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Outsourcing Myths: Why Big Outsourcing Companies Can Fail You

Author

Eric Liebross

https://www.linkedin.com/in/eric-liebross-2b41242/
eric.liebross@auxis.com

Senior Managing Director of Business Transformation, Auxis

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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. 

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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 h