Research Proposal on Outsourcing

Definition Outsourcing is the practice of contracting computer center operations, telecommunications networks, or applications development to external vendors. In short, it is a strategy that hires an external organization more specializes in providing the business functions than by selves. Advantages of outsourcing Outsourcing has become popular because it can reduce the costs and increase the efficiency for the business. By saving the resources, the business can put more resources into the areas they do better than rivals. This increases the competitive advantages for the business. There are several benefits due to outsourcing. 1. Vendors specific written programmed In all business, their demand for the system programmed is quiet high but they haven't their own programmer. So need to outsourcing, therefore market need vendor to write programmed, then vendor's specific written programmed. Their programmed will suitable for no effort to employer programmer's business. It also can save the cost to development a new system.

We can write a research proposal on Outsourcing for you!

2. Good quality by experts As they are experts to written programmed whom specific to written. They can write a good quality and good equipment by experts. 3. Experts have experience If use outsourcing, no need to employ a programmer to written. Moreover, if employ a programmer may no experience about the system, they may need to training. So may delay the operation. 4 Less idle time If employ a programmer to write programmed, it may more useful to make suitable for business. But the business not always changes their systems. So the programmer will have many idle times. There will being no efficiency. 5 Cost changing When after using the fixed cost of written programmed will become variable cost. Because there are no people to have be invite. If yes they are also quiet and save money by outsourcing. They no need to employ the programmer to written, so save more money. Changing form fixed cost to variable cost. Disadvantages of outsourcing

Although there are many benefits from outsourcing, some business still operates their information systems by themselves. This implies that outsourcing still has some drawbacks. 1. Loss of control When the business asks an external firm to provide information system services, the external firms handle the system generally. Therefore, the services provider can operate the system without asking the ideas of business. The business did not how it maintain, what staffs it hires and what difficulties it faced. These problems can lead the company perceived a great loss. For examples, a small company is lack of resources to monitor the provider, had been loss its reputation because the provider had employee illegal information system engineer. 2. Loss of security When the information systems are outsourcing, it not only loses its control, but also its security. Since the providers of outsourcing services benefits from economies of scale, it must have many customers. Information systems outsourcing implies the provider has known many customers' confidential information. Hence, there is a risk that the company may loss its confidential information to its competitors. For example, the competitors can obtain the password of company's information system to know company's strategies. 3. High costs of selecting and monitoring providers Although outsourcing reduces the costs in development systems and staffs salaries, the company may raise the cost of inspection. Selecting the outsourcing providers is a complex process. It involves searching the available providers, measuring the reliability and costs of provider and so on. During this process, it may contribute the company a lot of resources, or even waste resource as it finds no provider is suitable. In addition, when hiring external providers, we must need some staffs to monitor whether the providers is met our expectation. It involves training and procedure development costs. These costs may exceed the benefits from outsourcing. Thus the company must trade off between those costs and benefits. 4. Inflexibility When the company decides outsourcing, it must make contract with the provider. In order to preventing the benefit of the provider, the contract must include the time horizontal of service provided. If there are environmental changes, such as fewer profits due to recession, the company cannot cut its information technology cost immediately. The constraint of contract makes the company more difficult to manage the changes. Moreover, when the company wants to change the outsourcing provider, survival of system is impossible. Changing outsourcing provider means layoff the system and staffs. The provider generally will not leave any technical expertise and software copies for the company. Hence, changing provider means changing the whole information systems. However, the company has own information systems and technical staffs, it can cut the costs while recession and has technical support while changing system. 5. Loss the benefits of end-user development

