Posts Tagged ‘Outsourcing’

Health care IT: When outsourcing makes sense

October 31st, 2014

Hiring managed IT services is a decision many executives at health care organizations regard as favorable, but there are times when doing so to satisfy a temporary or long-term need isn’t financially advantageous. Outsourcing55

A large part of what procurement management services do is scrutinize how investments in third-party vendors will play out in the long run. Thorough investigations into these entities’ previous customer relationships must be undertaken. By approaching outsourcing from this angle, those in the medical industry will develop clear perceptions regarding the following factors:

Which technology companies are known for falling back on their promises

Whether certain firms offer a diverse range of provisions on top of a flat or flexible rate

How successful previous clients were after hiring particular IT services businesses

Overall, a comprehensive financial breakdown of each vendor’s program will be provided to those who hire purchasing officers. That way, health care organizations can enter service-level agreements with a clear perception of what to expect.

Is outsourcing really that popular?

Apparently, professionals in the health care industry are deducing their institutions are better off relying on third parties than in-house departments. Nearshore Americas cited a study conducted by Everest Group, which discovered the global health care IT outsourcing market is increasing at a compound annual growth rate of 12 percent and will likely be worth $68 billion in 2020. A number of elements are influencing this activity, such as:

The consumerization of IT, which involves employees accessing company networks through personal devices and leveraging easy-to-use applications with out the workplaces’ consent.

The need for accuracy and transparency when presenting patients with finances pertaining to certain treatments and insurance plans.
New regulations are obligating medical organizations to become more IT-heavy, causing them to switch to electronic systems.

“Two significant forces are fundamentally altering health plan business models. First, the health care industry is grappling with the uncertainty of reform mandates such as the [Patient Protection and Affordable Care Act] and the transition to ICD-10,” said Everest Group VP Jimit Arora, as quoted by the source.

What to outsource, what to provide training for

There are some technologies and IT-related processes that in-house departments should handle, but there are others that must be carried out by third parties. Steven Heck, a contributor to InformationWeek, acknowledged two “obvious” areas in which health care enterprises should look for assistance:

Software development: It will likely take a long time for in-house staff members to learn everything there is to know about C++, Java or some other programming language. If software must be adjusted, customized or developed, rely on a proprietary manufacturer or a group that specializes in creating new systems. Assigning this task to system or database administrators will only make development more arduous than it needs to be.

Data centers and business continuity: Heck noted that a lot of resources are required to implement, maintain or expand data centers. Hiring a colocation provider to host data centers allows such facilities to receive the attention they require on a consistent basis, allowing in-house capital to be directed toward more constructive endeavors.
With outsourcing considered, it’s important health care professionals consider the benefits associated with training in-house IT employees in certain aspects of IT. Database and network administration are two fields that must be handled independently, as this enables departments to better architect systems based on changing business needs.

In addition, it’s advisable those in the medical industry resist the urge to outsource cybersecurity responsibilities. Heck maintained that consultation and third-party reviews are beneficial, but ensuring data and network protection is a task that should be undertaken holistically, by specialists who are familiar with the infrastructures.

If there are particular skill sets in-house IT professionals need to possess, enrolling them in instruction programs is the best course of action.


Ontario attacked for IT outsourcing

October 31st, 2014

Outsourcing can be a sticky issue, particularly when it involves government. Which explains why the Ontario NDP launched an attack this week on the Liberal government’s spending on IT consultants.5Outsourcing54

According to CBC, party finance critic Catherine Fife complained the province is spending $700 million a year on outside help.

The province has $130-million worth of fee-for-service deals with nearly 1,500 IT consultants, the CBC quoted her as saying, and another $570-million in contracts with large tech companies, on top of its own staff of 3,600 IT professionals.

“Many of these private IT contractors perform the same tasks as the IT staff currently employed directly by the government, except they cost two to three times more,” Fife, who represents Kitchener-Waterloo, told the legislature.

“Significantly reducing private outsourcing of IT could save this government $200-million. It’s almost like you are willfully wasting money.”

The CBC said Finance Minister Charles Sousa replied the province is trying to reduce its use of the private sector, but needs it “for short-term and non-reoccurring projects like a one-time contract to get new programs up and running for cyber security upgrades,” and for outside expertise.

