Perspective

In 2003 a Deloitte survey predicted that 75% of all Global financial institutions were showing increased interested in outsourcing. The Deloitte Research study surveyed 27 global financial institutions including 11 of the top 20, based on their market capitalization.

Thirty-three percent of the respondents said they had already sent IT work offshore and 75 percent said they would offshore within the next 24 months.

The prime drivers of outsourcing at the time were intense cost pressures, lower share prices of publicly traded companies, and the general economic downturn. In short, the fundamental principle behind outsourcing was to increase profits and to reduce operational costs. Deloitte had estimated the average savings from outsourcing was in the range of 39% – 50%. The crux of the outsourcing choice is that if you do not outsource you will face a big competitive disadvantage even though you don’t achieve a big competitive advantage by outsourcing.

Deloitte described two outsourcing business models; one where the company fully owns the outsourcing center and the second where a third party manages the operations and the company keeps control over the outsourcing process. The entity may own the facility and hire the people. The outsourcing service provider runs the operation and owns 55 percent of the venture.

Eight years have passed since the above survey and its predictions. Global economies have undergone ups and downs, and the market has witnessed a major recession. Outsourcing business models have drastically changed and new Outsourcings have evolved. The market accepted that you need not keep your office in India to make the outsourcing process successful. If you invest heavily for outsourcing it is not savings but an additional cost. Deloitte which started a fully owned outsourcing center in India in the year 2000 now proposes to start a University. This will cost Deloitte an additional investment of $.8 – $1billion. This investment is to train people to fill its outsourcing needs.

Meanwhile, companies like GE which invested heavily in setting up outsourcing in India has divested itself of its holding s. GE Capital Services which set up its office back in 1997 sold its BPO for $500 million in 2004 after reaching a staff strength of 12,000 people in eight sites in India After the sale, the outsourcing entity was known as Genpact. Citigroup's captive BPO arm Citigroup Global Services (CGSL) was sold to Tata Consultancy Services (TCS) for $505 million. This deal was the largest buyout of a foreign captive BPO in India. Prior to that WNS took over Aviva BPO for $230 million. Wipro Ltd had acquired Citi Technology Services Ltd, Citigroup Inc.’s technology arm in India, for $127 million in 2008. Cognizant acquired UBS’s India Service Center subsidiary for $75 million. UBS had developed KPO, BPO and IT Outsourcing services with a headcount of 2,000 staff in its Hyderabad offices. UBS has admitted that it decided to opt for a buy rather than build strategy for its outsourcing needs, to improve efficiency, reduce costs and increase flexibility. This was an open admission of outsourcing strategy by a financial giant. Now, the question is will buying outsourcing or building outsourcing prevails as the dominant approach in the market in the coming years.

If you are going to buy outsourcing your profit can be calculated from Day One. Small and medium outsourcing firms are a good option for company’s which look for outsourcing with the above targeted line. The first step is to have a proper agreement on non-competition and data security. Then training the staff members is important. Thoughtful planning and careful monitoring will assure that you reap the full benefits of your outsourcing arrangement.