End-user development is the development of information systems by end users with little or no formal assistance from technical specialists. It leads to a higher level of user involvement and satisfaction with the system. However, outsourcing lack of the participation of end user while development the system. It may reduce the involvement and satisfaction of the end users. Outsourcing suitable for what condition When the firm no need to change there programmed in always, that mean no need to employ the programmer to write programmed. Therefore they need to outsourcing. Moreover, if the firm's system out of services also no big damage, which firm can use outsourcing. Then when the firm not enough to development their own programmed, they need to use outsourcing. Finally, if the firm s system is limited infective and inferior also need outsourcing. Conclusion In fact, outsourcing is not suitable for every company. Before making the decision, the company must consider its situation. Does information technology we need is consistent? Does the benefit of outsourcing offset the cost? Is there sufficient expertise and resources to monitor providers? Those questions can help the companies to decide the outsourcing strategy. The functions amenable to outsourcing:

application software development data processing center operations telecommunications local area network management desktop computing support help desk operations software distribution/asset management disaster recovery document processing and archival functions facilities management support operations data entry and simple processing

The benefits of outsourcing:

cost savings through economies of scale cash infusion reduced capital spending faster applications development access to IT/S expertise and competence flexibility in management IT/S resources elimination of a troublesome function cost reduction and contrainment access to cutting-edge technology and knowledge improved focus on the strategic use of information technology

increased availability of outsourcing services more fast not to tie up their venture capital funds in computer and networking equipment to draw on best-of-breed as well as be able to change course quality of need be

Outsourcing risks:

irreversibility of the outsourcing decision breach of contract by the vendor vendor's inability to deliver loss of control over vendor uncontrollable contract growth loss of critical skills biased portrayal by vendors vendor lock-in loss of control over data loss of employee morale and productivity lack of trust hidden costs loss of control logistics of oversight is more difficult when the outsourcing is abroad

Evaluation: The outsourcing/insourcing evaluation can be viewed as the process of balancing potential benefits and risks associated with outsourcing and insourcing. Many firms have been able to make their internal IT/S organization competitive with outside vendors by re-engineering its processes and making it more accountable for performance. Another major argument for insourcing is that outsiding exposes the client organization to many types of risks. Outsourcing is the act of contracting a service or function to an external third party. Outsourcing The trend in in that the affect many modern systems analysts business outsourcing.

business

will

is

Typically, the business must retain enough of a central information services unit to monitor and manage the outsourcing agreement. Also, some mission critical information services functions and projects may not be outsourced. Representative outsourcing vendors include Electronic Data Systems (EDS), ICCS, Computer Sciences Corporation. Cap/Gemini. IBM, and Anderson Consulting. As many as 50 percent of medium-to-large businesses have already outsourced some or all of

their information services. The initial business driver was cost reduction. Outsourcers were able to see and/or demonstrate that they could provide the information technology and services cheaper than the current in-house information services unit. Despite some well-publicized horror stories, the data suggest that most businesses are satisfied with their outsourcing deals. However, the evidence also suggests most outsourcing contracts will be written or restructured to outsource only certain functions (such as end-user computing support or network management). Also, future outsourcing will be based more on value added to the business than on cost reduction. In other words, the outsourcer will be contracted for technology or expertise that will return real value to the business (and for which the business perceives it cannot provide through its current workforce). The situations of using outsourcing When the internal information systems staff of the businesses cannot keep steps with the technological change or innovative business practices or they want to free up scarce and costly talent for activities with higher payback, then they will use the outsourcing from the external party. Advantages: 1. Business growth can be accommodated without making major changes in the organization's information systems infrastructure. 2. Some agreements with outsourced include the sale for cash of the outsourced firm's technology capital assets to the vendor. 3. The firm may be able to obtain a higher level of service from vendors for the same or lower costs. 4. A fixed price for a specified level of service reduces uncertainty of costs. 5. Clients only need to pay for the amount of services they consume, as opposed to paying a fixed cost to maintain internal systems that are not fully utilized. 6. Through specialization and economies of scale, they can deliver the same service and value for less money than the cost of an internal organization. 7. Scarce and costly talented individuals within an organization can refocus on activities with higher value and payback than they would find in running a technology factory. Disadvantages: 1. Companies can't develop the tailor-made systems for themselves 2. Many companies may use the same system; there have the securities problem because other companies can easy to steal the information between the same systems 3. Companies outsourcing their systems because lacking of IT knowledge, vendors may always update the software in order to earn more profit 4. If the companies don't know how to run the system or have any problem when using the system, companies should ask back to the vendors, it is inconvenience for the companies if the vendors without the professional customer services. Definition: Outsourcing is the process of turning over an organization's computer center operations, telecommunications, networks, or applications development to external vendors, such as, employee recruiting and hiring, development of advertising materials, product sales promotion

and

global

telecommunications

network

support.

