Outsource Service Supplier Needs example essay topic

Outsourcing Business ProcessesSummaryThis paper captures the most prominent services and issues associated with today's outsourcing environment. Outsourcing is the modern business term for having other companies accomplish basic business processes rather than doing them in house. While outsourcing has always been an important business option, modern technical capabilities are fast making outsourcing a critical requirement in competitive, cost conscious industries. However, our recent experience with terrorist challenges indicates that a second look is needed to ensure that outsourcing risks are still acceptable. This paper (1) benchmarks classical (but modern) outsourcing methods to provide a starting point, (2) notes what information system services are being outsourced, (3) provides examples of how those services were being promoted and leveraged, with some comments on terrorist related risks, and (4) indicates how the experts suggest that outsourcing, if it is reliable and secure, should be addressed in contracts (incentives).

An awareness of these basic aspects of outsourcing is important to the business analyst or consultant. Benchmarking Modern Outsourcing Charles L. Gay and James Es singer (2000) provide not only a generic (non-high-tech) framework within which to view modern, high-tech outsourcing, they also provide this framework from the British perspective, often using United States companies as examples. They list numerous benefits and hazards of outsourcing, only indirectly considering terrorist acts, and they explore the different business relationships that apply in the world of outsourcing. Based on their perspectives, we can conclude that outsourcing is a well developed but also complex topic, one that is often over simplified and, thus, is often improperly implemented. Nevertheless, with the British framework in mind, one should view the numerous and quickly evolving high-tech extrapolations of outsourcing as less intimidating and, also, less risky from a business perspective, at least as view from their pre-September thinking. With a few rather obvious guidelines in place, a business consultant (certainly an information technology business consultant) should be able to recommend to a client what aspects of the client's business can and should be outsourced.

The consultant can also be very helpful in selecting an appropriate source of those services as well as make suggestions as to how to approach outsourcing contractually. This requires some preparation and awareness, but it only involves alerting the client to possibilities as part of an analysis of business functions, some of which may now be considered from a new security perspective. Outsourcing Today Exploring the Internet for outsourcing information consistently leads to the obvious. For example, outsourcing has become a major element of the high-tech startup environment over the past couple of years. There have been (and are) many new high-tech companies trying to convince low-tech companies of the advantages of e-business. Indeed, many high-tech outsourcing marketers touted services to their high-tech peers, proclaiming the advantages of focusing on their high-tech core-business while outsourcing everything else.

Of course, much of this was easier to sell prior to September, before security and reliability became a central concern throughout the industry. High-tech to high-tech marketing results from the emergence of high-tech access to cheap labor (e. g., programming, data entry, and accounting) from other countries, more immediate access to state-of-the art software (discussed below), and access to expert problem solvers for future non-core business issues that make outsourcing attractive from a risk-sharing perspective. Unfortunately, some of these overseas labor cost savings advantages are decreasingly attractive due to other problems, including the emergent security issues but also including recent realizations of new problems. The new set of problems include the downstream operating and maintenance regimes, regimes that require an increased communication level, perhaps to make up for past poor communications. For, example, based on personal experience at IBM with support from India, there is increased frustration due to poor issue response, poor access to programming details, and the difficulty of communicating operational problems that need early correction. Value vs. Risk Nevertheless, technology managers and outsourcing consultants still need to consider several other outsourcing risk factors, such as the potential for legal complexities, for reduced flexibility, and for crises such as unforgiving business database disasters.

Recent terrorist activities argue against consolidating multiple-company outsourced components to achieve economies of scale. Creating larger "targets" can increase risk as well as save money. Not only is physical plant and personal security now more important than ever, the Internet itself and linking enterprises around the world in any architecture need to be considered. Internet exposure and enterprise intranet exposure are to data disasters what the post office is to anthrax.

Most importantly, there are currently more unproven outsource service providers than there are proven providers, so the consultant must look at provider track records, not just offers to outsource business processes in 'cutting-edge' environments. Many experts are cautioning business owners and information processionals to let the current outsourcing environment settle out around a few proven outsourcing companies before committing their companies to these superficially attractive offerings. (Terdiman, 2000) The Biggest Economy Breeds the Most Outsourcing Our British friends (Gay et al, 2000) point out that the United States, being the world's largest economy, also has the most capabilities and opportunities for outsourcing in the world. Some of the more substantial companies have started advertising outsourcing services directly, either on the Internet or through information inserts (advertising) in magazines, hoping to get attention for themselves and for carefully selected companies that have complementary skills and resources to offer. An impressive example of this type of advertising (36 pages) is found in the May 29, 2000 issue of Fortune magazine. The outpouring of outsourcing advertising in hard copy magazines is consistent with what is going on with the Internet.

