Outsourcing / BPO sector is booming in 2016..up 20 % in Q1 2016

A 20 % sequential growth rate is nothing to snooze about. There are  lots of  established industries which can only dream of growth rates approaching double digits, never mind 20 %.

Yes this is exactly what has happened to the Outsourcing and BPO industry during the first quarter of 2016. The ISG Outsourcing Index indicates a rise of 20 % in the total contract value (or ACV = All Commodity Value)  for the first quarter of 2016. The outsourcing index only captures those contracts which have an annual value of greater than 5 Mio US-$...so it naturally focuses on the bigger BPO industry players. 

Never the less...it is unqualified good news for the big and the small players. Even more impressive, the value of smaller outsourcing  contracts (below the  5 Mio threshold) surged an even more astonishing 40 % during Q1. 

It has been my opinion for a long time that outsourcing (IT and Business Process Outsourcing) is becoming more and more the go to solution for smaller companies to maintain and improve their competitive position. If the 40 % rise in total contract value is any indication that process is clearly ongoing.

The law of  large numbers for an established industry is that growth rates of the type we have witnessed in Q1 cannot be maintained indefinitely. Therefore some level of moderation for the remainder of the year can be expected. 
As is always the case...there is of course a potential downside to the report. Clients looking to outsource or renew existing outsourcing contracts might find that the next price negotiation might be fought a bit more hard then expected. 

Given the above numbers it seems clear that quite a few of the major outsourcing providers, regardless if they are located in India, China, Philippines or Eastern Europe, are a lot more busy than they used to be this time around last year. 

Consequently there will be less room to maneuver on pricing. 

Who Knew...Jamaica Is Becoming A Major BPO Hub

Of course,  by pure numbers Jamaica  lags the traditional outsourcing destinations like the Philippines and India. Never the less...the country has steadily increased its footprint in the BPO sector. It is estimated that the country will be home to about 20,000 ICT BPO jobs by the end of 2016.

Obviously 20,000 is not a big number when you compare it to the main outsourcing centers in the world. Given a total population of about 2.7 Mio though  the government is realizing that the BPO sector is worth to be promoted. At the given growth rate of 20 % the sector will employ about 1 % of its population by 2018/2019.

Jamaica's inroads into the global BPO industry are driven by an advantage none of the traditional outsourcing destinations can match. It shares the same time zone as Chicago (CST), therefor collaboration throughout the work day is seamless.

Jamaica's predominant language is English....another advantage why US BPO companies like to establish a presence there.

The local salary structure makes it highly feasible to outsource technology talent. The median salary in the Jamaican IT industry is about 150k Jamaican Dollars (about US- $ 1,220). The rate is therefore comparable (and even lower)  to what has to  be paid for local talent in India or the Philippines.

One issue is the relative small size of the Jamaican labor market. It is clear that with increased demand for IT staff local salaries are sure to rise. Given that the BPO industry is notoriously price sensitive it seems likely that the strategic advantages Jamaica enjoys will be buffered by the disadvantage of  increases in salaries in the BPO sector.  

Never the less, for the time being Jamaica might be a good place to establish a BPO center.

Donald Trump And The Flip Flop On Outsourcing...Does He Support It Or Doesn't He ?

It should come as not surprise to anyone that Donald Trump is not a big fan of outsourcing. The Wall Street Journal just posted an article describing how he simulated a call to an Indian Call Center while at a campaign rally at a speech in Delaware on Friday the 22nd of April. Obviously the Indian Call center and the American business who had decided to outsource their call center activities  are not looking good in the speech.  The full article can be found here

Donald Trump Supports or Opposes Outsourcing

I had written about the article before...but I think it is timely to refer to it one more time. In a blog post which survived in cyber space Donald Trump squarely supported outsourcing. 

His actual words at the time were:

"We hear terrible things about outsourcing jobs — how sending work outside of our companies is contributing to the demise of American businesses. But in this instance I have to take the unpopular stance that it is not always a terrible thing."

Trump noted a study "that showed how global outsourcing actually creates more jobs and increases wages, at least for IT workers":

"The study found that outsourcing helped companies be more competitive and more productive. That means they make more money, which means they funnel more into the economy, thereby, creating more jobs."

"I know that doesn't make it any easier for people whose jobs have been outsourced overseas, but if a company's only means of survival is by farming jobs outside its walls, then sometimes it's a necessary step. The other option might be to close its doors for good."

The full article can be found here:

Why Accountability Is Key To A Successful Outsourcing Relationship....

The worst situation which can potentially arise when outsourcing any type of business process is when the communication link  between the onshore client and the offshore outsourcing  provider gets broken.

I always like to say  before the business relationship went sour the communication went dead.

The simple truth of the matter is that not every onshore employee is excited to work with a company based in India, Philippines or Eastern Europe (or some other country which is hardly known to onshore staff),

That hesitation sometimes can lead to a lack of communication which then can create a viscous  cycle. Because of the lack of feedback from the client the quality of the work product starts to slip. The degradation in quality leads to even further resentment by onshore staff.

Needless to say, problems like the above combined with  time and cultural differences as well as  a language problem have crushed more than a few outsourcing deals.

At the end Senior Management looks at the entire outsourcing relationship and wonders why it does not seem to be working as well as they think it should.

In order to avoid a scenario where the entire outsourcing relationship falls apart it makes sense to implement the 7  rules and guidelines shown below:

  1. Early in the process designate at least one person, better a team of people who will be in charge of managing the day to day operation of your outsourcing relationship. Include them in the meetings as early in the process as possible. The goal is to familiarize them with the inner workings of the deal as well as giving your outsourcing provider early and easy access to the Relationship Managers.   
  2. Senior Management has to clearly define Key Performance Indicators (KPI'S) which it wants to meet. The KPIs  have to be clearly laid out in such a way that both, onshore local relationship management and offshore provider are made jointly responsible for reaching them. They have to be joint at the hip....one parties failure will be deemed the other parties failure as well. 
  3. Insist on daily meetings between key personnel..ideally twice a day. Use a video conferencing tool (skype is fine too). It might seem trivial but the use of video will greatly enhance familiarity between key personnel and thus will increase productivity. 
  4. Insist on reports. Develop a report structure which is being fed to Senior Management at predetermined intervals. (daily, weekly). The reports you receive should be based upon the prior discussed KPI's. Also...make clear that both teams, onshore and offshore will be jointly held responsible for failure. 
  5. Have regular meetings with both teams (joint meetings). Once again, video conferencing is preferred. Address any issues you might have in reaching KPIs. Solicit suggestions to improve performance.
  6. Have individual meetings with each team (the onshore and the offshore team, video once again). Get them to spill the beans if there is any sand in the relationship. Use the information to fine tune instructions during the next joint meeting. 
  7. Set realistic expectations. For the teams as well as for the company. It is well established that outsourcing has an initial productivity gap versus the comparable onshore solution. That productivity gap will close over time. Your KPIs will be your measuring stick. 

The over reaching goal is to foster a culture of accountability. Making the onshore staff responsible at an early stage and creating a joint responsibility for the KPI's will produce better results.

If the above is properly implemented the onshore staff will not be able to just point fingers to the offshore provider and issue blame.

By instituting this level of accountability your new outsourcing relationship should be off to a good start.