Circumstances to use outsourcing: 1. If a firm does not want to use its internal resources to build or operate information systems, it can hire an external organization that specializes in providing these services to do the work. 2. In firms where the cost of the information systems function has risen rapidly, managers are turning to outsourcing to control these costs. 3. When their internal information system staff cannot keep pace with technological change of innovative business practices or because they want to free up scarce and costly talent for activities with higher payback. 4. A company hopes to exploit the benefits of information technology in key business processes and improve the productivity of their information system resources. Advantages of outsourcing: 1. It allows the company to focus more closely on core business--target limited resources to meet strategic goals. 2. It is perceived as a cost-effective measure that eliminates the need for maintaining their own computer center and information system staff. 3. It allows the company to cut the cost of their IS operations need to review this decision carefully. 4. The provider of outsourcing service benefits from economies of scale (the came knowledge, skills, and capacity can be shared with many different customers) and is likely to charge competitive prices for information system services. 5. It allows a company with fluctuating needs for computing processing to pay for only what it uses rather than to build its own computer center, which would be underutilized when there is no peak loan. 6. It leaves systems development to the consultant's experts and avoids the expenses and headache of hiring and supervising a staff of programmers and analysts. 7. It upgrades to new systems faster and easier. Disadvantages of outsourcing: 1. It leads to the loss of control over the information systems function. 2. If the organization lacks the expertise to negotiate a sound contract, the dependency on the technical direction and prosperity of external vendors could result in high costs or loss of control over technological direction. 3. Trade secrets or proprietary information may leak out to competitors when a firm's information systems are run or developed by outsiders.
(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( ((((((( Research Proposal: Business Process Outsourcing In South Africa

Table of Contents

1 Introduction and Background 1 2 Definition of Research Problem 2 3 Preliminary Literature Review 2 4 Research Design and Method 4 5 Timeframe 5 6 Framework for Proposed Study 6 7 Provisional List of Sources 6 8 Date of Completion 7 1 Introduction and Background In the nineties corporations realised that due to economic and business pressures, corporations need to focus on core business activities. In addition rapid technology advances rendered the provision of IT services free from the business location. The introduction of concepts such as "location-less" and "distances-less" provision of IT services gave rise to an increasing demand for outsourced IT services (Bierce, Spohr and Shab, 2004:5). These technology advances also provided the opportunity to exploit the benefits of offshore outsourcing. Initially, IT Infrastructure Outsourcing and then later Application Outsourcing were implemented to reduce operational costs and focus on core business. Today Business Process Outsourcing (BPO) is the next discipline many multi-national corporations are embarking on. BPO include functions such as human resource services, financial services, accounting and reporting, billing, procurement, call center management, credit services and customer relationship management. This research will focus on call center management function of BPO. Initially, one of the main drivers for foreign BPO was cost savings mainly due to currency market fluctuations as well as associated lower labour wages. The benefit from a foreign destination BPO agreement can account for cost savings of 20% to 65% (Rayn 2003:1) depending on the country from where BPO services are sourced. South Africa is already recognised as one of the most favourite Business Process Outsourcing destinations in Africa as South Africa has already proven to have the capacity and capability in the most important factors when considering a BPO initiative. The decision to embark on Business Process Outsourcing include consideration of the factors such as cultural similarities, level of technological development, IT infrastructure capability, government stability and the workforce. This research will determine the most pertinent domestic factors in the South African BPO market to secure long term BPO service contracts with multi-national corporations in foreign countries. This research will attempt to answer the question: What are the key differentiators to become a preferred destination in the BPO marketplace with specific reference to call center management? Which support structures exists to foster these key differentiators within the South African infrastructure, legal, political and economic domains?

