries, and also to give the promotion schedule for the team. Also ask for the names of the analysts and qualifications and actual time spent in vendor company to avoid window dressing by vendors.

Choosing the right vendor without burning your fingers

You may get confused or plain irritated at the vendor selection stage where every vendor claims to build the Taj Mahal on the moon for 20 $ a hour for you. One of the best techniques is to give some sample data/task to be done to multiple vendors, and then evaluate the top 3. Then go for a free two month pilot to see synergies and team capabilities. Always ask for names of analytics working on the project. Then award the project but with adequate penalties in an elaborate service level agreement and liability clauses, just to keep operational risk down.

What to outsource and what not: A stepwise approach

Don’t give your vendor more to chew than he can swallow. Ask the vendor for examples and not just slides on similar work. Give an old actual project done by your team as a test in the pilot above. A stepwise approach to outsourcing will help save you much more money in the long term.

Outsourcing in Data Mining and Analytics:Transitions

India , China and Eastern Europe have vast pools of statisticians and MBA s that can be utilized for data mining analytics. But outsourcing everything in your analytics project is , well ,its like throwing the baby out with the bath water.

Time intensive tasks like Data crunching, Data querying, Data pulling and cleaning , and running repetitive jobs should definitely be outsourced. An additional aspect is to get these tasks documented during the transition process for your own operational stability.

The next stage is to transition reporting, but only after you feel your vendor team has documented and is comfortable with the data universe. Since most vendor teams use Master’s degrees and advanced programmers you can also give incentives to them for creating an automation process rather than do the same task again and again which enables them to enhance billing.

Lastly you can outsource high value tasks like market basket analysis ,scoring models as well as credit models, but only after regular compliance training has been given. You can also ask your offshore team to do research on newer techniques that you never had the time to.

Data Security

For data security insist on an on site inspection or a suitable standard like ISO 27001 certification to keep sensitive data safe, with proper encryption (like PGP) for data exchanges. Also insist on certain legal training for your offshore team (and not just on the job training) and this could be in the form of certifications as well.

Insist on sharing all codes and logs from your vendor as your own intellectual property as this will ensure operational stability and quality assurance at all stages of the project and the contract.

Outsourcing in this manner enables systematic freeing up of valuable on site resources to business context and strategic tasks rather than low level tasks, thus enhancing their skill sets as well. Having adequate penalties (in terms of free credits) for service level agreement breaches will ensure high quality steady output.

Cutting software costs in outsourcing of analytics and data mining –

Some costs like software costs remain the same through the globe.

You can use the outsourcing transition to force some innovation, like insist 50 % of offshore team uses Open Office and Google Applications for first six months, and nearly half the team uses open source statistical tools like R.

Using newer softwares like WPS ( a base SAS clone ) for cutting down SAS and SPSS costs, open source tools like Linux for say 25 % of the offshore team’s systems can actually help you do a test and control on costs on your own team.

Having personally worked with all these softwares, an optimized approach can save you much more costs than you can imagine.

Cultural Differences, Communication and Tracking- Most Indians see Western culture from Hollywood movies so be prepared for some fun here. Try and speak slowly, and ask if you have been understood after you say a paragraph. Ask your offshore team to send you a meeting summary after each call, and ask them to send a schedule of work for the upcoming week to ensure adequate resource allocation.

You can insist on time sheets (log in –log out), since most outsourcing companies record this information anyways for their own purposes so it’s not a big deal. Eastern cultures tend to be hierarchical with emphasis on deferring to superior’s opinions so try and ask your offshore team to speak up their thoughts in time. Use of instant messengers like skype greatly helps streamline communication.

Remember, for better or for worse, outsourcing is here to stay in some form or the other. If you cannot beat it, then join it , and if you do it correctly you, and your company will gain and you will enjoy the process as well.