" Outsourcing is never a one-way street ! " - Magdalena Szarafin

Magdalena Szarafin has been regularly enriching the BPOVoice members through her insightful blogs and discussions. BPOVoice.com interviewed her to know her views and opinions on the various important aspects of outsourcing. Below are the excerpts:

How can the emerging destinations be more attractive to the investors?
If you want to make a destination attractive to the investors, just try to put yourself in investor’s shoes, to think as the investor does. What is important for him, where is he likely to establish his operations?

There have been many different research projects undertaken on this subject, the results can be summarized as follows: A potential investor takes cost aspect, human capital (and its availability), and business environment in consideration. The combination of them three gives a solid basis for the location decision.

What makes Germany an attractive destination for outsourcing?

I always say, outsourcing is not just about cost. “Outsourcing is people’s business”, so that quality and availability of personnel are crucial. Infrastructure and business climate are important as well. And that is the point: Germany is not a low-cost location but this country ranks very high in terms of human capital and business environment.

Many German towns, as Frankfurt, Munich, Berlin, Hamburg and Duesseldorf were ranked among best cities to locate a business today, as for instance in the ranking of 34 European cities prepared by Cushman & Wakefield in form of “European Cities Monitor 2009”. The main criteria taken into consideration to prepare this ranking were as follows:

• Easy access to markets and customers,
• Availability of qualified staff,
• Quality of telecommunications,
• Transport links with other cities and internationally.

As Germany Trade & Invest, a foreign trade and inward investment agency of Germany reports, the annual growth in the BPO sector amounts to 9 per cent. The value of BPO market volume in Germany is estimated at EUR 16 billion by 2012. Shared services sector is expanding as well – such corporations as Allianz, BASF, Bayer, GMAC, IKEA, Merck, Parexel and many more have decided to chose Germany as the location for their shared services operations.

In you opinion what are the main expectations of a client?

The relation vendor-buyer can be perceived through the triangle: cost – quality – time. Clients want a service to be of best quality, delivered in a shortest time – and of course at possible lowest cost. However, you as a vendor cannot deliver the highest values (i.e. best quality, shortest time of delivery and lowest cost level) of these three dimensions at the same time, so you try to find the best possible optimum between them to satisfy your customer.

In your opinion, which one can usually perform better captive BPO or the third party centers?

That depends on many factors: On the nature of the service, its maturity, its importance for the organisation… The competencies a service provider has are of importance as well. And of course the location factor cannot be underestimated.

Generally saying: A BPO run by third specialized party makes it possible to transform the non-core processes a company has by reducing cost, improving service quality and providing flexibility.

While internal mature service centres are (internally) treated as cost centres, they present valuable assets on the BPO market and can therefore be monetized. This model has already been proven by many corporations, as: Unilever, Aviva, Philips, Citigroup and many more, perceiving outsourcing to third party as the next stage of development for their service centers.

What are the challenges that the shared service centers are facing these days?

Different shared service centers, in different stage of maturity, face different challenges. But, I would list the following ones, perceiving them as important:

• Attrition rates and talent retention: The issue is not, how to access talented employees but how to retain them. It is not just going on financial compensation: Shared service centers interested in a long-term co-operation with their employees should offer them promotion, development and training possibilities as well. Good social environment and a workplace where people feel well are crucial, too.
• Location: Many shared service centers have been established in low-cost locations and possible cost explosion over years has not been really considered. Now they face the problem that “the cheap ones of today are (often) the expensive ones of tomorrow”. Lessons learned: Consider not just the “here and now” perspective but also the possible future dynamics.
• Quality vs. quantity: A few years ago the decision “to establish a shared service center or not” was mainly cost-driven. Now corporations perceive the SSC model foremost as a solution offering increase of quality.

You recently wrote about reverse outsourcing, would that be comparable to near shoring? Tell us more about it.

The huge dynamics in the globalisation processes in the past years has given an opportunity for poorer countries to play an important role in international business. Thank to establishing of originally small BPO companies which could quickly grow to multinational giants, the phenomenon of “reverse outsourcing” has occurred. This concept describes the process in which the outsourcer of today becomes the “outsourcee” of tomorrow. Let me cite Professor Val Stella from Kansas University who has fabulously pointed that out as follows: “The world is ‘flat’ in all directions. The water doesn’t only flow to India and China. There is flow back to this country: They need the things that we do well, and we can use the things that they do well.” And more: “We tend to think of it only as a one-way street, but it isn’t that way.”

And that is the point: Outsourcing is never a one-way street. Does not matter, if you outsource operations to nearshore or to offshore locations, there is one thing you can be sure about: The investments done in these locations will come back to the country of origin in middle- to long-term period of time in form of new companies, new jobs and new business opportunities.

Do you think that the western media does a somewhat biased reporting on outsourcing?

The task of mass-media is to inform people about facts and providing views and opinions. And being independent and unbiased as well.

Generally, the question cannot be simply answered with “yes” or “no” as the level of independency, quality of information delivered and comments given varies from medium to medium. And it is actually a free choice of the audience, which newspapers and news they read and which TV programmes they watch. And after perceiving different views, connecting them with the knowledge they possess, they can establish their own point of view on a certain topic, as outsourcing for instance.

And one thing cannot be forgotten: Corporations running mass-media also make a use of outsourcing.

Our current survey - BPO Employees Opinion Survey 2009 indicated towards a higher attrition among the middle level employees in the post recession scenario. How do you think it can be contained?

Let’s ask a question, why people change their jobs. There are different reasons: payment, promotion and development opportunities, training possibilities, relations with colleagues and supervisors, organisational culture, work and responsibility area, quality of workplace.

BPO and SSC sectors generally belong to those with relatively high attrition rates. However, there are companies having 20% attrition rate and those with “just” 5% attrition rate. To reduce the personnel turnover rate (not only in reference to the middle level employees but in general) and to retain talents, the following measures and actions are recommended:

• Recruitment of HR Director and clear HR strategy,
• Setting up a robust management team,
• Tailoring the working culture to the country the BPO/SSC operates in,
• Transparency regarding employees’ roles, tasks, responsibilities and promotion opportunities,
• Training possibilities given to the employees,
• Quality of workplace: offering people working environment where they feel well.

About Magdalena Szarafin :

Magdalena Szarafin holds a Master’s degree in Economics (M.A.), Master of European Studies (M.E.S.) and Certificate in International Accounting (CINA). She has immense knowledge of the outsourcing sector and is one of the experts in shared services and outsourcing industry analysis. Her research interests include insourcing and outsourcing in connection with the value chain. She is the author of many publications dealing with outsourcing, knowledge management and total quality management (TQM).

Magdalena lives in Frankfurt, Germany and works as an International Management Accountant in a big multinational pharmaceutical group. In her leisure time she is active in many non-profit organizations (she is the Chairman of IFRS Practice Committee at German CPA Society, member of European Management Accountants Association, Social Networking Manager at Indo-German Software Competence Network (Indescon) e.V.). Except of that she is a speaker on conferences and other events. She prepares her PhD dissertation focused on shared services.