Outsourcing -- Not Just a Way to Cut Costs Anymore

Companies are increasingly considering outsourcing for quality and expertise. Here's a look at other outsourcing trends and tips for dealing with the changing environment.

When American companies began turning to India, Uganda, China, Poland and elsewhere to staff call centers, handle paperwork, write software and manufacture products, there was one goal – to save money. But outsourcing firms have grown so good at the diverse services they offer that American companies are turning to them even if little money is being saved -- and sometimes even if they cost a little extra.

"Customer organizations realized that the service providers really were experts in their chosen fields and that outsourcing offered a range of additional benefits such as access to new skill sets, best-of-breed services, greater innovation and transformation, and better speed-to-market for new products and services," the law firm of Morrison & Foerster writes in a report on outsourcing trends for 2008.

The firm warns American companies that the falling dollar could make outsourcing even more costly, but to not act precipitously. Providers that rely heavily on U.S. clients and those with contracts that put much of the currency risk on them may push for price increases, even if they hold long-term contracts. Clients should think twice before turning them down. "Some of the more mature customers may realize that it is in their best interests to ensure that their provider is not in a loss-making situation," the report says. "…However, such price increases will come at a cost, and providers will be pushed even harder to innovate and provide more added value."

Morrison & Foerster says contract disputes and misunderstandings are still common, despite the fact that agreements are much more carefully worked out than they were in the early years of the outsourcing explosion. The report says customers themselves are often to blame. "It is clear that many of the contract management mechanisms in place … either are not being used or are being implemented poorly." It urges companies to recognize that outsourcing firms need the same type of supervision and oversight as their own operations. More time and staff should be dedicated to making sure quality, service and contractual terms are being met. Or, of course, that function can be outsourced.

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