Outsourcing vs Offshoring

The use of offshore white collar labour to achieve significant cost savings is a relatively new concept. A number of different terms have been thrown about in describing the different ways that an offshore workforce can be implemented. You may have heard terms such as outsourcing, offshoring, offshore outsourcing, remote staff or BPO, to name a few.

With all the different terminology floating around to describe this phenomenon out there it can be confusing to gain an understanding of what solution will work for you. To make it a bit easier to understand, the general concept of using an offshore labour solution can be defined as either 'offshoring' or 'outsourcing'.

Outsourcing involves the organisation using a third party provider to provide the services required without having direct managerial control over that employee, meaning that the third party has all of the control. Using an offshore solution the organisation utilised the services of an intermediary who facilitates the process whilst the organisation maintains control of the employee.

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Four Common mistakes when offshoring/outsourcing

Friday, Sep 12.

Most businesses consider the use of offshore staff because of the significant savings, particularly on salaries, which can be achieved. The savings are sometimes passed through to the bottom line or, more commonly, used to add additional organisational resources to grow the capabilities and capacity of the business.

Sep12

Four Common mistakes when offshoring/outsourcing

Friday, Sep 12.

Most businesses consider the use of offshore staff because of the significant savings, particularly on salaries, which can be achieved.  The savings are sometimes passed through to the bottom line or, more commonly, used to add additional organisational resources to grow the capabilities and capacity of the business.

Whilst there are significant financial benefits that can flow from the use of offshore staff or outsourced labour, taking an overly frugal approach to how your strategy is implemented and not investing in the time to do things properly is more likely to cost rather than save you money in the long run.

No/ineffective change management strategy

Considerable thought needs to be put into how your offshoring strategy might affect your local staff and how you will communicate the strategy to them. Failure to get this right can result in local staff turnover and significant resistance to the implementation of your offshore strategy. Decisions around whether staff will be made redundant with their roles being offshored or whether an organisation will simply look to add additional resource offshore need to be made early and communicated clearly to staff to avoid uncertainties.

Lack of cultural awareness

Don’t underestimate the consequences of failing to understand cultural differences. Any effective offshoring strategy should include training programs aimed at both raising awareness of local staff to the cultural nuisances of the offshore team and likewise educating the offshore team about local cultural peculiarities. Essential to bridging this cultural divide is effective and frequent communication. Usually video conference style communication will be far more effective to develop understanding as a significant amount of the message being communicated will be from non-verbal body language cues.

Rushing it

One thing that can almost certainly be guaranteed with any outsourcing or offshoring plans is that there will be teething issues. For this reason is important not to rush the process and to take your time to gradually develop an understanding as to how things best operate and over time, grow the depth of your offshore or outsourced team.

Along the way is important to manage the expectations of all stakeholders, including staff. If staff and other parties involved in dealing with the offshore or outsourced team are told from the beginning to expect difficulties and delays it is far more likely that they will provide you the time and support to resolve these issues when (and if) they occur.

Lack of support from local staff

If your first step is to make staff redundant and move their roles overseas, you may find it difficult to win support from your local staff for your strategy.  Alternatively, if your first step is to add offshore resource to free up bottlenecks or add functions that you cannot afford locally you will be far more likely to receive this support. In addition, looking to bring your offshore team members to Australia at the earliest opportunity to meet staff will assist greatly with local acceptance of those staff.

At the end of the day significant benefits can be enjoyed from a well implemented offshoring or outsourcing strategy. However, focusing on the cheapest possible approach to your offshore plans and not spending the time and money necessary to ensure that things are done properly will not only cost you more money in the long run but also likely lead to the failure of your offshoring strategy.

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Distributed workplaces – a new way of doing business

Wednesday, Aug 27.

The nature of the traditional workplace is changing, and quickly. Where once upon a time workplaces were defined by their physical premises, today the workplace is more defined by technology platforms than bricks and mortar.

Aug27

Distributed workplaces – a new way of doing business

Wednesday, Aug 27.

The nature of the traditional workplace is changing, and quickly. Where once upon a time workplaces were defined by their physical premises, today the workplace is more defined by technology platforms than bricks and mortar.

