In the last post we talked about where outsourcing is headed for firms that have reached a “mature” stage. That is to say, if you operate out of one or more lower cost locations, all of which passed their “training” phase, are working efficiently, with work logically assigned to each location, have few (if any) new lower cost locations to exploit, your operation is mature. And if you have negotiated a new contract in the last two to three years, your blended hourly cost may have reached its lower limit. Onshore/in-house staff costs will probably be headed upwards, since many support groups have not raises or promotions for a few years. Then consider inflation for outsourced locations. There has been much said about offshore inflation, but there is also a lot of cost pressure onshore. Why? Well, if you look at employment rates in big cities (where your operations used to be) vs. smaller cities, especially smaller cities with significant call centers and outsourcing employment, the small cities have much lower unemployment. A good example is Fargo North Dakota. Over the last few years, Fargo’s unemployment rate has been a half to a third of New York City. If you haven’t had it yet, expect that call from your near shore operation about the need to raise salaries to retain staff.

To offset costs, or to drive to a new level of savings, you need to do three things:

1. Develop an “ultimate” in-house or on shore model.
2. Identify location neutral production targets for every work function.
3. Test each location for real production levels.

Not too difficult, right? Let’s look at each element. I will frame this in terms of a Document Center, because each function is very structured, well documented, and individual tend to perform only a limited number of functions (but remember: this is just one example, but your mileage may vary!). Most off shoring projects iteratively reduce the main center (in-house and/or onshore) by sending functions to outsourced centers. Eventually, the in-house center is similar to the original, but smaller, usually retaining: management, quality control, and administrative functions along with a limited production capacity for high priority work. It’s not a bad early model, but for a mature operation it can be improved.

It makes sense to retain a limited production capacity because someone can show up waving a cocktail napkin with a scribble on it and say, “I need to make this into a document”. This will indeed happen and when it does it is best handled face to face. Add a few other face to face encounters, a few verbal editing sessions and this justifies a few production staff, because of the greater efficiency and the good will you will earn. But administration should have moved to the location with the most production staff. Likewise, Quality Control… IF each location is truly functional… can just as easily be run from any location and can be most efficiently performed offshore.  Some may say that QC must remain onshore, but for highly documented and procedure based functions (a good description for document services) it’s just a question as to when the offshore staff has enough experience. The people hired on shore, near shore and off shore can all be intelligent and capable. If a center does not eventually develop these skills then I would review the recruiting, training and managerial expectations for that center, and then identify which is holding back the location.

What does that leave us with onshore? At least one “final stage” model of an outsourcing project is the transformation of the in-house center into a customer service gateway, which includes that small but vital emergency production capacity and customer service staff. The CS staff may be the former supervisors or it may require different people with a different skill set; however they are sourced, this will be a small number of highly skilled managers that deal with the satisfaction of the customer. Because seats in the headquarters (where primary document centers are usually located) are expensive, functions that require proximity to the client make the most sense. For your own services there might be a different combination of functions, but take another look at what is placed where in your current model. See if this discussion has made you rethink how you place the resources for your services, and if the right elements are in the right place.

The second and third elements are really just follow up on your design. Examine each function and set the productivity bar based on whichever location is the most productive. There might be room for even greater productivity (sounds like a Six Sigma talk in our future!), but at a minimum use your current benchmarks as your yardstick. If not all locations are at this level of productivity, they need to start committing to a date when they will get there and milestones along the way (ex.: increase productivity by 6% by August, etc.). Of course, once you set these targets you need to follow through with effective testing and then reporting to ensure that all locations achieve and maintain their level of productivity. Not so very difficult, if you reconsider your expectations and hold each site responsible for attaining productivity targets. I hope that this provides you with some new ideas for your operations, because that’s my Niccolls worth for today!