2 Definition of Research Problem Business Process Outsourcing (BPO) is today the most relevant topic within the context of offshore outsourcing. Specific countries like South Africa are targeted by multi-national corporations of major economies such as America and Europe to establish such offshore BPO agreements where the most cost benefit can be realised and the most effective BPO solutions can be provided. The aim of this research is to identify the key differentiators within the South African context to foster an attractive Business Process Outsourcing environment with specific reference to call center management. Once the key differentiators are identified this research will identify and recommend the support structures that South African organisations should provide within the infrastructure, legal, political and economic domains to foster long term BPO agreements. The main premise is that the offshore outsourcing market in South Africa was mainly the result of geographical advantages as well as short term profit drives to "test the market". South Africa need to establish itself as a BPO services provider market leader through the institution of a unique BPO industry proposition. 3 Preliminary Literature Review The following reflects the view of industry professionals and industry research groups on the most prominent factors one would consider when embarking on BPO initiatives in South Africa. These factors can be grouped into four domains namely technology infrastructure, legal, political and economy. The identified factors are: The first professional opinion is that of Peter Drube, Business Process Outsourcing (BPO) director of Computer Sciences Corporation who identify some of the prevalent South African factors which support the decision on South Africa as a BPO service destination include: o Political and Economy stability o 1st world telecommunications infrastructure o Legal infrastructure o Compatibility of legal, judicial and financial systems o Continuous service improvement o Western business culture and English language skills o Government support to foreign investment o and a well-educated workforce However, this will only attract new BPO opportunities to South Africa. The South African Information and Communication Technology (ICT) industry must also focus on retaining long standing relationships with foreign service receivers. To accomplish this Drube continues, are factors such as sufficient infrastructure, world-class processes and expertise which delivers cost benefits, business process and technology innovation (Drube, 2004) A second opinion comes from J. Krause in a report by Ryan, E (2003) which identifies: o A large literate workforce

o Sophisticated technology o Countrywide infrastructure o Political and economic stability o Time zone compatibility o And government support As the most significant circumstances which benefit BPO outsourcing to South Africa. Similarly Bean S. (2003) from Accenture, a leading business consultancy organisation, identifies o Political and Economic stability o Better credit and investment ratings o IT and telecommunication infrastructure o And legislative environment offering protection for corporate assets As the prevalent conditions in considering South Africa as outsource destination A final view on the significant conditions which promotes outsourcing services to South Africa is obtained from AT Kearney (2004:7). AT Kearney states in its periodical the challenges for offshore initiatives include: o Organisational alignment o Viability of providers and partners o Migration risks o Local operating experience, people and culture o And customer requirements As the most prominent conditions to motivate outsourcing contracts to South African service providers. Several publications and policy documents exists which describe the current approach of relevant South African organisations or institutions to providing an attractive BPO environment. The Department of Trade and Industry (DTI) has formed Technology and Human Resources for Industry Programme (THRIP) which has the mission statement: "To improve the competitiveness of South African industry by supporting research and technology development activities and enhancing the quality and quantity of appropriately skilled people." (DTI: 2005) The South African Chamber of Business (SACOB) produces Business Confidence Index statistics and reports which describe the economic climate in South Africa will define the economic climate. The ICT Empowerment Working group has produced the ICT Charter which, in compliance with the Broad-based BEE Act, is to promote and facilitate economic empowerment in the ICT sector. 4 Research Design and Method This research project is envisaged to consist of three phases. Initially, identification of the key factors to create a positive BPO environment for call center management will be determined. This will involve analysis of research reports of IT industry research groups and industry consultation organisations such as Gartner, ATKerney and Accenture. In addition analysis of the proposition statements and service offering portfolios of service providers within the scope of BPO services will be investigated to formulate the key factors which will foster an attractive BPO marketplace in South Africa. Service providers relevant in the South African market include ACS, Accenture, CSC, EDS, IBM and T-Systems. This will involve interviews with relevant persons of these service providers. The result of this phase is the