The high-tech revolution has resulted in dramatic business model shifts as more and more business go online as e-businesses, with United States companies leading the way. Even for those companies always considered to be the technical leaders, these model shifts include more and different software (e. g., complex business applications) and hardware (e. g., more advanced servers and telecommunications equipment), as well as the potential need (reduced by outsourcing) for a more expensive workforce. If one visits just about any high-tech business web site, a variety of outsourcing services are either directly or indirectly offered. A good example is the Hewlett Packard (HP) web site (Corvette, 2000). HP lists all of their outsourcing services directly. Current Outsourcing Arenas and Issues: ASPs In the information technology world, there seems to be an almost limitless list of possible outsource applications.

The easily outsourced business functions include email, taxes (perhaps debatable), payrolls, generic software deployments, and accounting in general. The more difficult (but still being done) outsource areas and contract topics include data warehousing, customer order fulfillment, enterprise resource planning (ERP), chief financial officer (CFO) services, 24/7 reliability guarantees, data confidentiality, regulatory responsibilities and account abilities (What if a mistake is made? ), and contract relationship and incentive issues (discussed below). Among the first Internet based ASPs (even before there was a name for it) were Internet security services. Data protection continues, of course, to be an important area where most companies are very happy to rely on the experts.

Security is also an area that requires a significant amount of compatibility and coordination to be successful, especially when there are many dishonest users (or simply troublesome hackers) out there attacking Internet security systems. The efficiency and effectiveness of such early online ASP services not only enabled new paradigms for industries such as online banking, they also encouraged the development of additional online business services, many of which involve efficient and reliable software access. Some of these services can be classified as outsourcing functions, and some simply provide ways of doing routine things better in house. In all case, however, the outsourcing process exposes the company to increased risk from adverse high-tech community vulnerabilities, much like contagious diseases.

ASPs provide access to critical applications using the Internet, so the client's software always remains up to date. This access allows small and medium sized companies to compete more effectively with larger companies. The ASP provides similar services to many companies across a network, often on a pay-as-you-go basis, making the service proportionally cheaper for smaller businesses. The need for investing in non-core competency hardware and people goes down. Indeed, the smaller the company, the more likely that an ASP can provide an affordable service, even if legacy systems and software are an issue. As for the service supplier, the costs are amortized in a more predictable manner across several buyers, and the equipment and software purchased are used much more frequently, providing value creation and profits more efficiently.

If the supplier customizes its services by industry, the software becomes increasingly attractive functionally and allows the buyer to take advantage of the latest best practices available to each specific industry. Staffing becomes the supplier's problem, a problem that is a lot easier for the supplier to solve in the face of IT talent shortages. (Terdiman, July 2000) Established companies (whether large or small) are likely to benefit by using an ASP, but new companies can benefit even more readily. New companies are less likely to be committed to a specific way of doing business, are often less complex, and may even be selecting and using much of their software for the first time through the ASP. Thus, legacy systems do not even exist, and the conversion to an ASP environment is not a conversion at all. It is merely the best way to get on with starting a business.

Also, while a new company may experience slow growth at first, those that start to grow faster than expected will be far better off if they are already connected to an ASP. (Terdiman) Incentives Providing access to software is only a small part of outsourcing, even if it can dramatically impact a business and how it functions. The purpose of providing business system analysis services is to make improvements in all areas for the client. Thus, the consultant needs to take a broad view and ensure that the outsourcing process that involves the consultant personally will be successful. Since outsourcing business system analysis is not a natural thing for a healthy company to do ('What do I need you for?' ), the outsource consultant is viewed as a supplier of a service that is not needed.

Thus, the outsource service supplier needs to be creative. In addition to looking at the technical details of a contract, the supplier needs to look at cost savings initiatives, premiums that might be paid for excellent service, and any unstated opportunities for value creation. If the initiating contract for a project includes mutually attractive incentives that focus on the outsourcing relationship, that relationship is much more likely to be successful. (Bender, July 2000) Outsourcing suppliers do not need encouragement to include incentives in a contract, but the buyers are more reluctant. They need to see that the value returned for an incentive easily exceeds the cost of that incentive. Thus, incentives should be viewed as business investments in which the return on the resources invested is expected to make the investment worthwhile.

Incentives are likely to increase good will and encourage both parties to overlook petty issues, resulting in a win-win situation. Competitive bids from outsource rs are more likely to win the contract if their proposal reflects good business investment incentives. Types of incentive include reciprocal business actions such as pooling core competencies (synergism). For example, EDS outsourced its network to World Com, and World Com outsourced its information technology capabilities to EDS, increasing the amount of business and business efficiency for both companies.

(Bender, 2000) Another type of incentive is a joint venture established to pursue a new idea. Each company applies its best talent and efforts and shares in the profits. This type of incentive can be presented in a way that makes the consulting costs appear to be zero, although the consultant will share in the profits resulting from the joint venture. The approach to contracts and incentives masks the fact that a bilateral outsourcing contract has been established.