1 A White Paper by Exact Software Remote Operations and Outsource Management: Maintaining Visibility and Accountability Exact Software Ext. 2650
2 Executive Overview Remote Operations/ Outsource Management ( ROM ) is when an organization outsources corporate services and/or production to either 3rd party companies or internal facilities. In order to support continued corporate growth objectives, many companies have implemented or considered cost-cutting initiatives through the reallocation of labor or services. Specifically, this shift resides in the outsourcing of specialized services to external companies or the relocation of such in-house operations as manufacturing, accounting, healthcare administration, software development or customer-services to remote office locations. The execution of such a business model is known as Remote Operations/Outsource Management. By definition, Remote Operations/Outsource Management ( ROM ) is when an organization outsources corporate services and/or production to either 3rd party companies or internal facilities. These remote operations are located away from direct corporate oversight, and in many cases, thousands of miles and several time zones away from the rest of the operations. The reason is straightforward: lower labor costs and/or a superior abundance of raw materials. However, in order to fully realize the total fiscal benefits of ROM, these efforts must be managed with the proper tools and technology that can facilitate visibility into all projects and business transactions without compromising the original financial and quality goals. By taking advantage of communications and information technology coupled with low-cost, high quality intelligence via business management tools, organizations can effectively achieve further reduction in overall expenses while avoiding hidden and sometimes significant costs. Technology tools that have traditionally been used for ROM have been employed to make the remote operations function seamlessly with the corporation s overall business processes. However, unforeseen overhead costs become apparent as these tools do not succeed in alleviating the communication, control and management problems that arise from ROM. Without having to jeopardize any of the original fiscal and quality goals of ROM undertakings, organizations, if well-equipped and prepared, can fully address these ROM issues. By emphasizing the management of the relationship of remote operations through streamlining the complexities involved with multiple offices, vendors, suppliers and projects, companies can further reduce costs for unseen problems, resulting in even greater cost-savings and profit. This paper discusses the evolution, methods and resulting problems that emanate from Remote Operations Management as well as a conclusive answer to those issues Exact Holding North America, Inc. All Rights Reserved.
3 Although still in its youth, the ROM market, according to the US Department of Commerce, has already grown in value of exports to over $130 billion for The Evolution of Remote Operations/Outsource Management Organization and industry growth stem from a combination of innate business factors including greater demand, increased competition and modernization of technologies and services. But, for every step towards corporate expansion, there is an increase in business complexities and, coupled with profit margin expectations, companies are forced to continuously reevaluate cost-cutting measures. In the late 1960s, the larger electronic and semiconductor companies realized through feasibility studies that rising labor costs, affected by increasing salaries, competition for specialized work and turnover rates, could be relieved through a reallocation of their workforce. Positive factors such as favorable American tax laws and the potential of new consumers internationally made remote operations a reality. Although ROM was typically practiced in the manufacturing arena via offshore operations throughout the next two decades, the early 1990s brought yet again a significant expenditure re-evaluation by the Fortune 1000 companies. It was found that in addition to remote manufacturing operations, the practice of outsourcing corporate business processes could result in further cost reductions. As back-office operations were found to not be limited to a specific vertical market, and with the advent of the Internet and Voice-over IP, the outsourcing trend continued to permeate through to various industries such as healthcare, financial services, retail and IT. ROM then became part of mainstream business operational planning, and the types of specialized services that a corporation could administer by ROM also became more diversified to include more front-office and business process services such as customer-interfacing, legal work and human resources. General Electric, an initiator in back-office outsourcing, found that their operational expenses were further reduced by outsourcing such business processes as knowledge services, IT help desks and accounting. By extending remote management to specialized services, GE proved that skilled and quality labor did not have to reside in-house or even domestically in the United States. Although still in its youth, the ROM market, according to the US Department of Commerce, has already grown in value of exports to over $130 billion for Industry analysts such as Meta Group and IDC, respectively, predict a continuous growth in offshore outsourcing of 20% annually over the next few years, with the overall IT-enabled services marketing accounting for revenues of up to $1.2 trillion by Industry speculation is that ROM will be a significant growth sector for at least the next ten years Exact Holding North America, Inc. All Rights Reserved.