classification of the key factors within the domains of technology infrastructure, legal landscape, political atmosphere and economic climate. The next phase involves the examination of current organisation as so far as support of these key factors for BPO. Policy documents, charters and relevant indexes will be studied to determine the approach and outlook of organisations which influence the identified domains. Organisations to be examined include the Department of Trade and Industry, SACOB and the ICT Empowerment Working Group. The review and analysis of policy documents, charters and indexes will provide a view on the current atmosphere in South Africa as determined by influencing organisation and institutions to support BPO. Finally, through synthesis of the key factors, the service offerings of current service providers and the legal and economic framework determined by existing organisations in South Africa the research will provide recommendations to create an attractive BPO market in South Africa. 5 Timeframe The following timeline presents a high level deliverable based proposal of the time frame in which this research will be conducted.

6 Framework for Proposed Study Title page Abstract Table of contents Chapter 1: Introduction and challenges to BPO in the South African context Chapter 2: Key differentiators an industry perspective Chapter 3: Research methods and investigation Chapter 4: Problems investigated Chapter 5: Discussion of findings Chapter 6: Conclusions Chapter 7: Recommendations List of sources Appendices 7 Provisional List of Sources 1. Offshore IT Outsourcing Markets, [Online], Available: http://offshoreitoutsourcing.com/Pages/it_outsourcing_markets.asp 2. Drube, P., CSC Press Release, 26/02/2004, [Online], Available: http://za.country.csc.com/en/ne/pr/1229.shtml, Accessed: May 2005 3. Ryan, E., Team SA woos the world, 07/09/2003, [Online] Available: http://www.suntimes.co.za/2003/09/07/business/surveys/survey03.asp, Accessed: May 2005 4. Accenture, SA Tops for Global Outsourcing, 30/10/2003, [Online] Available: http://www.accenture.com/xd/xd.asp?it=afweb&xd=

locations%5Csouthafrica%5Cnews%5Coct03%5Coutsourcing.xml, Accessed: May 2005 5. Bierce, A., Spohr, S., and Shab, R., Executive Agenda, AT Kearney, vol. 2, no.2, p. 7, 2004 6. Gouws, R., Update from the Rand Merchant Bank Chief Economist, 10/02/2005, [Online] Available: http://www.homecomingrevolution.co.za/html/article_economic.php?article_id=81, Accessed: May 2005 7. SACOB, Business Confidence Index April 2005, 05/2005, [Online] Available: http://www.sacob.co.za/BCI/bci_apr_05.pdf, Accessed: May 2005 8. Department of Trade and Industry SA, [Online] Available: http://www.dti.gov.za/home.asp, June 2005 9. ICT Charter Working Group, November/2004, [Online] Available: http://www.ictcharter.org.za, June 2005 10. Gartner Research Group, 2005, IT Services & Outsourcing, [Online] Available: http://www.gartner.com/research/focus_areas /asset_48263.jsp, June 2005 8 Date of Completion Based on the time line the research report will be completed and ready for submitting on 16 October 2006. **888888888888888888888888888888888888888888888888888888888888888888

The Disadvantages of Outsourcing HR Functions

By Wendy Reynolds, eHow Contributor

Outsourcing can have a negative impact on employees.

Outsourcing human resources functions can save time and money. However, it can also cause employees to feel disconnected with the company. According to an August 2008 study conducted by the Society of Human Resources Management (SHRM), the most commonly outsourced HR functions are background checks, employee assistance programs and flexible spending accounts. While outsourcing these functions may not cause a disconnect between employees, companies have the option to outsource other functions that would. When deciding which functions to outsource, it is important to weigh the disadvantages.

