The outsourcing model may run out of steam

Amid the covid pandemic and rising unemployment, India’s Income Tax Department decided to digitize front-end tax processes over the internet. Two years later, Indian taxpayers have yet to get a break from the frustrations of online tax filing and many other errors. The reputation of the taxman took a big hit because they launched this change without proper user testing. Few people blame its technology partner, in this case, Infosys.

It is ironic that what heralded the infotech revolution in many developing economies, including India – the cost versus labor trade-off model of business services outsourcing – may not be not the best value creator for a company that outsources these services. This could have a negative impact and even constitute a long-term competitive disadvantage.

Years ago, many Indian telecom companies had outsourced customer call centers. The net result has been an increase in customer churn, driven by cost-cutting business models. Third-party call centers billed customers for time spent dealing with customers, not solving their problems. Worse still, key customer insights that could have improved service quality have escaped these telecommunications companies.

Let’s take another example. Amid the current Schengen visa delays, most EU consulates seem to have overlooked a major problem. Visa applicants leave with a bad experience and blame the countries they seek to enter without realizing that the visa application processes have been fully outsourced to VFS Global. VFS not only changed its processes, but also reduced transparency in scheduling appointments by not displaying slot availability calendars, urging visa applicants to opt for its premium services or employing agencies of travel.

While it may be cheaper in the short term for countries and companies to outsource this seemingly uncritical work, the goodwill and equity they lose is immeasurable. Sometimes it’s best to have a captive center for shared services and critical processes that impact business, brand, customer retention, reputation, and future growth initiatives. Cost reduction is not everything.

Amid global recession concerns, every major entity needs to review its model. Should it stick to its outsourcing policy or set up a captive (ie internal) interface with its customers on the model of global business services (GBS)? Yes, having your own service desk will require higher capital expenditure and more management time (in the beginning), but optimizing costs is not always the best way for companies to create value. Business owners who value short-term gains love the outsourcing model because it can turn their short-term mandates into success. Outsourcing partners are growing, but armed after a few years with unique insight into various aspects of their client’s business, they are able to offer the next level of value-added services, as the most Indian IT majors.

The benefits of having a GBS captive unit are intangible and, as with all intangible assets, they may not create value directly, but may generate gains in terms of market knowledge, service needs, business ideas, and more. innovation and growth paths.

In a GBS model, the culture of employees in the captive unit is the same as that of the parent company, and all workers are familiar with business department processes. Done right, these workers are aligned with the vision, mission, and values ​​of the company whose reputation is at stake. achieved by its own employees if they have the right tools and if all processes are optimized, albeit at a higher cost. The goal is to use the learning curve of experience and align brand promise with delivery.

Own employees qualified to provide better services to internal customers, such as various divisions or business units, also allow greater control over decision-making and speed of action. For example, a captive unit can quickly extract data and provide faster solutions to a commercial wing facing a critical problem.

A major global consumer healthcare company recently established its own GBS for helpdesk services in Bangalore after ending a two-decade outsourcing partnership with a Delhi-based company. The cost savings were outweighed by the benefits of moving.

In many industries, gains can be made on standardizing processes across multiple countries, speed to market, attracting and retaining talent, automating and digitizing processes, and continuous improvement. Another key benefit is that a company’s own employees have a greater sense of ownership of brand promises, which reduces some training costs. Moreover, it is always easier to communicate within a company than with a third party. Trade secrets and other sensitive data also stay safer.

Outsourcing advocates might argue that it’s not just about cost savings, but also about reducing workload and burnout, allowing a business to focus on its core. business. Indeed, insignificant processes that add no overall value would be eligible for outsourcing.

Yet global companies are becoming hesitant to give third parties access to their internal systems and processes, given the rise in data breach cases and the lack of relevant information for growth and innovation.

Analysts may have seen the writing on the wall for outsourcing, as the stock performance of some Indian IT services companies suggests. Perhaps companies that depend on outsourcing should also move away.

Mr. Muneer is a co-founder of the non-profit Medici Institute. He tweets at @MuneerMuh

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