“We’re living in the Internet age and Ontarians expect their government to be accessible digitally,” he was quoted as saying. “We have a strong record of reducing the use of consultants across the government” Sousa also said that since the Liberals were first elected in 2003, more than 1,500 IT consultant positions were converted to OPS staff jobs, resulting in ongoing savings of about $60 million a year.


Is Outcome-Based Pricing in BPO Here to Stay?

October 30th, 2014

The recent rise in the number of contracts containing outcome-based pricing models provides obvious benefits for buyers in the contact center industry. These agreements, which reward service providers for meeting specific objectives, can prove mutually beneficial by encouraging better results and enabling sellers to increase their earnings, but that is not always the case. Although this model is evidence of a closer strategic relationship between clients and service providers, its continued growth may be stemmed by the fact that the sellers have to assume almost all of the risk involved.Outsourcing53
The aim of outcome-based pricing is to provide incentives for service providers to achieve certain goals, while reducing risk from the buyer’s perspective by limiting costs if their aims are not met. “Outcome-based pricing is a very fast-growing area within contact center contracting models and I think that’s important because it tells you that the goal of the contracts has changed and that the perception of service providers is better aligned with the business outlook of the client organization rather than being just a cost-saving mechanism,” Katrina Menzigian, Vice President of Research Relations at Everest Group, told Nearshore Americas. “This whole concept of outcome-based pricing has been growing in the BPO space for about five years and in contact centers we’ve noticed a bigger pickup in the last two to three years.”
Bob Dechant, Chief Sales and Marketing Officer at Qualfon, believes that this trend has emerged because the prices of outsourcing contracts have dropped as far as they can. “People have been offshoring now for a long time and there’s not much room for negotiation for lower price points,” he told Nearshore Americas. “The outsourcers and their clients have gotten to the point when they realize there’s no more room to take the price-per-hour down any lower and have the outsourcer make a profit, which they need in order to reinvest in the business. There’s no more wriggle room so what you’re seeing now is people trying to be creative.” In this context, outcome-based pricing is growing more popular because it enables buyers to pay even less if their vendors are not performing well, while guaranteeing that they only have to pay top dollar if their goals are being met.
Measuring the Metrics
The outcomes that buyers typically want to achieve differ depending on whether they are outsourcing sales or customer care, Dechant said. “The three key metrics on the sales side are close rates, average order spend, and the other one is revenue-generating units, which is very common in the telecom world. They’re all really based around generating revenue.” On top of these are the typical call center metrics like service level, handle time, quality experience, but “those are just a given, you have to do them to be effective,” he added.
“The metrics on the care side are a little bit harder to define, but they’re often more around quality experience,” Dechant said. “Again clients are moving away from the more one-dimensional metrics like handle time and service level and towards the important ones as they see it, which include quality, customer experience, net promoter – all similar things around enhancing the value that the customer has with their brand.”
Such metrics must be very clearly defined in the contract because measuring them can be complicated. Service providers must agree with their clients whether the outcomes are to be measured internally or externally, through surveys for example, Dechant said. While the metrics on the sales side are easily definable and measurable, some of those on the customer care side can be somewhat ambiguous. For this reason, incentives account for anywhere from 10% to 100% of pricing in sale contracts, but in care they are typically limited to around 10%, he explained.
Other outcomes typically linked to financial incentives in outcome-based contracts include churn, growth in a particular product line, client satisfaction levels and collection achievement, Menzigian added. Many of these metrics are measured in ranges “because business outcomes typically involve some fluidity,” she said. Most contracts involve hybrid payment structures rather than 100% outcome-based pricing, Menzigian said, explaining that “part of it needs to be fixed to cover the expenses that the service providers are incurring and then part of it is incremental.”
Who’s Buying?
According to Everest research, 34% of all contact center contracts signed in the last two to three years used some kind of hybrid pricing model. Of these, 69% included some kind of outcome-based component, Menzigian said. This means almost one in four of all contact center contracts now contain some degree of outcome-based pricing.
“The range of buyers involved in outcome-based contracts is fairly broad,” Menzigian noted. But they tend to be companies that “are very mature in their outsourcing processes” and that want to improve their customer experience.