Read more: The Disadvantages of Outsourcing HR Functions | eHow.com http://www.ehow.com/list_6500537_disadvantages-outsourcing-hrfunctions.html#ixzz1xlZ4L9LR

1. Loss of Human Factor

o

According to the same August 2008 SHRM study, the loss of face-to-face interaction is the biggest disadvantage of outsourcing. Employees want a familiar face when they have HR issues; replacing a human with an 800 number to call is not a positive exchange. For example, when answering questions of a personal nature or discussing a possible retirement, most people would feel more comfortable talking face-to-face. Employees want to feel secure with their personal information and decisions.

Climbing Costs
o

Cost savings is often considered an advantage of outsourcing, however, the August 2008 SHRM study found that 28 percent of the companies reported their costs had increased due to outsourcing. It can also take more time, especially during start-up. Proposals are accepted and evaluated, then processes must be outlined and put in place. This transition period can be costly. Sponsored Links

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In-House Expertise
o

Outsourcing HR functions discourages the development of in-house expertise. SHRM's August 2008 study found that 43 percent of the companies surveyed prefer to develop their own employees, rather than hire a third-party to do the work for them. Outsourcing important HR functions such as employee training and development can prohibit your HR employees from accomplishing their career goals. For example, hiring a third-party to conduct safety or compliance training could prevent an HR training professional from learning something new and challenging.

Change Company Culture

o

Outsourcing can definitely change the company's culture. It can drive a wedge between HR and the employees, which leads to trust issues. Outsourcing certain staffing functions, such as background checks, employment verifications or resume screening, may have no impact on culture. However, outsourcing more personal functions, such as employee training, new employee orientation or retirement processing, can change the company's vision drastically.

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"What are the key areas of my business that I should think about outsourcing to save money without causing any issues in customer service?" Contribute to this Discussion

Outsourcing - What is Outsourcing?

So, what is outsourcing? Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is

considered non-core to the business. An insurance company, for example, might outsource its janitorial and landscaping operations to firms that specialize in those types of work since they are not related to insurance or strategic to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers. Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently, and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel. Currently, outsourcing takes many forms. Organizations still hire service providers to handle distinct business processes, such as benefits management. But some organizations outsource whole operations. The most common forms are information technology outsourcing (ITO) and business process outsourcing (BPO). Business process outsourcing encompasses call center outsourcing, human resources outsourcing (HRO), finance and accounting outsourcing, and claims processing outsourcing. These outsourcing deals involve multi-year contracts that can run into hundreds of millions of dollars. Frequently, the people performing the work internally for the client firm are transferred and become employees for the service provider. Dominant outsourcing service providers in the information technology outsourcing and business process outsourcing fields include IBM, EDS, CSC, HP, ACS, Accenture and Capgemini. Some nimble companies that are short on time and money, such as start-up software publishers, apply multisourcing -- using both internal and service provider staff -- in order to speed up the time to launch. They hire a multitude of outsourcing service providers to handle almost all aspects of a new project, from product design, to software coding, to testing, to localization, and even to marketing and sales. The process of outsourcing generally encompasses four stages: 1) strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities; 2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and service providers to do it; 3) contract development, to work out the legal, pricing and service level agreement (SLA) terms; and 4) outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers. In all cases, outsourcing success depends on three factors: executive-level support in the client organization for the outsourcing mission; ample communication to affected employees; and the client's ability to manage its service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as negotiation, communication, project management, the ability to understand the terms and conditions of the contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as business needs change. The challenges of outsourcing become especially acute when the work is being done in a different country (offshored), since that involves language, cultural and time zone differences *************************************************************************************************

How An Internal Team Can Respond to an Outsourcing Challenge

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By Dean Meyer When executives invite a vendor to submit an outsourcing proposal, their internal service provider is immediately put on the defensive. It must respond with a competitive proposal that demonstrates why it deserves to remain in business.