4 Goals of Remote Operations/Outsource Management Now a strategic business initiative for most corporations, the advantages of implementing various types of ROM initiatives by an organization, whether it be offshore manufacturing, remote operations, business process outsourcing or remote outsourcing continue to be consistent, and include at least a few of the following: Obtain goods or services at a significantly lower cost, due to cheaper labor and lower overheads Availability of raw materials or goods at a lower price Minimal set up and maintenance of additional infrastructures Looser government regulations, lower tax liabilities Dedicated local support for a general region via a captive skill center Accessibility to regulated, highly skilled service providers that can provide tailored solutions to business process requirements More indirect advantages include: Abundance and availability of experienced outsourcing suppliers worldwide Continued expansion into newer markets for both market gain and even cheaper labor Multiple time-zones that speed operational output to 24/7 Flexibility in resource management to better direct growth By incorporating ROM projects, enterprises are finding that multiple services and operations can be manageable for a network of remote offices and/or outsource vendors. The question now remaining is that given an implemented cost-cutting strategy, how can these initiatives be improved? A Closer Look at Remote Operations/Outsource Management The most prosperous implementations of ROM, where reductions in expenditures meet expectations, are by businesses that in turn, examined their own business processes and determined which facets of the organization were best suited for outsourcing; which areas could save costs in labor but also improve efficiency that would add value to their business. Companies succeeding with ROM endeavors have a clear definition of goals including improved production time to market, lower production costs, greater customer retention and timelier support response time. As well, specific roles and responsibilities are assigned and processes encompassing relationship management, communications, transition phases and decision-making are discerned Exact Holding North America, Inc. All Rights Reserved.
5 When an ROM initiative has been undertaken, and the location, vendor, delivery model, exit strategies and relationship parameters have been determined, a phased approach to implementation has proven to be the most successful. Business processes requiring the least corporate interaction (data entry, document reviews, quality assurance, Web hosting) are executed in the initial stages and are followed by more value-added processes such as accounts collection or help desk. While the business processes that are to be remotely managed or outsourced by an organization are determined, specific management requirements must be taken into account. In order to fully recognize the benefits of ROM, companies must recognize what areas require supervision and administration, and utilize the proper practices and tools to manage remote operations or outsourcing. Critical management areas that any ROM initiative must include: Knowledge Management: Access to documents and knowledge-based information is a critical requirement for any company or resource involved in ROM. The captured context and content of ROM processes that can be made available in a shared environment remove costly obstacles of information searches or lack of communication. Infrastructure Management: The vast amount of logistics associated with an ROM implementation require a complex organization of resources, documents and communications. Relationship Management: Geographic, cultural and skill set differences necessitate a means to properly gauge, train and maintain the liaison between vendor and company. Resource Management: Redeployment of roles and responsibilities of resources, including training. Performance Management: All organizational processes, their associated projects and corresponding resources require accountability with quantitative performance measurements that can determine the ongoing feasibility aspects of ROM in addition to the early detection of problems. As advancements have been made in the types of services and processes outsourced, the complexities associated with the planning, management and maintenance become more challenging, adversely affecting risk mitigation and in turn, lowering the opportunity for fiscal gains Exact Holding North America, Inc. All Rights Reserved.
