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The future of the company is in a global market? February 7, 2012

Posted by Mark Hillary in Current Affairs, Government, IT Services, Outsourcing.
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When outsourcing, and particularly offshore outsourcing, became popular business strategies only a few academics stopped to ask how this might change the very nature of the company as we know it. Now online resource marketplaces are becoming common, things are going even further.

These marketplaces are very simple. If you need something done, you post the job online. Across the world, millions of individual contractors and small companies watch these job postings and bid for the work, creating a reverse auction, based on price and their track record of delivery.

Tools like oDesk.com, Elance, and guru.com are all offering this service – usually for about 10% of the contract value as an agency fee. I have heard more and more people recently in large established companies talking about getting some copywriting or marketing or blogging done by going to these marketplaces – it appears to be replacing the old concept of local freelancers.

Cost has always been the main driver for those seeking to outsource work across the globe, but the availability of talent and the ability to scale were never far behind. What has changed is that many more international locations now have the infrastructure, the people, and the stability of democratic governments. There are many places in the world where IT and IT-enabled services can be delivered and entire continents, such as Africa, are waking up to this fact.

And these markets are not only allowing access to the lowest possible cost, but they have also allowed contractors to earn far more than they could locally because they are pitching their prices higher than the local market. Think for a moment, if a company from New York needs a website prepared and a local firm will charge them $1000, but a developer in Bangladesh might expect $100 in his local market, the contractor in Bangladesh is likely to pitch $400 for the job.

Until recently, I heard this week from a contractor who writes blogs in Bangladesh. He was moaning that people from the Philippines – who can undercut everyone – are flooding the online marketplaces.

It seems price is still important, but more importantly, these networks look ready to stay and to become an integral part of the modern company – hiring and firing and creating virtual global teams at will.

oDesk t-shirts: all about the bling, G.
  Photo by Dave McClure licensed under Creative Commons

Your mess for less. You can’t outsource accountability… June 30, 2010

Posted by Mark Hillary in IT Services, Outsourcing.
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Outsourcing is often confused with procurement or purchasing, because many of the same drivers influence these strategic decisions. Both involve efficiency planning, cost reduction, comparing the price of various suppliers. It’s easy to see how the two disciplines get confused. But they are very different.

If you are procuring post-it notes from another firm, you agree on the price, quality, and amount of items, then you procure them. That’s the end of the relationship, except for those annoying stationery catalogues that will be sent for evermore.

If you are outsourcing a business process your company presently performs to a supplier then you are effectively lifting up the boundary wall of your company and rebuilding it around the supplier. Yes, they are still a supplier and are just contracted to provide a service, but to all intents and purposes they become a part of your supply chain, and therefore, an integral part of the service you offer to your own customers.

So why is this subtle difference so important? Take a look at the environmental disaster now playing out off the southern coast of the USA. Oil giant BP is being blamed for allowing a rig explosion and subsequent oil leak to spiral out of control to the point where some are even questioning the viability of the company – regardless of their assets and heritage in the oil industry.

BP could turn around and blame the contractors they had working in the area at the time of the explosion, but would anyone listen? When a firm contracts another to deliver a service there is an operational transfer of responsibility for delivering that service, but the accountability for making sure it works is not transferred from the client to supplier.

Nobody cares if people on the BP payroll made the mistakes or not. If BP hired a supplier then the buck stops with BP. This is an important point to remember if you are considering the use of outsourcing as a way of sorting out a messy or disorganised business function. The supplier might sell ‘your mess for less’, but the mistakes will still be your problem when they occur – both in terms of actual liability and reputation.