A few years ago, the then GSM monopolist in Bulgaria, Mobiltel, began to experience a serious problem – its subscribers are growing but, along with them, the incorrect payers, which reach 10% of all consumers, grow. Just as in the television series hit for the paranormal “The X Files”, the solution to the problem was found not within the company but outside of it.
This explains to the media its cooperation with Mobiltel Dimitar Popov, one of the founders of the non-public force insurance company SIC (and now at Bul Ins): “We had a direct computer connection with Mobiltel, where we received the data of the unscrupulous payers . We paid the amount, and then, under the Commercial Law, we collected the money. We visit them and give them time – pay so we do not burden you with unnecessary expenses, penalties, interest, and so on. For violating the contract. “As a result of hiring an outside firm, the number of bad payers drops to the bearable 2%.
The example may be more Bulgarian, but it is typical of the phenomenon of outsourcing, or in the language of modern corporate governance, the hiring of external firms to perform certain services. The term so far does not have a Bulgarian analogue, but it means transferring part of a company’s typical outsourcing activities to improve price or quality. Whether such a practice is successful or not only speaks not just about the reality described above but also about the growing number of companies hired for such services both in the world and more and more in Bulgaria.
What is the outsourcing?
Although the definitions given in various dictionaries (see the box) give some insight into this business term, hardly any of them fully encompasses the meaning of a concept in which the situation may have a different meaning. In general, outsourcing can be defined as subcontracting in the field of services. The difference with the English word subcontracting, which also translates into Bulgarian as subcontracting, is essential. The latter involves the work of a sub-contractor under a particular project / contract or with suppliers of manufacturers of complex machines with heterogeneous components, which requires differentiation of activities. The most common example is in automotive production where the presence of mechanical, hydraulic, electronic, textile, metal and any other components (the total number of which sometimes exceeds 10,000) necessitates the use of subcontractors outside the company – the main manufacturer. Outsourcing is a service (service) that is ongoing (contracts that are usually concluded for several years), the engagement is long-lasting and does not depend directly on current business projects of the company. Moreover, outsourcing is spoken when the guarantor separates from himself / herself the activity / process that was inherent to him / her and which was in principle within the company itself – accounting and consulting services, human resources management, development and maintenance Of information systems, security, design, etc.
Something like IT
The tendency for outsourcing to be associated with high technology and companies in this sector is both logical and misleading. It is a fact that the outsourcing of activities and processes seem almost inconceivable without modern communications that allow the rapid transfer of all kinds of data (sound, text, image) over long distances and which are the basis for the connection between the guarantor and the contractor. At the same time, a lot of outsourcing contracts do not go to IT companies (big outsourcing companies may look like IT companies but they are more than that) and the variety of activities that can be transferred to external organizations is so great that It is hardly reasonable to assume that all this is the sole responsibility of high-tech companies.
Yet, regardless of the definitions and whether outsourcing will be called subcontracting, trend, process, fashion enthusiasm or a whole business sector, it can be won badly, and Bulgaria has its chances for it. The research firm Cutting Edge Information, for example, claims that outsourcing has gone global $ 350 billion turnover but the real value may be much greater. Although it is not easy to give an accurate estimate of this type of business, some idea of its scale also gives numbers for individual sub-sectors or sections. Outsourcing of call centers (call centers, inquiries, customer orders, arriving by telephone, and lately also by e-mail or fax) is estimated by the IDC research firm at $ 45 billion or two-thirds Of the total value of this activity globally. The same company predicts that by 2007 the global outsourcing costs associated with information systems will reach 99 billion dollars.
A study by Satyam Computer Services shows that, thanks to outsourcing in the IT industry, global companies are saving at least 40% of their annual IT budgets.
Pros and cons
In fact, it is precisely the cost reduction (especially imperative during a recession or stagnation) that is the main reason for companies to resort to these business practices. The logic is simple – why pay capital costs and unnecessarily swell paychecks after a partner who specializes in doing business can do the job for less money. The icing on the cake is that it is often a matter of transferring activities abroad, which are paid at times lower than if they were made in the country of the guarantor firm.
Other pros are also not negligible. The use of profiled firms provides access to staffing technologies and skills that otherwise would have to be a solid investment of time and money, and yet could still remain outside of the company’s reach. Apart from this, the company, which exports part of its work, has the opportunity to focus on its core business – that is, the things that can do the best and win the best.
This is necessary because, although outsourcing is increasingly seen as a long-term partnership, no company can afford to lose control of key activities. In each outsourcing contract, criteria should be formulated to assess the activity (and, respectively, the benefits of the contract) so that the guarantor has the opportunity to realize whether it actually benefits from it or is simply superfluous.
By associating with a particular subcontractor, it would be good to avoid falling into a “technological trap”, that is to say, the inventing of alternative technologies and working methods that would make the partnership meaningless. Another recommendation is to outsource activities for which the firm has enough knowledge to make sure that it does not buy something like a cat in a sack. Due to such considerations, a crisis plan is required to provide for the termination of the outsourcing project and the corresponding return to the company of the processes / activities performed by external entities. These rules reflect the guarantor’s point of view, but reciprocally apply to performers.