6 While the overall financial aspects of ROM prove to provide cost savings, Exact Software believes that the evident fissure between actual cost savings and potential cost savings, combined with the uncovered costs of ROM, warrant further reduction analysis. Financial Benefits of ROM Industry averages note that labor rates can range anywhere from 40 to 80 percent lower for outsource servicing, depending upon the country. Although these rates appear to indicate substantial savings, the industry averages of actual cost savings hover around half of labor savings and for larger companies, closer to 20 percent overall due to implementation costs. Direct expenses contributing to overall ROM costs must include training, exchange rate fluctuations, travel, transition, infrastructure, communications and knowledge development. According to neoit, a provider of offshore outsourcing advisory and management, organizations should incorporate expenditures between 4 and 8 percent annually of the value of the ROM program. Although an industry average savings of 20 to 40 percent for ROM is substantial, the divergence between actual labor rate savings and actual cost savings is significant. In addition, industry analysts estimate that more than 50 percent of basic ROM initiatives fail to achieve the full potential of cost saving and performance targets as outlined in contracts. While the overall financial aspects of ROM prove to provide cost savings, Exact Software believes that the evident fissure between actual cost savings and potential cost savings, combined with the uncovered costs of ROM, warrant further reduction analysis. Challenges Facing ROM Implementations As with any strategic undertaking, particularly in its early stages within an industry, challenges will exist. In the case of ROM, there are by default impediments that are well-known by ROM consultants, vendors and implementers, such as cultural and geopolicital differences, resistance from the corporate workforce, physical communications and financial/legal due-diligences. In addition, remote or offshore operations and business process outsourcing have common and unique problems when put into practice that are fundamental, but can be hidden, and are therefore unidentified at implementation. Such issues include instability of coordination, quantitative measurements, management qualification, process standardizations and knowledge transfer. Although many of the familiar concerns with ROM can be alleviated through preparation via business analysis, consultants, RFQs and due-diligence, many organizations have faltered with their ROM strategies. Without identifying and acting on the necessary processes that affect and are affected by ROM, a project can result in increased costs that cannot be allayed late in a ROM implementation Exact Holding North America, Inc. All Rights Reserved.
7 Exact believes that corporations can achieve greater cost-savings and possibly ease the prospects of malfunction as long as the appropriate methodologies, practices, tools and technologies are used to recognize and manage the operational, tactical and strategic relationships with ROM. An example of recently-known defeats with ROM projects are those with Dell Computer and Conseco Insurance. Both companies, which outsourced support and call centers respectively in order to underprice competitors, ended up retreating offshore operations, with Dell reducing workforce and Conseco selling off its offshore unit entirely. Both operational failures stemmed from a common problem: employing standalone operations too quickly while lacking strong procedures, performance records, and project and workforce management. Exact believes that corporations can achieve greater cost-savings and possibly ease the prospects of malfunction as long as the appropriate methodologies, practices, tools and technologies are used to recognize and manage the operational, tactical and strategic relationships with ROM. An abundance of tools and technologies currently exist that can address individual business components of ROM. The ubiquitous best-of-breed solution sets, which claim high market share of a particular functionality, can manage specific aspects of outsourcing management: Collaboration Tools: Typically Web-based workplace environments that allow individuals and teams to work together for idea sharing and problem-solving for their development and delivery of products and services. Project/Event Management Software: Execution applications which track tasks as they are organized by project, and address the full project lifecycle from planning through completion. Content/Document Management: Captures, manages and stores scanned documents and images that can be accessed through online portals or applications and delivered through various types of media. Dashboard Technologies/Portals: Their intrinsic purpose is to aggregate, organize and display real-time business information and performance gauges from many different sources into one place, through a portal. Dashboard sites have drilldown capabilities to the documents representing that information. Asset Management: Products that identify, track, and prioritize mission-critical corporate assets required for business and resource planning and deployment. Help-Desk Tools: Provides the application resources in order to control product and service support issues through call tracking and self-service. Customer Relationship Management (CRM): Sales and marketing management tools that track leads, manage client accounts, forecast revenue, report on sales and marketing effectiveness, perform lead capture, and manage marketing communication programs Exact Holding North America, Inc. All Rights Reserved.