According to Dechant, outcome-based contracts are “probably most prevalent in the United States because among the buyers here there are a lot of long-tenured, very sophisticated clients that have been outsourcing for a long time and they’re using this as the next evolution of the model. Those buyers push the vendors pretty hard. That’s not to say you’re not seeing it in other markets, but that percentage of outcome-based pricing is probably highest in the United States.”

Denchant has observed two distinct buyer profiles. “One is the very, very experienced outsourcer that has had a lot of interaction with a lot of service providers and they’re very mature in their relationships and they’re trying to move to the next level,” he said. “Then there are novices who are very early into the game and they might have got some information from a consultant.” These are much riskier potential clients because they have less experience in defining metrics, he noted.

Menzigian agreed that it makes little sense for sellers to enter into outcome-based contracts with new buyers because this is “something that involves a closer working relationship and a sense of mutual gain. I don’t think it’s the kind of thing that you would be using in a brand new relationship, I think it’s something you grow into, so as the relationship matures you can open up discussions around ‘what are we going to tackle next and how can we make it effective?’” Menzigian continued: “If the relationship expands and you have a combination of transactional services and volume-based services and the contract becomes more complex then you’re entering the kind of environment where outcome-based pricing potentially becomes part of the conversation.”

As outcome-based pricing is still only an emerging trend, the major service providers typically find the number of buyers that are interested in adopting the model is much greater than the number that are really able to take advantage of it in the end, Menzigian noted. “There are many cases that we hear about where the clients go through the whole process to do outcome-based pricing, they negotiate prices and everything but they just can’t get to the point of signing the contract,” she said. This is because the model is not suited to all clients, and sellers must be very careful about who they do business with in order to minimize the risk that they are exposing themselves to.

Risk Assessment

There is an inherent degree of risk within all outcome-based contracts, Dechant stated. This means service providers must do a lot of due diligence to understand the metrics and the objectives that they can be held accountable to. “If you’re not performing well then those contracts will mean that you only break even or you’re actually losing money. That’s not a sustainable model so it forces you as an operator to deliver and it forces you to do a lot more diligence on the front end,” Dechant explained.

“First you need to determine what kind of work it is. Is it sales work or care work?” he continued. “The next thing you need to understand is what the current operating levels are. Are you looking at the actual performance of today’s partners or are you looking at aspirational goals? Are you being held accountable toward unattainable goals? There’s a fine line between improvement and aspiration. (In an outcome-based model) you need a lot more two-way discussion and early diligence in order to understand the objectives.”

When it comes to due diligence, service providers must verify that their “client’s contact center or customer care operations are mature in the core areas. Then you can build on that and tie the contract and the payment to these more emerging outcome-orientated models,” Menzigian said.

“As a service provider you’re looking for a client that you think is reasonably mature in how they work with relationships with their service providers, how they manage the process, the kinds of programs they have in place with their contact centers, because the service provider is looking for a match that gives them some confidence that the client truly understands what they’re getting themselves into and what it involves,” she explained. “The service providers are putting their compensation at risk. It takes two to tango and the client needs to be the kind that can fulfill its share of the obligations and has an environment that is likely to yield the kind of process changes needed in order to make the outcome-based pricing work.”

Simply put, if the arrangement does not have the potential to be mutually beneficial for both parties then it is not going to work out in the long term. “I tend to find that it has to have a combination of benefits, otherwise it doesn’t have longevity, so that’s why the pure outcome-based model is very difficult to make work and it doesn’t really happen very much, because all the risk is being taken by the service provider and not by the client,” Menzigian said. “So that’s why you typically find a hybrid kind of environment.”

Is This the Future?
“It’s important to mention that this is an area that’s gaining attention and the adoption is picking up but it’s certainly something that’s not mainstream right now,”  Menzigian stated. Nonetheless, she believes outcome-based pricing “will become more common because more and more client organizations are really interested in developing compelling analytics and creating closer partnerships with their outsourcing service providers. They understand that you have to look at the whole package of the business impact you’re trying to create and I think that outcome-based pricing is an extension of that thought process.”

For Dechant, the future of this model depends on how well service providers can adapt to it. Outcome-based pricing will become more common “as long as the providers are able to be successful,” he said. “But some aren’t. There’s going to be fallout, there’s going to be some contracts that really impact those outsourcers that are struggling financially and if you have a sizeable contract then that can go upside down and put a lot of strain on your business.”

