Is the current crisis an opportunity for outsourcing services?

We hear about crisis and its effects in various economic sectors. For the field of outsourced IT services the crisis is unexpected help. The pressure, which is not yet really felt, will determine the burning of a few stages, bringing the market of this sector at an international level or maybe even more. Why more? Because in Romania, by starting from scratch, we can reach the level Western countries can reach after more time because of the inertia of past investments. The same happened to computer systems. Romanian banks are more computerized than Western ones as far as technology is concerned. That they are not always used to their fullest and that sometimes investments were made for technology instead of business is another matter. But this is also a benefit for professional outsourcing services. The higher the investments, the higher the operational costs. During the crisis, when cutting down costs is common practice, solutions for efficiency-rendering and cutting down operational costs often save the day.

We are dealing with temporal synchronization, which is also favorable. If the crisis had arrived 5 years ago, the outsourcing market was quite weak at the time. Besides software development companies, which we will not include in the category of outsourcing service providers, there were few companies capable of providing professional services. The few that existed generated customer costs which were higher than the internal services, as they did not have a critical mass of customers so that they could be efficient. Also, 5 years ago the new major investments in IT were just being made. It was too early for outsourcing. And direct outsourcing was out of the question, because of mentalities and the desire to have own investments. These investments, if one refers to the banking field, were favored by the high margins of banking businesses and bank profits, which allowed for similar investments. Also, investments were necessary in order to ensure competitive advantages by business innovation, sometimes technologically generated. Moreover, the crisis also claimed the liquidities which were necessary for investments. At the same time, specialized companies, with extensive international expertise, appeared on the Romanian market. These use modern solutions, have the necessary know–how for supporting customers. In Romania, 5-10 years ago there was a major know-how problem. Romanian specialists were well intended, wanted to do more, but in the end their efficiency was low. This happened mainly because of the lack of systematized transfer of know-how and the absence of efficient management.

A mature market means prepared suppliers, but also prepared customers

There cannot be a mature outsourcing market without clients who have attained the necessary maturity level for outsourcing. And this level can come from two directions. The investments of the last years have determined the establishment of corporate and IT governances which the concepts of Service Level Agreement, Business Case or Total Cost of Ownership are rooted in. The second direction comes from managers who apply Western management practices, who by knowing the benefits and flexibility of outsourced services, apply them directly, from the start, by including them in corporate strategies. If from the start the strategy of a company provides focus on the core business, and the rest of the business is outsourced, from HR to IT, then the plans are altogether different than if infrastructure development and internal departments are necessary. Especially since these have the tendency of being self-supporting, of proving their worth many times in the detriment of economic efficiency.

For the first time the crisis shifts managers’ attention in the IT industry from having to using. This was also felt before, mainly because of the failure rate of IT projects. The implementation of complex solutions, for months or years, many times brings results much later than needed or not at all. If one did a follow-up on IT solution implementation business cases, one would notice that the estimated life cycle of the solution is far shorter or the cost is far higher. The sub-use of a computer solution by shortening its life cycle is generally caused by incomplete or erroneous initial requirements, planning errors, necessities of integration with other badly synchronized projects or long implementation periods, which cause the loss of momentum. Too high costs, which affect project efficiency, are also generated by erroneous project management or specifications. Using is much simpler. Companies which provide external IT services target these situations. Instead of selling complex solutions, with painful implementations covered by customers, they come with proposals of using already tried and practically confirmed systems and concepts.

Flexibility and quick adaptation are also important elements offered by outsourcing companies. When crisis threatens companies, business plans are short-term, and budgets are continually rethought. It is far simpler to use outsourced services, paid upon use. If one changes its strategy, one does not have to dismiss personnel or know how to compensate for the depreciation of investments which are no longer efficient. It is much simpler to change the structure of external services, to adapt them. The partnership with the outsourcing company is essential, as this is no longer a sale-purchase relationship. The outsourcing company must be a real partner, which comes with own solutions, to its benefit and that of its customers, in order to preserve the relationship with the customer. If a company sells IT solutions, the importance of the buying customer decreases, and the seller heads for another potential buyer. An outsourcing company is constantly and directly interested in the satisfaction and success of its customer, because if the customer has problems, then also the service-providing company is directly and immediately affected.

Economic crises come and go; what about outsourcing?

If crisis is a decision catalyst, outsourcing strategies must be beyond crises. On a general and specific level, company strategies must approach outsourcing, no matter if they agree with it or not; however it must be mentioned. Each of the two decisions will determine a different investment policy, of personnel management and building relationships with suppliers. Outsourcing cannot be used in a flash and when one has problems, but based on a coherent strategy. Otherwise there is the risk of opportunistic approaches, which can have negative effects, which are difficult to determine. Outsourcing may mean cutting down costs, performance enhancement, obtaining quick added value, flexibility and mobility, but at the same time it requires management which is different than that of an internal activity. This is why there are several outsourcing models, which we will discuss in the following issues.