The recent Satyam scandal has served to heighten the issues already facing CPOs dealing with outsourced services. At a time when the dynamics of the market mean that suppliers are under pressure to reduce prices, the increased supply risk to business-critical services through scandals and economic weaknesses creates uncertainty and nervousness both inside and outside the organisation. The potential result is missed benefits, either through not using external supply enough or not applying sufficient pressure to services already outsourced.
In Europe and North America, the use of outsourcing and offshoring is now measured in the billions of dollars. The Satyam case has highlighted the sheer volume of business-critical services provided through this mechanism. In many developed economies, more than 60 per cent of large and medium-sized companies use outsourcing – a figure that is increasing by 9 per cent a year.
Customer satisfaction with offshore, and particularly Indian, service providers remain high, too; in recent EquaTerra research, Indian companies occupied four of the top five places for general satisfaction.
Openness and transparency
The Satyam scandal erupted when its founder and chairman admitted falsifying accounts to the tune of over $1 billion. As the details of what happened unfold, the need for openness and transparency comes into sharp focus. Detailed due diligence of all suppliers – not only at the point of the deal but periodically throughout a relationship – is vital.
The advice for businesses with, or considering, offshore service provision is to undertake a comprehensive risk analysis and then close every risk with pragmatic mitigation actions. Organisations should do the following:
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Have a remedial or recovery plan and keep it up to date. This should include escrow copies of documented processes, tools, workflows and other materials. Debates around “proprietary” are meaningless in the face of the health and welfare of your company.
Executive blocks
Outsourcing, and specifically offshoring, are not right for every organisation or service and for some senior business leaders the Satyam affair will mean they are written off as too dangerous or complex.
The alternatives, such as captive shared service centres in established or emerging markets such as Latin America and China, must be considered by firms seeking to effect change for economic benefit. The range of sourcing options and possible locations are complex and specific to your organisation and its requirements, so your analysis must be thorough and supported by experienced professionals, data and on-the-ground knowledge.
With hindsight, Satyam was a scandal waiting to happen. The events leading up to it should be required learning for anyone engaged in global services outsourcing or offshoring. At the same time, Satyam should be seen as a failing business rather than one that undermines the business case for this sourcing model.
Phil Morris (phil.morris@equaterra.com) is managing director, Europe and Asia, of outsourcing advisory company EquaTerra, based in London
