By Amit Singh and Alan North

Offshore is not a mainstream undertaking by Small and Midsize businesses (SMBs) at present. However, many are increasingly turning to offshoring their IT (Information Technology) needs, following in the footsteps of their large counterparts. During the last decade, large corporations were quick to see the cost benefits of low cost, highly skilled offshore labor, and have enthusiastically moved services offshore. For large organizations, the scale of application development, maintenance and management, and the correspondingly large resourcing required made the transition inevitable.

Although, same benefits of scale are not available to SMBs, they can still enjoy the benefits of IT offshoring. In addition to cost benefits, there can be distinct advantages in having access to skills globally that are in relatively short supply; difficult to recruit or retain, or expensive to train and maintain within the permanent workforce. Other key benefits include faster time-to-market (as a result of 24×7 offshore model); easy scalability (based on SMB business growth and IT needs); efficiency gains and process quality.

SMBs have been understandably reluctant to commit themselves to this offshore delivery model. But the maturity and sophistication of offshore service delivery has started to attract the attention of an increasing number of SMBs. Here is a step-by-step approach for SMBs to create a winning offshoring strategy.

First let’s define an SMB. According to Gartner, a leading IT research organization, a North American Small Business is defined as an organization that has up to 99 employees and less than $50 million in annual revenue, whereas a Midsize businesses has between 100 to 999 employees and $50 million to $500 million in annual revenues.

Step 1

Outsourcing Assessment – A careful assessment of the achievable cost savings is crucial, but should be balanced against the need to maintain or improve the levels of service delivery. As a first step, SMBs should have a clear understanding of what can be outsourced and the
road-map of reaping actual benefits from outsourcing. This understanding can be achieved through a process of “Portfolio Assessment.” Portfolio Analysis is a process that provides the basic information and data necessary for a SMB to determine if, and how effectively, specific functions (such as applications, infrastructure, business process) can/should be outsourced and the extent to which the work related to those functions can be performed offshore.

There are several reasons that a company may want to outsource their maintenance and production support work. Typically a company would outsource their maintenance and production support functions to reduce costs and to allow their existing employees to be used for more value-added functions such as concentrating on the core business, performing new development or evaluating new technologies or technology strategies. Additionally, many firms have found that their outsourcing partners, through their own core competencies in systems engineering functions, are able to provide higher quality and productivity in performing information technology work.

The Portfolio Assessment process can be performed in-house or with help of an IT vendor. Today IT outsourcing vendors are equipped with tools and processes to conduct a Portfolio Assessment process. The key is to select a vendor who has understands the process and has demonstrated capabilities in performing this critical step for a SMB.

Step 2

Partner Evaluation – Vendor, often known as outsourcing “partner”, selection process will vary depending on factors such as size of SMB, their outsourcing need (output of portfolio assessment), and their IT budgets. Depending on these factors, it could be as simple as word-of-mouth recommendation to as involved as a sending out a Request for Proposal. In either case, the selection process should focus on vendor track record, flexibility and their understanding of business needs.

SMBs can create a screening process for vendor by asking questions that evaluate outsourcers understanding of the real needs of smaller enterprises. For SMBs, word-of-mouth recommendations are at the top of the list for selecting their outsourcing vendor Word-of-mouth references among SMBs usually stem from within the same vertical industry, often through informal networking, regional trade fairs and other affiliations. Assessing the vendor’s track record among other SMBs should be one of the foremost evaluation criteria. Determining how long the outsourcer has been offering services to SMBs and particular vertical industries will help SMBs identify the providers that align with their specific business objectives. Although vendors may proactively supply references and case studies, SMBs should interview principal contacts from the referenced company on their own to eliminate the vendor hype. Understanding what went well and what did not go well can help SMBs formulate an opinion of the provider. In determining what did not go well, it is important to assess how the vendor reacted in these situations. SMBs can learn a lot from references about vendors that go above and beyond the contractually obligated service delivery.

Step 3

Start small – SMBs should start small. The process can start by selection of a non mission-critical function (evaluated as an output of step 1) for a pilot project. A “pilot” project, also sometimes know as a “proof-of-concept” is a vendor evaluation and outsourcing testing process. A pilot can be a small portion of an application project or a maintenance activity for a non core area (such as helpdesk support.) Midsize companies with relatively larger IT need can send out a request for proposal to a number of seemingly qualified vendors. Through the process of evaluation, the list of candidates should be narrowed down to two or three finalists.

Step 4

Take an incremental approach – SMBs should be vigilant and not fall to pressures of outsourcing more than they want. In fact, they should move slowly, in increments, while they build a level of comfort and trust.

SMBs should remain focused on what functions are to be outsourced (output of step 1), as well as ensuring that the vendor understands the particular business requirements of their organization. Outsourcing is an interactive and dynamic process. Trust and Relationship with the vendor will build slowly over time, and is most often a byproduct of a vendor’s increased understanding of the business needs; the results are a focused set of services and solutions to attain those needs.

Areas of Concern

Loss of Control – Anyone new to offshoring has one understandable concern about the potential loss of control, the distance from their vendor’s delivery center and challenges with intellectual property (IP) protection, data security and software piracy. These concerns are mitigated in many ways. From addressing protection of IP and data security contractually and with agreed processes and methodologies to ensuring locally based or on-site vendor teams work with their customers to discuss progress, direction and issues as they arise. Vendor and project management, and communication have benefited from this daily interaction. This onsite/onshore/offshore model also gives the provider a better understanding of the business challenges, directions and requirements faced by their customers. Sometimes, customer should visit to the provider’s delivery center in person and assessment of the security measures helps in this process.

Size and IT Budget – The key question of: “What critical mass is required to save money?” is one that characterizes the reluctance of SMBs to embrace offshore outsourcing. The question of size and IT budget is valid. However, this does not prohibit SMBs from adopting the offshore delivery model. The challenge is for the SMB to determine the right provider for its size and needs. There is no easy answer to this. Transferring any number of jobs to a lower-cost location is beneficial if the quality is equal or greater than that which is being replaced. However, to avoid negating any benefits, it must also be readily managed without incurring additional in-house costs.

Finally, finding a right-fit vendor – Challenges for providers are those of scale and priorities. The cost for a provider bidding to an SMB is similar to bidding to a larger company, but with lower returns. Consequently, the larger and more experienced providers in India focus strongly on the larger enterprises. SMBs will need to engage with Tier 2 providers in India, or elsewhere, to fulfill their requirements. In order to deliver a strong value proposition, the selected provider must have the experience in the complete outsourcing process and should be able to demonstrate an understanding of the challenges that face SMBs within their industry domain. SMBs has to go through exhaustive search, selection and evaluation processes to identify suitably focused offshore service providers, who will work with them in the step-by-step process to make it a truly beneficial
outsourcing strategy.

The bottom-line – Small and Medium sized businesses can benefit from today’s mature and proven offshore outsourcing offering. Cost reduction, faster time to market, improved quality while concentrating on core business functions are now in the reach of SMB’s. With
confidence CXO’s can embrace Global IT outsourcing while creating a winning strategy for their IT departments.

Amit Singh and Alan North are executive officers of Spectraforce Technologies Inc. a Global IT consulting and solutions company Headquartered in Raleigh N.C with offices in India and the UK.
Amit Singh can be reached at amit.singh@spectraforce.com and Alan North can be reached at anorth@spectraforce.com.

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