Size does matter when it comes to your outsourcing partner - but not in the way you may think. Many executives often believe that working with big outsourcing companies is always the best (and safest) choice for their business. As the saying says, “no one gets fired for selecting (fill in the blank of your favorite big-service provider),” but sometimes they actually should!
Here’s the reality: this “low-risk” strategy of working with the “big guys” delivers false security. Unless your company ranks among the Fortune 100, selecting a midsize, more nimble, reputable BPO or ITO partner can better deliver the long-term success of your outsourcing program. Smaller providers offer the flexibility and agility most companies demand while ensuring you aren’t lost in a sea of much bigger customers.
Consider these five “myths” about big outsourcers and why they may be the wrong choice for your organization.
Myth #1 - Big companies are more effective at designing a solution customized for your business.
With their range of experience in supporting similar companies in your industry, the “big boys” should be able to design a solution specifically for you, right? Not exactly. Their industry experience can often work against you, as the big firms are notorious for attempting to squeeze every client into the same cookie-cutter solution. You get a commoditized, volume-driven approach with a value proposition largely driven solely by the labor arbitrage in Asia. As a result, big outsourcers are not too interested in providing the customized, strategic approach that middle-market organizations need for success.
Further, business operations is not typically a static environment, and requirements often change on the fly. In your organization today, you don’t have the luxury of saying, “that task is not within my scope,” and you have to figure out a way to get things done.
But to keep their costs down, big outsourcers tend to operate under strict Service Level Agreements (SLAs) that foster limited collaboration and interaction with client teams. SLAs tend to focus on the current state, purely transactional processes, which deter support beyond contractual tasks. This restrictive approach forms the basis for the hidden costs that lurk within traditional offshoring solutions.
Big outsourcing companies often nickel and dime clients over work that falls outside the SLA’s contractual definitions, like ad-hoc audit requests or overtime to support the close. It’s not unusual for “shadow” organizations to result as the client’s middle managers quietly hire more staff to compensate. Unfortunately, this practice eats away at promised efficiency and cost savings.
Myth #2 - Big companies guarantee the best quality and the highest cost savings.
The “best” outsourcing solution no longer boils down to the lowest labor cost. Today’s fast-paced business world also demands high-performance and automation to deliver a competitive edge.
Unfortunately, big outsourcing companies focused on the labor arbitrage in Asia struggle to provide quality service and best practices at bottom-of-the-barrel prices. In fact, Deloitte recently reported a quality decline in India, with nearly 60% of employees earning an “average” rating.
Don’t let the dazzling sales pitch fool you. While on paper the large firms can offer a wealth of expertise, practices like outsourcing and process improvement often operate independently - with separate targets that make collaboration challenging. Siloed practices can also prevent big outsourcing companies from putting your best interests first. Big outsourcers may dangle automation as part of a long-term roadmap, but it’s rarely part of their initial approach because it cannibalizes the revenue the outsourcing group earns from large headcounts. And they won’t commit to additional cost savings from these initiatives, instead offering vague promises of additional cost reductions and efficiencies “in the future.”
Myth #3 - Big companies will provide a strong focus on the success of your outsourcing program.
Accenture’s current customers include 91 of the Fortune Global 100 and more than 75% of the Global 500. Contract sizes regularly reach multi-millions and often exceed $1 billion, with FTE counts number in the hundreds, sometimes in the thousands.
If you are a middle market company with less than 100 FTE’s in your operation, where do you fit into this hierarchy? Are you going to get the attention that you want; that you need? Are the people working with you acting as if they were an extension of your team, or are they a group of people half a world away, with limited collaboration, communication, and engagement? In other words, do they really care about your outcomes?
When middle-market enterprises choose right-sized outsourcers, you enjoy the full focus of an exceptional team that prioritizes a long-term partnership with your business. Look beyond labor arbitrage when making your business case. Yes, labor costs may appear slightly higher from nearshore providers – but hidden costs make offshore sticker prices deceiving.