Hot desks, working hubs, remote log in, mobile devices, cloud computing and paperless offices are just some of the things making it possible to do work from anywhere at any time. The possibilities which flow from this for business are enormous. No longer do we need significant amounts of expensive city space to run a large organisation. Seats can be shared, staff can work from home and low-cost offshore workers can be engaged virtually.

In addition, video conferencing, an array of online collaboration tools and high speed internet are making virtual collaboration easier and more accessible than ever. Where only five years ago working remotely often involved slow connection speeds, frequent drop-outs and expensive technology solutions now cloud based computing systems and high speed connections are making the quality of the virtual working experience often as good as the real one.

As the flexibility of working arrangements increases so too does the range of contracting arrangements being explored with staff.  No longer are staff just employed to work full time. Whether it be working part time on an hourly rate, being paid on some measure of output or even being engaged as a non-exclusive specialist (who may also even do work for competitors)  the range of staffing options are really only limited by one’s imagination.

So what does all of this mean for the quality of professional services on offer?

Interestingly when properly embraced these changes can significantly improve both the speed and efficiency with which work is done without compromising quality. This of course can in turn result in reduced cost to clients and better overall outcomes.

Many new start-up businesses are fully embracing the opportunities which flow from a distributed workforce. Some are setting up with very small or even no central office and are performing nearly all of their services through a distributed workplace bound together by a central shared technology platform.

As we become more accustomed to working this way, the potential to also tap into the significant cost savings that flow from the use of offshore labour becomes more accessible. Consider that a staff member working for you in the Philippines is likely to cost less than one fifth of a comparative staff member in Australia but be as good and you can start to understand where the future possibilities lie.

The workplace as we know it is changing quickly and those professional service firms that choose to embrace and take advantage of it will benefit and prosper. Those firms who don’t however may in time find that they have a dwindling number of clients to provide their services to.

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Offshoring – a good or bad thing?

Tuesday, Jun 17.

Whilst much is often made of the perceived negatives of offshoring, mainly loss of local employment or employment opportunities, very little is said about its benefits. Both the 2007 OECD report Offshoring and Employment, Trends and Impacts and the 2012 University of Melbourne paper Developing an Asia Capable Workforce paper found that it is difficult and complex to determine whether offshoring produces a net gain or loss to the country offshoring.

Jun17

Offshoring – a good or bad thing?

Tuesday, Jun 17.

Whilst much is often made of the perceived negatives of offshoring, mainly loss of local employment or employment opportunities, very little is said about its benefits.  Both the 2007 OECD report Offshoring and Employment, Trends and Impacts and the 2012 University of Melbourne paper Developing an Asia Capable Workforce paper found that it is difficult and complex to determine whether offshoring produces a net gain or loss to the country offshoring. Some of the positive effects of offshoring however included:

Growth in consumer  incomes
The reduction in the cost of goods and services which flows from the saving from offshoring increases local consumer incomes. Growth in incomes in turn creates more consumption and/or savings.  Growth in consumption increases local employment where the goods/services consumed are locally produced. However the jobs that may be created can be in sectors different to those from which the jobs were offshored.
 
Improved competitiveness
Businesses which save money from offshoring can pass on the savings to their customers, and thereby become more competitive.  Alternatively they may choose to re-invest those savings into the business to expand the business and thereby generate more local employment typically in more highly skilled jobs.
 
Export Growth
Growth in jobs and incomes in the country providing the offshore staff increases their consumption of our goods and services.  Our goods and services are also more competitive because of the cost savings achieved from offshoring.
 
Control of Inflation
Reduction of costs is often the principal reason for a company to offshore services.  This reduction in costs assists better control of local inflation and slows consumer price rises.  This in turn assists keep interest rates low and stimulates investment and job creation.
 
Growth in tax revenue
Reducing costs and improving competitiveness ultimately result in more profitable businesses which in turn pay more local taxes.
 
Greater Asian engagement and understanding
By engaging with an Asian workforce this allows local business to better understand Asia, its people, culture and opportunities.  This in turn assists businesses understand how to sell their products/services into the Asian marketplace.
 
So it can be seen that whilst it is easy to simply suggest that offshoring is a bad thing the issue is in fact far more complex.  Whatever the situation however and like it or not we are now working in a global economy with a globally accessible labour pool. The ease of access to this international labour will only improve with further advances in technology. Whether we choose to embrace and benefit from this or be fearful of and resist this may well have a significant impact on the future prosperity of our country.

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