Outsourcing: SMBs are Doing It, Too

Wednesday Apr 2nd 2008 by Larry Marion
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Once the province of large firms, the next few years will see rapid moves overseas by smaller outfits. Plus: how to get IT on board with this process.

Forget for a moment the tainted pet food, contaminated seafood, poison paint on kid’s toys, irate customers frustrated by unintelligible customer service reps, and other problems associated with outsourcing functions across borders. The reality is that most companies – especially small and medium sized organizations – are becoming increasingly reliant on collaboration with third parties around the world. This rise of globalization demands that IT managers and professionals rethink how they are going to service their users.

A new email survey and in-depth telephone interviews of more than 350 CEOs, CFOs, CIOs, COOs and other senior executives of North American companies found a striking change in the extent of collaboration with third parties in Brazil, China, India, Russia, Taiwan, Vietnam and elsewhere. While the percentage of operations outsourced by companies with less than 1,000 employees is relatively low right now, it is slated to roughly triple by 2011 (see below; blue bar is today; yellow bar is 2011).

smb outsourcing

Source: BusinessWeek Research Services

The January 2008 survey, sponsored by business software vendor SAP, found a variety of reasons for the increased reliance on overseas collaboration. The motivation goes beyond the labor cost arbitrage. Access to additional skill sets and ideas is a prime motivator, and access to new markets is increasingly seen as a key reason to seek out overseas partners.

Interestingly, many C level officials say overseas suppliers enable them to provide higher quality products and services to their customers, though they rated quality as the highest risk of collaboration.

Another key aspect of the rise of collaboration is the broad-based nature of the efforts in the future. Organizations are not just looking for low cost manufacturing help. As the table below shows, small and medium-sized companies are going to increasingly rely on offshore collaboration for R&D, marketing, sales, customer service and Human Resources support as well (see table below).

Outsourcing more than just IT

Organizations with less than 2,500 employees are already collaborating with external partners for most corporate functions to a modest extent, but more will be relying on others for a substantial extent in the future. it collaboration

While the C-level execs are intent on increasing the number and extent of their collaborations with other companies, they’re not exactly sanguine about the level of support they’re getting from IT. Indeed, the survey indicates that only half of the respondents are satisfied that their IT infrastructure can support the extent of collaboration incorporated into their strategic goals for the next three years.

IT doesn’t satisfy most collaboration needs

More than one third of C-level managers say they’re dissatisfied with the level of collaboration support from their IT infrastructure expected in three years:

• Very satisfied: 13 percent

• Moderately satisfied: 39 percent

• Neither satisfied or dissatisfied: 18 percent

• Moderately dissatisfied: 21 percent

• Very dissatisfied: 8 percent

• Don't know: 1 percent

How to get ahead of the collaboration demand

IT managers should view the growing need to support collaboration as a multifaceted opportunity. The C-level interest in improving the ability of IT to enable collaboration gives you a chance to clean up some long standing architecture issues. In addition, collaboration is the excuse you’ve been looking for to get involved in the new generation of Web 2.0 technologies.

Understand that one of the biggest barriers to successful collaboration is complexity. Having too many systems and too many processes is the bane of any collaboration effort, especially if they’re not based on industry standards and best practices. Time to clean the IT house.

If your organization has too many databases, too many ERP platforms, an applications portfolio census that goes beyond 100 and other examples of excessive technology overlaps, now you have another argument to begin the consolidation.

And while you’re thinking about simplifying your IT architecture, collaboration is a great door-opener for a services oriented architecture discussion with your CFO. Depending on the size of your organization, SOA provides an ideal platform for providing secure access to information, systems and processes that should be shared with external organizations.

Simultaneously, you need to provide a pallet of Web-based collaboration tools and choices. Relying on a virtual private network (VPN) as a gateway for external individuals to gain the appropriate access to key systems takes too long and costs too much. You need to move quickly and inexpensively.

Think corporate use of wikis, social networking tools, blogs and other Web 2.0 tools as key building blocks of a collaboration tool set. The criteria include easy to use, easy to manage, easy to deploy and low cost, since there are a wide variety of individuals now involved in collaboration with third parties.

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