March 30, 2005

Currently, B2B outsourcing is a very popular business trend. In 2006, it is expected to be one of the largest global industries, accounting for about $1 trillion in worldwide sales in industrialized nations.

Nearly all of the Global 2000 are engaged in serious outsourcing of one form or another, as the desire to both focus on core competencies and control costs continues to fuel this movement.

In fact, when you consider outsourced activities in the U.S. and abroad you can see that the outsource provider or contractor has a significant and mission critical impact on any business. While Offshore IT Outsourcing ("Offshoring") has grabbed attention in the news recently, it represents a fraction of the overall outsourcing market.

The majority of major business functions and processes have the potential to be outsourced, including: Call Centers, Claims Processing, Factory Maintenance, Logistics, Payroll, Procurement, Sales & Marketing and Supply Chain Management.

However, the mutual potential benefits for outsource providers and their customers are not being realized due to a lack of active management of projects and opportunities. The customer does not have a clear view into the outsourced assets.

Outsourcing is everywhere, and is gaining momentum, but is generally very badly managed because of a lack of accountability. Organizations are attracted to outsourcing's low overhead costs, the ability to have more employees working on projects at lower costs and the potential to complete projects more quickly.

However, outsourcing has a number of pitfalls that are often not considered when the first contract is signed. A recent Warehousing Education and Research Council (WERC) pamphlet reported that 55% of logistics outsourcing alliances are terminated after 3-5 years.

The reason is often because it is difficult to manage the work of the outsourcer and the customer suffers from "project blindness."

This is the inability to see short-term goals achieved because of a lack of visibility and reporting. In a recent report produced by Gartner, Inc, the leading research firm notes that 50 per cent of all outsourcing projects will fall short of delivering expected value and will be deemed unsuccessful. It can be assumed that many of these projects fall short of expectations because they were not appropriately and closely monitored from the beginning.

Companies embark upon outsourcing to save on costs, and the potential is dramatic. According to a McKinsey study, by 2009 the information technology and enterprise solutions (ITES) market in India alone is likely to reach $142 billion.

This estimate contrasts with the current price tag of $532 billion to provide these services in the United States. The difference of $390 billion would be the net savings for the U.S. economy due to Indian-based IT offshoring. In spite of such 3 to 1 cost savings, why are roughly half of all outsourcing partnerships deemed unsuccessful and terminated early? The primary culprits: Loss of Control and Degradation of Quality and Service. These are the result of the challenges of managing one process across two companies.

As stated by Gartner, the more functions which are outsourced, the more likely the outsourcing arrangement will fail. Outsourcing of any variety can only be successful if the service recipient has come to the table for the right reasons.

Outsourcing is not just about saving money, it's about improving quality and performance and completing a task more quickly, but at the same top-level your customers have come to expect. To that end, there' is a difference between outsourcing a function and "throwing it over the wall." This can only be achieved through active management of the shared process. The process can only by managed if it can be monitored.

In order to monitor your outsourced assets, a complete and real-time view is the key to success in all outsourcing initiatives. This real-time view provides the ability to find and fix issues before customers see them.

In conjunction, a "dual lens" in real time of the process and its performance relative to associated metrics is another key aspect to successful outsourcing. The duel lens ensures that the promised benefits of outsourcing are being realized and provides continual coordination between the two firms. Over all, obtaining a single view of disparate data sources (some with the outsourcer, some with the "outsourcee") will increase quality and service while also decreasing costs.

The outsourcing management problem is still a relatively new one that requires a new approach. The 1990 legacy enterprise applications cannot address this management challenge because those solutions are built on a Client/Server era architecture that requires a single source of data.

By definition, outsourcing solutions have multiple sources of data which need to be integrated and viewed in real-time. Therefore, a Web Services-based architecture is necessary to provide "composite applications" which enable single, integrated and real-time views of shared processes.

This view or dashboard should provide integration at three key levels: data, metrics and views. With a single, real-time view of your shared data and metrics, all viewed the same way, you and your outsourcing partner will continually "be on the same page," ensuring business success.

When planning your outsourcing initiative, an outsourcing dashboard is fundamental to managing your assets and is central to realizing the full benefits of outsourcing.

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