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When facing a challenge from an outsourcing vendor, there are some critical "do's and don'ts" for the internal staff, which I refer to as the internal service provider. This is not the right time for drastic cost reductions. It's too late to significantly change the organization's way of doing business, and "window dressing" the financial picture can lead to a deterioration of service, further alienation of the clients, and permanent damage to the organization and its staff. Instead, the internal service provider should focus on preparing a clear, factual proposal that portrays its true costs of doing business. Given that an internal service provider doesn't have to earn a profit, the financial comparisons should be favorable in spite of some inefficiencies. But the biggest problem in responding to an outsourcing challenge is this: Generally, it's difficult to compare an internal service provider's budget to a vendor's outsourcing proposal. There are two primary reasons for this:

1. An internal budget isnt presented in a businesslike fashion, making it difficult for clients to
understand the cost of each product/service they receive.

2. Internal staff are generally funded to do things that external vendors don't have to (and should
not) do. It's easy for an outsourcing vendor to appear cheaper when they don't have to do these corporate-good activities. To permit a fair comparison of costs, an internal service provider must present its budget in a very different way. In this article, we examine how your staff can prepare its own proposal to support its bid to keep the business. Internal budgets are often presented in a manner that doesn't give clients an understanding of what they're buying. Consider a budget spreadsheet, where the columns represent cost factors such as salaries, travel expenses, professional development, etc. The rows represent deliverables, in other words, specific projects and services.

Deliverable Project 1 Project 2 Project 3 Project 4

Salaries Training $ $ $ $ $ $ $ $

Travel $ $ $ $

Etc. $ $ $ $

This sort of spreadsheet is a common and sensible way to develop a budget.

The problem is, after filling in the cells in this spreadsheet, most organizations total the columns instead of the rows, presenting the budget in terms of cost factors. This, of course, invites the wrong kind of dialogue during the budget process. Executives debate the organization's travel budget, micromanaging staff in a way that they never would to an outsourcing vendor. Even worse, executives lose sight of the linkage between the organization's budget and the deliverables they expect to receive during the year. They don't know what they're getting for their money, so the function seems expensive. At the same time, this approach leads clients to expect that they'll get whatever they need within the given budget, making it the staff's problem to figure out how to fulfill clients' unlimited demands. Put simply, clients are led to expect infinite products and services for a fixed price! Success in this situation is, of course, impossible. As hard as the staff might try, the internal service provider gets blamed for both high costs and unresponsiveness. Meanwhile, outsourcing vendors can offer bids that appear less costly simply by promising less. Executives have no way of knowing if the proposed level of service is comparable to what they're receiving internally. In short, while vendors are generally quite clear about the deliverables within their proposed contracts, the internal organization's deliverables remain undocumented. When comparing a short list of outsourced services to a long but undocumented list of internal services, the vendor may very well appear less expensive. The answer to this predicament is presenting the internal budget in a different way. The internal service provider should total the rows, not the columns. This is termed "Budget-by-Deliverables," the opposite of budgeting by cost factors. Budget-by-Deliverables permits fair comparisons between internal staff and outsourcing vendors. With a budget presented in terms of the true cost of products and services, executives are often surprised to learn just how much an internal service provider is doing to earn its keep. In many cases, clients learn that, although the vendor appears to be less expensive in total, its offering fewer services and perhaps a lower quality of service than the internal staff provides. Learning to present budgets in terms of deliverables has tremendous benefits with or without an outsourcing challenge. One key change is that the debate during the budget process becomes much more businesslike. Instead of demanding that staff do more with less, executives decide what products and services they will and won't buy. Trimming the budget is driven by clients, not staff; and, as a result, is better linked to business priorities. Once a Budget-by-Deliverables is agreed upon, another ongoing benefit is that clients understand exactly what they can expect from staff. Of course, if they want more, the internal service provider willingly supplies it -- at an additional cost. This is a critical step in balancing supply and demand for staff services