The decision to outsource "To outsource, or not to outsource, that is the question"
By Paul Goldsmith

After years of diversification in the eighties and nineties, multinational companies are once again focusing on their core businesses and competencies, and it is not only American companies conscious of quarterly earnings, but also European companies -- operating increasingly like their American counterparts -- which have started to look at how to run their businesses as efficiently as possible.

Recently, we have witnessed a move by many companies towards outsourcing those areas of their business which the company does not deem necessary to its core business. Obvious examples include catering, office maintenance and cleaning, payroll, IT, telecommunications, and delivery of parts and products.

Who can benefit
The president of a growing foreign brand-name company summed it up succinctly when he observed that his job in Japan was to concentrate on selling as many new hi-fi systems as possible, not to get bogged down making decisions about what PCs he should be buying for his company or what phone system might best suit his needs. These are unnecessary distractions, which although essential to the performance of his business, divert him from his role of promoting the company's products -- something he is trained and skilled at doing. He is not an IT specialist and has no wish to be doing the job of one. In this case, outsourcing would allow him to pass full responsibility for management of his IT and telecom decisions to an outside expert firm, and allow him to develop his business parallel to those activities. Though his firm is too small to necessitate a full-time IT manager in their Tokyo office, he does want access to good quality, independent advice. For these reasons, his company is a perfect candidate for an outsourcing solution.

The case for outsourcing
Many companies today are looking for a flexible workforce, which can be switched on and off as projects either arise or are completed. Innovative companies are recognizing that they don't necessarily need their own management for supervising the activities of these personnel. This recognition leads to outsourcing, whereby an outside vendor takes full responsibility for managing a certain aspect of the company's business. For small and medium companies in Japan (say, approximately 70 staff), which are often local offices of global enterprises, it is usually difficult to attract the highest caliber IT staff for maintaining and managing their IT systems, and for liaising competently in English with a headquarter or regional IT department.

After a firm's network has been established (and all the idiosyncrasies sorted out), the task of network administration can become quite routine. This often leads to high staff turnover, as the job may not be stimulating enough to keep qualified, talented people interested. This is an ideal situation for outsourcing the management of such a network - whereby the burden of recruiting qualified staff and keeping them motivated and performing consistently is passed on to someone else, an outsourcing company which makes its living by supplying this type of skilled labor.

Instead of the HR department investing enormous amounts of time, money, and effort into trying to find and hold staff, a firm can now rely on its outsourcing company, which has a profit incentive to ensure that these positions are properly filled at all times. Instead of the management of the IT system being a job function, it actually becomes a profit center for both the client company and the outsourcing firm which runs the outsourced function. In other words, it becomes a business, which, if not managed correctly, will cost the outsourcing company money. The risks associated with this responsibility act as a strong motivator to ensure the best possible service at all times, resulting in that all parties involved are winners; the end-users enjoy great support; the contracting company passes IT management headaches onto another firm; and the outsourcing firm generates profits when everything runs smoothly.

Japan's high employment costs
In Japan, it is expensive to employ staff and difficult to retrench them at short notice should this ever be necessary. By using outsourced staff, managed by an outsourcing specialist firm, companies have much greater flexibility when the time comes to terminate positions, with a resulting greater control over costs, as outsourcing services are usually provided on a fixed monthly fee basis. The hidden future costs of employing full-time staff do not suddenly appear, as the outsourcing company typically charges a flat monthly fee for agreed levels of service.

Of course, there are many circumstances where it remains preferable to employ full-time staff, such as work or projects which require in-depth knowledge of legacy systems or proprietary systems, which would simply take too much time and money to teach to an outsider. It is also difficult to outsource some IT functions which are exclusive to a particular company and require learning, with no guarantee that these skills can be used elsewhere. Under such circumstances, contract staff are reluctant to invest hours studying what may eventually be a redundant or unwanted skill outside of one company's environment.

Companies suffering from a high turnover of IT staff or high levels of dissatisfaction among end-users regarding the quality of their systems support may want to consider outsourcing these responsibilities. Unfriendly, poorly performing support staff, who believe themselves to be irreplaceable, could well be replaced by outsourced staff that better understand customer service, and are better trained and managed by an outsourcing company which stands to gain financially by the good job performance of their personnel.

When companies use off-the-shelf, shrink-wrapped software, it can be quite advantageous to call in an outsourcing company to run such areas as the help desks, desktop support, software installation, development and customization. The outsourcing company can bring with it experience from other, similar sites, thereby enhancing the service provided to end-users.

Service level targets
True outsourcing agreements call for the provision of a certain level of service with specific goals or productivity levels clearly spelled out. In theory, it is irrelevant how many people are needed to fulfill the goals and whether or not the same people are available throughout the duration of the contract. What is important -- and where outsourcing differs from the recruitment of staff to handle the same issues -- is the level of service and the quality of that service; these matter more than the quantity of people employed. Although in reality companies become attached to certain individuals, the beauty of outsourcing is the removal, in part, of the emotional aspects of employment, and the generation of a sharper focus on achieving pre-determined performance levels.

Profit-driven solution
Almost any size organization is a candidate for outsourcing. Whether a company has three people in its Tokyo office or thirteen hundred is irrelevant, as there is an outsourcing solution to suit all situations. For companies looking to bring costs under control, or to make those costs more predictable, outsourcing can be an attractive proposition. By passing management of certain aspects of IT to a third party, the company benefits from a profit-driven solution which gives incentives to the outsourcing company for providing the best possible service within the budget available. This creates employment, allows the client company to concentrate on its core business activities and (hopefully) generates profits for the outsourcing company.

Although outsourcing is not necessarily a panacea for productivity gains, it can add great value to a company's competitive advantage. With specialization a key attribute in business today, having specialists running part or all of the IT functions within a corporation could lead to some very exciting corporate results.

Paul Goldsmith is president of Panache Corp., a Tokyo-based computer consulting & services company. You can reach him at pgoldsmith@panache.co.jp

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