Service providers need healthy partners who understand that they must be successful financially in order to enjoy a productive relationship with their clients, Dechant added. Do outcome-based contracts facilitate such a relationship? “I think the jury’s still out on that,” he said. “It’s still early, but if it ends up being just another way of getting further price decreases, even for your performing vendors, then the model is going to have to adjust itself. But at the end of the day, if the performing vendors are able to use this as a way to drive more profitability through results then it will continue to grow.”


How do you manage the risks of IT outsourcing?

October 30th, 2014

Charles Sturt University research student Andrew Mournehis has found a gap in the literature of IT risk management. Actually it’s more of a gaping hole. “The policies and practices real world organisations are implementing to manage the risk of outsourcing remains largely undocumented,” he says.

Outsourcing, Mournehis says, “can potentially come with a large number of inherent risks that threaten the prosperity of an organisation. These risks have been well documented in the literature yet little is understood about how organisations protect themselves when entering into outsourcing ventures.”

This is despite the huge popularity of outsourcing, especially for IT requirements. Outsourcing is the contracting out of a business function to another entity, the main motivation being to obtain benefits from the expertise and economies of scale of a specialist outsource service provider, to reduce costs and to increase efficiencies.

Mournehis aims to address the lack of understanding by surveying senior IT professionals to determine what impacts they believe outsourcing has on their organisation’s ability to safely manage its risk.

He is doing his research as part of CSU’s Doctor of Information Technology course. It’s offered only by distance education and is designed to give students maximum flexibility in their study schedule.

This is one of a number of research projects Mournehis has undertaken as part of the course. “I have enjoyed being able to execute my research on different topics each session which has allowed me to focus on multiple facets of business in IT,” he says.

Last year he completed a study on project management in the technology industry. “I concluded that common processes could be established that are compatible with all of the most regularly utilised project management methodologies, eliminating the need for an enterprise to commit to one particular methodology,” he says.

In CSU’s Doctor of Information Technology course students complete the coursework component in part-time mode and then can choose from full-time and part-time study options for the thesis component.

During the coursework component students develop a series of IT industry white papers then, for their final thesis, choose “a real world issue or innovation that delivers tangible benefits to the information technology industry.” To ensure industry relevance supervisory teams include an industry based adjunct supervisor who is an expert in the area the student is researching.

Students who do not want to go the whole hog, produce a thesis and earn a Doctorate of IT can still gain either a Graduate Certificate in Computing Research or a Master of Computing Research, thanks to the structure of the course. It provides exit points at which students can either take a break or leave the course altogether.

CSU says successful completion of the Doctor of IT course should prepare students for middle to senior level ICT roles such as chief information officer, chief information security officer, chief technology officer, development manager, enterprise architect, IT manager, IT strategist, IT policy managers and ICT consultant.


Councillor defends Enmax outsourcing

October 30th, 2014

City-owned utility Enmax needs to be able to compete on the same playing field as other corporations, even if that means outsourcing dozens of local jobs, said a city councillor Wednesday.Outsourcing51

Coun. Peter Demong — one of two councillors who sits on Enmax’s board of directors — told the Herald he understands why some Calgarians would be opposed to the idea of a taxpayer-owned company sending local jobs overseas. Enmax informed its employees last Friday that it will be outsourcing 38 back-end technology support jobs to Tata Consultancy Services (TCS), a massive multinational company headquartered in Mumbai, India.

But Demong said that as a wholly-owned subsidiary of the City of the Calgary, Enmax needs to have the ability to operate in the free market and generate profits.

“We can’t hamstring them by saying ‘You have to do this, you have to do that,’ ” Demong said. “We have to allow them the same freedom and ability to compete as any other competitor in that industry.”

TCS, with annual revenues of $13.4 billion and over 300,000 IT consultants working in 46 countries, is one of the world’s largest IT outsourcing firms. Enmax has said it is making the switch to improve efficiency and also to provide better data security for its customer service and billing operations.

Demong added TCS has much-needed expertise as Enmax looks to improve its technology applications.

“It’s very difficult to find that expertise in Canada or even North America,” he said. “There are very few corporations or companies that specialize in this kind of thing.”

