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1 May 2002

IT services not home

Political climate, NAFTA have North American managers outsourcing closer to home.

By Shiraz Patel

There are challenges that decision makers in the manufacturing sector now face when outsourcing application management services to offshore companies located in India, the Philippines, Ireland, South Africa, Mexico, and Eastern Europe.

So while the manufacturing sector is well aware of the major savings and quality gains it can derive from outsourcing information technology (IT) services to offshore companies, it is also considering the geopolitical setting of its prospective collaborator.

Today’s climate in some areas makes many manufacturing executives edgy about the risk of outsourcing such services to these parts of the world.

Another difficulty these managers face is the delays many outsourcing vendors in offshore companies are currently experiencing when soliciting visas for their personnel to implement on-site project work at U.S. facilities.

Many managers are also worried about entrusting their critical business applications to an outsourcing company offshore that may or may not be able to meet the required services delivery levels because of the telecommunications challenges it experiences.

Other factors that impact deadlines include time zone differences and miscommunications that occur between the customer and the vendor organizations due to the sheer distance between the North America and offshore companies.

As well, the costs associated with operating a high-speed communication line in an offshore location and with sending IT staffers from an offshore facility to North America are increasing. This adds to the total cost of ownership of an offshore solution.

OPT FOR LOW RISK
Given the fast-changing political climates and the local telecommunications roadblocks, many manufacturing decision makers are now reconsidering whether to outsource all or just a portion of their application management services to overseas vendors.

Many U.S. manufacturers see Canada as a no-risk outsourcing option. They can integrate a Canadian delivery component into their mix of outsourcing application management services to offset the risks of a 100% overseas solution.

The logic is that Canada provides application management services that are comparable in quality to those sold in the U.S. or elsewhere, but its costs are much lower and competitive with those that offshore companies provide.

The North American Free Trade Agreement lets Canadian vendors easily send technical personnel to the U.S. to conduct onsite work. This eliminates visa snafus, delays, and problems due to the increased security associated with traveling to the U.S. and Canada since 11 September.

The proximity between the two countries also reduces the risk of miscommunications between an U.S. manufacturer and its Canadian outsourcing partner. Indeed, travel costs are low, too.

The telecommunications infrastructures in Canada are similar to those in the U.S., allowing easy flow of communications between U.S. manufacturers and Canadian vendors at rates comparable to those within the U.S.

A further advantage for U.S. manufacturers and Canadian vendors is that they operate in the same time zone, making it possible to accelerate application management outsourced projects.

SELECT A FOCUSED PARTNER
Here are seven criteria decision makers should incorporate into their search strategies:

1. Focus on a partner that provides customer-driven solutions; understands the company’s expectations; shares risks; and delivers on time, on budget, and to specifications.
   
2. Inspect the quality and service levels record of the potential partner, and look for evidence of return on investment in previous projects.
   
3. Make sure the organization can leverage the vendor’s competencies, technical know-how, and investments.
   
4. Seek a partner that provides rapid integration, effective management, and ongoing support of application management environments, and make sure its processes and methodologies align with the company’s processes, methodologies, goals, and business.
   
5. Verify that the potential partner has a proved ability to manage and respond to changes in the business. This step is crucial in minimizing risk to the business.
   
6. Ensure that the outsourcing partner can deliver cost reductions, and be aware of hidden costs that can increase the company’s total costs of ownership of an outsourcing solution.
   
7. Select a partner that focuses on enhancing the manufacturer’s competitive advantage via innovation and process improvements.

AVOID BUSINESS DISRUPTIONS
After choosing an outsourcing partner, implement the following strategies to avoid disruption to the business:

• Develop and consistently use best business practices
  
• Make sure the vendor’s processes match those of the manufacturer
  
• Define and ensure consistent data and metrics collection
  
• Provide management an independent review of the project status via software quality assurance

When transitioning the work to the vendor, it is critical to ensure that the new partner’s team is viewed as an extension of the company’s own IT arm.

This way, all the comprehensive planning, knowledge transfer, and process-based technical implementations that must occur during this transition period will run more smoothly and enable rapid knowledge transfer.

Early stabilization and standardization will establish a solid base from which further productivity and efficiency gains will rise during the life of the contract.

It is at this stage that the vendor will want to communicate comprehensively with the manufacturer’s IT teams to properly align resources and personnel in support of project needs.

Once the manufacturer and the outsourcing partner have achieved success in the initial project, they will want to craft together a business model for rolling out outsourced IT services to other projects across the organization.

Such a model may include go-to-market strategy, costs, competencies, customer focus, delivery experience, responsiveness, flexibility, solutions, best practices, migration strategy, speed, quality, and scalability of resources. IT

Behind the byline

Shiraz Patel is senior vice president and general manager at OAO Technology Solutions, Inc.