8 Each of these technologies, which are clear in focus for their specific business and function objectives, rely on data and intelligence from disparate sources. The specialized and sometimes indirect management challenges faced with ROM projects cannot be alleviated with component technologies that as a whole, are not associated and do not address the standardization of processes that accompany the complexity of the ROM model. Employing a Successful ROM Technology Companies cannot underestimate the importance of structuring and defining processes in order for a ROM initiative to achieve its full potential results. The initial positive effects (cost savings, improved specialization) typically bring financial gain however, the secondary and indirect negative effects that occur (weakening or loss of coordination, management and control) need to be compensated without affecting the preliminary results for a greater Return On Investment. Implementing an offshore or outsourcing strategy is for many companies, one of the first occasions that their business processes be structured and accountable. Exact deems that the missing element to alleviating such mismanagement is a direct line of communication that encompasses and actively incorporates all elements of the business a business management solution that can consolidate all processes and components. Those discrete facets need to include financial, project, knowledge and document information, as well as all internal and external resources: employees, customers, consultants, vendors, and suppliers. An example of such a broad based approach to critical business process management would be software development and product rollout. A true business management solution would enable both linear and closed-loop approaches to entail: Separate secure portal logins for developers, consultants, outsourced developers, QA, marketing and customers, for access when needed during the development process, all via the Internet. One shared environment containing content knowledge such as consultant contracts, project specifications, marketing collateral, source code, vendor payments, etc. Project management that reflects and associates all workflow, deadlines, budgets and resources. Workflow accountability and visibility for project deadlines, training certifications, bug reports and budget planning that move processes forward. Resource planning for absences, off-site assignments, consultant hours, headcounts, self-service capabilities and payroll Exact Holding North America, Inc. All Rights Reserved.
9 Embedded approval processes for document creation, budget requests, resource allocations, etc. The above procedures, by default, need to be contained within a business management solution that can satisfy, associate and move forward the necessary processes, but which also contain triggers for accountability and bottlenecks. Business Process Portal Model An integral and underlying component of a business management solution is that it be contained in a single, shared, Customers Financial Assets Remote Functional Offices collaborative portal environment in order for communication to be direct, immediate and inclusive. The entire Partners Documents Corporate HQ Projects Outsource Vendors operations of an organization Sales/CRM must be contained within such a business management solution so that all business processes and logistics are accounted for. Contractors Sales Offices Summary Remote Operations/Outsource Management has evolved from reallocating manufacturing workforces overseas to include the outsourcing of most business services. The problem that came with ROM expansion was that while more corporate services could be accomplished by outsource vendors, new complexities of business processes appeared. The symptoms of these new problems were not obvious; not being able to identify issues or predict bottlenecks meant a result in higher mismanagement costs as well as lost opportunities for further cost reductions with ROM Exact Holding North America, Inc. All Rights Reserved.
10 Through greater centralization of critical business information, companies can put themselves in an improved position to have a better trained staff and foster more immediate and seamless communication throughout the organization, ultimately maximizing ROM s potential financial savings. Exact believes that remote offices or outsource vendors do not need to be a separate entity where technology or process is concerned rather, a natural extension of the core business that seamlessly integrates with the overall organization. Component technologies that try to address the areas affected by ROM such as project management, asset management, human resource or document/content management will not provide a broad view of the organization; only a business management solution that covers all business processes can address the complexities surrounding ROM. A single business management solution requires ONE centralized place for all business data as well as ONE secure portal access by many, including employees, vendors, suppliers and customers. By having all aspects of the business and all participants, (not just management) share information, greater efficiencies, more fluid decisionmaking and reduced operational costs will evolve through centralized knowledge management. By associating and incorporating all business processes from all departments, offices and resources, remote operations can be on an equal footing with the rest of the organization. Through greater centralization of critical business information, companies can put themselves in an improved position to have a better trained staff and foster more immediate and seamless communication throughout the organization, ultimately maximizing ROM s potential financial savings. About Exact Software At Exact Software, we believe in Business Unified being a leading provider of solutions that connect the people, processes and knowledge essential to an efficient, competitive business. Exact s integrated solutions encompass executive control, accounting, manufacturing, distribution, online commerce, CRM, HRM, document management, Web portals, workflow and more, empowering collaboration among employees, suppliers, and customers with real-time access to central Web-based corporate information and exchange. Exact Software s solutions provide greater visibility across the organization, maximizing control, productivity and efficiency for the entire value chain. Exact Software is a division of Exact Holding N.V. (Amsterdam: EXAH.AS), located in Delft, the Netherlands, and has its North American headquarters in Andover, MA. For more information, please visit: Exact Software and Synergy are trademarks or registered trademarks of Exact Holding N.V. and/or its subsidiaries in the U.S. and/or other countries Exact Software, Inc., MAS1568, 6/08 9 Exact Software Ext. 2650