The news of the outsourcing was met with dismay by some Enmax employees as well as the union that represents 17 of the affected workers.

“Good work gets you what? Your job sent offshore? There’s not a lot of loyalty there,” said CUPE Local 38 president Peter Marsden on Tuesday.

But an Enmax spokesperson said the majority of affected employees are being redeployed to other positions within the company, though a handful have chosen to take severance or retirement options. Enmax also emphasized that while the outsourced work will be done by TCS workers in both Canada and India, no “front-facing” positions are involved in the move. Customers who contact Enmax will still speak to a local customer service representative based in Calgary.

Coun. Brian Pincott, the second city councillor with a seat at Enmax’s board, said he was unaware of the outsourcing until contacted by the Herald this week. He said he doesn’t have a position yet, but will “undoubtedly” be seeking more information about the decision.

The outsourcing is expected to be complete by the end of November.



October 30th, 2014

Worstall on Wednesday HL Mencken once told us that in a democracy the electorate should get what they voted for – and good and hard too. So, on that basis, I present to you a piece on outsourcing, as requested by one Gordon 10.Outsourcing50

The commenter in question wrote:

What would be really nice is [an article] on the race to the bottom on labour outsourcing and how long we have until a global equilibrium of sorts is reached … where the incremental savings from outsourcing are not enough to pay for the cost and disruption of that outsourcing. Most companies in my industry are already on their 3rd or 4th offshoring country because the previous ones have become too expensive.

Well, there are two answers to this one and they are: around 2080 (2090 maybe) and never. And there are two flavours of that “never” answer too.

The thing is that we have got two very different kinds of outsourcing and it is never really entirely certain which type any specific example of the practice is.

The first is the one we usually think of, the bastard capitalists nipping off in the search of cheap labour and leaving their devoted domestic workforces starving in the gutters. That one has very definitely got to the third and fourth levels. Cheap plastic tat came from Japan in the ’50s, Hong Kong in the ’60s, Taiwan and South Korea in the ’70s and ’80s, China in the ’90s and now its migrating to places like Vietnam and Indonesia. What happens is that people sate their lust for cheap labour in a place until that labour’s not all that cheap any more and thus another move for that lifeblood of predatory capitalism is necessary.

On the other hand, making cheap plastic tat is a leg-up for the local economy. OK, that first generation of jobs is pretty shitty, but as we’ve seen in all of those nations, things do develop. People work out how to do things – how to run a factory, serve a customer, make more complex things – and as the value chain is climbed, that labour gets paid more and we move, over the decades, from poor country to thriving modern economy.

Of this first type of outsourcing, the end is presumably going to be when there’s no more really poor places where the plutocrats can go oppress people. Exactly when that’s going to be, well, I would like the King of Sweden to give me a gold medal one day and he would if I knew when this was going to happen. But we can have a good guess by using our old friends the IPCC. If you follow the link, you’ll see the economic models that provide the emissions numbers for everyone to run through their climate simulation software. They’re not perfect for our use here but they’re still a damn good look at how the global economy might develop in the remainder of this century.

‘Convergence’ – or how does your poor country grow
One model (A1 family) provided by the organisation tells us that if the 21st century is much like the 20th (although preferably without the wars, but similar economic growth in general, similar fertility patterns etc*) then we’re going to get most of the world up to decent living standards around 2080, 2090 or so.

This concept is called “convergence” and is based upon the idea that – absent really bad public policy – a poor country should be able to grow faster than a rich one. This is simply because the poor one is, by definition, nowhere near the technological frontier and can thus copy those that are, while the rich ones are the people doing the difficult work (and making investments) in trying to expand that frontier. We expect, in essence, to reverse The Great Divergence that was the Industrial Revolution, before which average living standards might have diverged by two or five times by locality, but by nothing like the 10 to 50 times that is global inequality today.

With those sorts of living standard (and by definition, wage) difference, the idea of plonking the factory 11,000 miles away to save a bit on the 10 per cent of the budget that is wages just isn’t going to be an attractive proposition – and so the plutocratic bloodsucking capitalist bastards aren’t going to do it.

It is worth noting that if globalisation doesn’t continue, currently, to seek out those lower labour costs, then the convergence might well not happen – meaning that there still will be places to go exploit poor people. So it’s a case of: exploit it now – so that it no longer exists to be exploited – or don’t exploit it now, leaving it to exist to be used in the future.