Smaller outsourcers have long touted their ability to provide better customer intimacy, dedication, and service. Smaller providers without silos can easily expand beyond labor arbitrage to improve efficiency and productivity with best practices, automation, and high-performance. In the end, back office work is the core competency of BPO providers. Not only do reputable providers have the expertise, technology, and process structures in place to perform transactional work at the highest level – they are constantly innovating ways to do it better.
Myth #4 - The big companies can offer solutions anywhere in the world.
Even before the COVID pandemic, headlines often documented service deterioration in some Asian markets. Substandard conditions in terms of connectivity, power, even health and safety present challenges for remote workforces in some Asia markets. Even before COVID-19, many executives realized the greater ability of nearshore solutions to drive collaboration, innovation, and high-performance.
Time zone often trumps geography as a factor in impacting the effectiveness of an outsourcing model. In trying to align with western time zones, the Asian offshore model either requires you to have teams working overnight locally, which limits the talent available to support business operations or work odd shifts that have minimal overlap with western schedules. Slower response times, weaker collaboration, and lower performance levels are often the result. The nearshore option eliminates this issue.
Nearshoring enables agile, real-time communication because teams in different countries are on the same schedule. The westernized culture and outstanding English fluency that defines the best nearshore locations also eliminates the cultural and language barriers that plague Asian models. As a result, the nearshore outsourcing market has expanded at a rate of 10.5%, compared to 4% offshore growth. While India once commanded 70% of the global outsourcing market, its share had plummeted to 44% by 2014.
And while customer demand has caused many big outsourcing companies to jump on the nearshore bandwagon, it’s not core to their business. With practices and culture born from Asian-based models, they simply don’t have the same focus or expertise as nearshore providers founded decades ago by predominantly Latin American executive teams.
For instance, India represents the single-largest headcount for Accenture, with more than 170,000 employees. Accenture also employs more than 50,000 in the Philippines and about 17,000 in China. By comparison, it maintains about 50,000 employees in the U.S. and about 35,000 in Latin America.
Nearshore is NOT the first choice for the big outsourcing companies. With practices and culture born from Asian-based models, they simply don’t have the same focus or expertise as nearshore providers founded decades ago by predominantly Latin American executive teams.
Myth #5 – Outsourcing with a large, global firm is less risky than working with a smaller one.
The MIT Sloan Management Review published an article on the risks of outsourcing. Some of the top risks highlighted included:
- Weak Management
- Inexperienced Staff
- Business Uncertainty
- Hidden Costs
- Lack of Innovative Thinking
- Cultural Incompatibility
The article was published in 1996. Here we are 25 years later, and these same concerns are often voiced by customers of outsourcing firms.
Back then, there were only big firms providing these services. Today, there are many options available, large and small, as well as the emergence of nearshore locations that offer significant benefits compared to the challenges of an Asia-based model. The big outsourcing companies, with their “black box” approach, ”cookie-cutter” operating model, and inflexible service levels, are often not resonating with their customers.
Recent Net Promoter Scores (NPS) bear this out. NPS represents the core measurement for customer experience management programs worldwide. The outsourcing industry standard NPS score ranges between -10 and 15. For instance, Genpact’s score was 11, Accenture’s 15, and Cognizant’s was -10, indicating lower levels of customer satisfaction. By comparison, with a focus on the middle market, Auxis’ overall NPS score came in 3x higher than these levels.
When evaluating the risk of outsourcing, isn’t customer satisfaction the primary measure of risk vs. benefit?
Finding the right outsourcing provider is more important than ever as post-pandemic realities leave companies scrambling for ways to reduce costs while boosting agility and performance. Critical to success is shattering one of the greatest outsourcing myths: big outsourcing companies represent the “best” choice for every business.
When choosing a partner, weigh critical factors like customer satisfaction, agility, service quality, collaboration and communication, dedication to smaller customers, in addition to labor arbitrage. Often when factoring in additional efficiency and productivity levels that a strong provider can offer, the overall cost of the operation is a lot closer than you may think. As a result, smaller, reputable outsourcers will emerge as the clear choice for middle-market organizations every time.