The main players
On a global scale, the destinations where the outsourcing money goes are counted on the fingers. These are the United States (which is at the same time the largest consumer of this type of business) and the developed European countries, but the role of India and its developing countries is growing. The geographic distinctiveness of outsourcing around economies in countries such as the United States, Britain and partly Western Europe and Asia has its logical explanation. However, in a sense, outsourcing is nothing more than a narrower differentiation of labor, characteristic of more developed and specialized economies. Exceptions (such as Japan to some extent in some European countries) can be explained both by cultural features and by the specificities of the relevant legislative environment and corporate practices.
Although examples of outsourcing can be found around the world and some of the developing countries offer the best terms from a price point of view, large companies are well-known names and count on fingers. Among the most frequently mentioned are IBM, Electronic Data Systems, CSC, Hewlett-Packard, Accenture, Cap Gemini, with their transaction values talking to themselves. IDC’s research concludes that more than half of the IT outsourcing mega-dollars (the majority of which in the financial sector) for the period 1997-2001 are run by IBM, EDS and CSC. Similar to Gartner’s findings in the study of the 14 largest contracts in 2002, the total value of which was $ 28.4 billion (IBM’s “take off” half of these contracts).
Of course, realized profits are not just for the performers. According to a survey by Inductis, each year, US firms earn billions of dollars because they outsource activities to India. Only in the banking sector the savings amount to 9 billion dollars. However, Indian companies such as Daksh, Bharti Enterprises, Hinduja TMT and Wipro are still far from the scale of their multinational competitors and, according to some analysts, small businesses generally have little chance against giants in the industry.
From bar to credit
Although companies such as IBM, EDS, HP, or Cap Gemini make deals for one, three or five billion dollars, extending to ten years, dozens of countries and thousands of employees, a Gartner study points out that the average outsourcing contract in the IT area Worth 47 million dollars and lasts for six years.However, outsourcing is not just about high technology. The examples are numerous and varied. Take one of the successful outsourcing companies – Exult – a specialist in human resource management activities. The contract with the Canadian Bank of Montreal, for example, includes the management of payroll and administration bonuses, HR services, employee information management, as well as other technological administrative functions that the Bank had previously performed . Moreover, in order to do this work, Exult relies on exactly the same people, equipment and office space that the bank also used, but now their employer is the outsourcing company.
Otherwise, the enterprising spirit is not limited to the outsourcing of call centers, maintenance and provisioning, electronic data processing (the idea of using on-demand computing capabilities like utilities such as water, electricity and other services ) Or human resource management. Among the activities that can be taken out of companies are also the management of the company bar, cleaning of offices, collection of loans from irregular payers, handling of cargoes in air transport, real estate management, outsourcing of parts of marketing and distribution, supply chain management, logistics and transport parks. In more advanced economies, even talking about moving some medical services to cheaper destinations would drastically reduce their prices … The listing is likely to continue indefinitely, as each different business could judge for itself that one or another function / activity is not vital so That it can afford to entrust it to an outside partner.
The new spells
Against this background, there are some new and curious trends that sound like incomprehensible puzzles for people outside the industry but who, according to experts, are promising enough.
Government outsourcing (essentially government procurement) may sound synonymous with giving “state” easy government money, but it is actually one of the three leading sub-sectors in outsourcing (along with production and financial services). According to research by the consulting company Accenture, Britain has the best ability to manage outsourcing deals, followed by the United States and Canada. The same study, based on conversations with more than 150 senior representatives from 23 governments in Asia, Europe, North and South America, concludes that 90% of respondents are outsourcing indispensable for providing good services to citizens Countries concerned. Governments basically apply this approach to resource management when they want to improve the quality and speed of service.
Outsourcing activities include staff training and education programs, finance and accounting, human resources management, supply-related operations, IT applications and infrastructure. There are also call center analogues – for example, EDS has one of the largest reference offices in Europe, which handles an average of about 33,000 queries and requests addressed to the German Labor Office.
The processes are at the heart of another concept – Business process outsourcing – BPO (Business Process Outsourcing). The basic idea behind this approach is that the object of outsourcing should not be a single activity (for example, the preparation of staff salaries), and the whole process in which this activity is simply a link. Among the most popular processes being outsourced is the management of human resources, but in practice the approach should be applicable to every single in-house process.
Another idea, often mentioned by the outsourcing gurus, is transformational outsourcing. Its essence is that it brings together activities performed separately by consulting and outsourcing companies. As the Financial Times writes, such a project leads to the pooling of skills of different specialists, allowing for changes with little or no capital expenditure. The outsourcing company not only takes some in-house system into its own hands, but does the necessary work to improve, update and adapt the system to the changing needs of the customer. For the success of this approach, Accenture speaks that the best outcomes in government outsourcing have achieved Britain’s “transformation” model.