But that’s not the only thing going on here. A simple way of slicing up economic growth is to divide it into three different types: Malthusian, Promethean and Smithian. With Malthusian growth, that new barley baling machine means that there’s more food, resulting in more children surviving to have more children, and two generations later no one is any richer as a result of that advance in technology – there are just more people at the same old living standards. With Promethean growth, we use fossil fuels (and nuclear, renewables etc) instead of human and animal muscle power. The last one is the one we want here: Smithian. This refers to the division and specialisation of labour and trade in the resultant production.

Labour can be too finely divided, as both Adam Smith and Karl Marx pointed out: complete division into each worker doing just the one simplest task repetitively turns him into a dullard. Fortunately, we tend to fob that sort of work off onto machines these days and use humans to do what they’re good at: thinking. But while that division and specialisation can go wrong – as with the boredom of an assembly line – there’s also no obvious limit to the number of people we ought to be dividing and specialising with: and thus trading with. It’s obvious that we should split some work with people from outside our household, outside the village… but there’s no obvious point short of the entirety of humanity at which we should stop doing so.

We’ve talked here before about that glue factory in Japan that burned down – whereupon everyone realised that there was only one glue factory in the world making the stuff to stick DRAM together.

There was also a period of a few years where I was absolutely the only person at all supplying scandium into the global light bulb industry. Only two companies made the iodides for the halide bulbs, I was supplying both of them and thus the entire planet full of people buying interesting downlights for over the kitchen stove was dividing and specialising labour with that one individual: me**.

And this would continue along, even after convergence. We would still be dividing and specialising labour in this manner, still trading the resultant production, even after full convergence had been achieved. Lower labour costs in general aren’t the only reason we do this: we can still gain greater efficiency through the specialisation, even if wage levels in general are equal. After all, City lawyers and City accountants get about the same amount of money each but we still end up with better contracts if the lawyers write them and better accounts if the lawyers don’t, but let the accountants do so.

So, when is offshoring going to stop? In terms of the straight pursuit of cheap exploitable labour, it will be around and about when there’s no more cheap labour to exploit. At best, this is 65 to 70 years away as that’s how long it will take for the current pursuit of such labour to have given us convergence in labour costs. And if it never does manage that, we’ll also obviously never see the ends of the attempts at such exploitation.

However, even if we do manage that convergence, we’re still going to be continuing to offshore tasks just as a regular part of the standard division and specialisation of labour – even if that labour itself generally costs the same amount in different places. So I’m afraid it’s bad news: this other form of offshoring just isn’t ever going to end. ®

* That tomorrow is going to be much like today is often the most accurate economic forecast anyone can make.

**Running a global monopoly is actually less profitable than you might think it would be.


PwC, Consulting Giants Push Google Apps for Work

October 29th, 2014

PwC is the latest consulting giant to promote Google Apps for Work — the SaaS platform that competes with Microsoft Office 365. PwC will also support Google Cloud Platform, which competes with Microsoft Azure and Amazon Web Services. The PwC moves reinforce new cloud realities for corporate IT departments and the world of IT outsourcing.Outsourcing53

PwC, Accenture and many other consulting giants grew up recommending, deploying and supporting complex, on-premises IT environments for customers. But as large and midsize companies move some workloads to public clouds, consulting firms have been forced to evolve their service portfolios.

Today’s PwC-Google partnership reinforces that new reality. In a joint statement, the two companies said they will:

Help companies succeed by leveraging PwC’s business insights along with Google Apps.
Combine PwC’s analytics expertise with Google Cloud Platform to help customers optimize operations.

Help companies to drive innovation

Bigger Trend

In some ways, PwC is late to the Google Apps cloud game — particularly in the government and education markets, where scores of companies now run Google Apps for Work. Meanwhile, Microsoft claims roughly 70 percent of Fortune 500 companies are running some form of Office 365.

All that said, the next battleground is likely IaaS — where PwC and others will help customers move virtualized workloads to onto Google Cloud Platform. But PwC certainly isn’t alone.

For instance, Accenture and Microsoft created Avanade — an IT consulting firm focused on the software stack. More recently, Avanade has focused on Microsoft’s cloud stack.


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