Key Drivers for Offshoring in the Service Industry

Services represent a diverse group of economic activities and involve a human value add in terms of management, advisory, training etc. Services play a key role in all economies today. According to OECD, the most rapidly growing service sectors include finance, insurance, real estate and IT services. These sectors owe their growth to many factors, chief amongst them being outsourcing or offshoring of former activities by established firms.

Offshoring and outsourcing have always been a part of corporate restructuring activities so that they can concentrate on core competencies, reduce costs and exploit specialized expertise externally. The decision to outsource alone is not enough to achieve the above objectives. The decision must be in line with overall organizational objectives and must match requirements. In order to ensure that any offshoring activity gives the results expected one must look at and ensure the following: Quality of service, profitability, productivity & risk awareness.

Quality of service of course is an intangible – hard to measure. It must therefore be derived from tangibles like appearance of the vendor facilities, equipment, personnel, communication, reliability to perform the service and, responsiveness to customer requirements. If firms are able to exploit production differentials and save on labor cost, profitability may be expected to rise. This also indicates that knowledge transfer must be efficient and conducted at a fairly reasonable cost. The incidental costs of language, cultural, policy and legal differences must be minimized.

Changes in productivity need to be measured to be able to attribute a success quotient to the outsourcing/offshoring decision. To measure productivity, one needs to be able to assess efficiency, effectiveness, agility and innovation. The overall “time to market” must reduce in service delivery. The reduction in non-core competency work must also lead to more creativity and innovation.

There is always a risk associated with an outsourcing/offshoring decision. Prior to every outsourcing/offshoring decision, a firm must assess the associated risks and only then will the firm be able minimize the risks and improve its chances of success. Risk assessments should typically cover people and transition costs, cultural and communication risks as well as financial risks.

If the key drivers are studied / analyzed carefully and the fall out of incorrect implementation is pre-diagnosed, pit falls can be avoided and offshoring solutions can be used successfully by firms across the world.

GKM has been successfully providing outsourcing to the accounting profession since 1999 and has worked with many NCI clients across the U.S. We also provide outsourced services to NCI’s sister firm America’s Choice Bookkeeping and Tax Service since its inception. Visit our website www.gkmtax.com for more information and call toll-free 1-844-889-3852 for a list of satisfied clients.

Karthi, Founder