Ram Iyer’s five-year-old daughter studies five languages – English,
Spanish, Chinese, French, and a regional language of Iyer’s native
Bangalore in India. Taken together, those five languages will one day
allow this little girl from central New Jersey to converse with a
significant portion of the world’s population.
Iyer is preparing his daughter for the global future – a future he
thinks you need to prepare for as well. On Thursday, July 13, at noon,
the founder and CEO of Roszel Road-based outsourcing consultancy Argea
will address the luncheon meeting of the Princeton Regional Chamber of
Commerce at the Marriott Forrestal. His talk, entitled “Outsourcing –
Fad or Future?” will answer its title’s question unequivocally:
outsourcing is not only the future, it’s your future.
Nobody disputes that we live in a global economy – after all,
everything from scholarly books to the IBM commercials on TV say so,
so it must be true. But far fewer people can muster much enthusiasm
for outsourcing, a scary term many define as “them” taking jobs from
“us.”
Get over it, Iyer says: outsourcing is globalization and globalization
is outsourcing, and in a global knowledge-based economy, you can
either hop on the train or watch it chug by. You decide. Now.
“The global economy changes everything – it changes the rules,” Iyer
says. “U.S. businesses have to be able to change their vision or get
caught. The U.S. market is the prize. There is a threat from the
outside. The people looking to move in from Vietnam, India, the
Philippines, all have experience in the global market. They have done
business with Europe et cetera and they are here to kick your butt.”
Sounds ominous. But Iyer insists there’s a good side to outsourcing
and the global economy, too: namely, in the long run it will enable
all of us – that’s right, “us” and “them” – to do more, make more, and
earn more. Iyer’s question for you and your business: will you thrive
in the global future, or will you get left behind?
It’s a question that concerns Iyer not just for himself, or for our
region, but for the nation he chose as home 24 years ago when he came
from India, where his father was a high school principal. He graduated
from the University of Mysore in 1982, earned a master’s in
engineering at the University of New Hampshire, and worked in Seattle
for Boeing before earning his MBA at MIT’s Sloan School.
“An inward-looking America is bad for business and for our future,”
Iyer says. “Only 21 percent of Americans have passports and only 8.6
percent of American students today study a foreign language. As the
economies become more global, we need to get exposed to more parts of
the globe.”
Iyer got that kind of global exposure and then some over a long career
at Lucent, moving from engineering to international operations to
eventually become head of international business strategy for the
Murray Hill-based tech giant. In 2000 he left the company to pursue
the big bucks in Silicon Valley with a venture capital start-up. His
timing was bad. With the dot-com bust, Iyer found himself in
California, over 40, highly credentialed, and out of a job.
Iyer called contacts, went to networking events, everything you’re
supposed to do when looking for a new position. And it worked, but not
in the way he expected: everywhere he went, he kept hearing about
outsourcing and how scared everyone was of it. And he thought, I’m an
engineer, I have an MBA, and I’m from Bangalore, a center of computer
programming outsourcing. This is the next big wave. And so Argea,
named after the initials of its partners and their progeny (and also
the Irish fairy of fate), was born in 2004.
“It was a bootstrap operation,” Iyer recalls of starting his own
business. In fact, Iyer’s resources were stretched so thin that he
once sneaked into an outsourcing conference by posing as a reporter
rather than pay $3,000 he didn’t have to register as a participant.
“But I had few alternatives. I was standing on a burning platform. It
had to work.”
In the beginning, Argea did not have any specific clients; Iyer
started by making cold calls. Things got a bit warmer through some
solid networking efforts. Finally, he worked his way to the “gate
keepers” who have been able to open doors for him. “There is so much
you don’t know on day one. I made a lot of rookie errors,” he says.
Focused on what Iyer calls midsize companies – those with revenues
between $100 million and $2 billion annually – Argea helps managers
determine what aspects of their businesses could profitably and
pragmatically be done by outside vendors rather than internal
employees.
Centered on the oft-cited concept of “core competencies,” Iyer’s
approach has three principal steps. One, what exactly does your
company do as its principal means of adding value for your
owners/shareholders and customers, i.e., what is your core competency?
Two, what are the aspects of your business that are not part of that
core, but are still crucial to your operations? And three, how can
outsourcing help you focus on your primary area of expertise while
leaving not just the necessary but mundane non-core tasks to others,
but also rethinking the way you do business to make only the most
crucial value-added activities your total focus?
Everyone knows that very large corporations have already been down the
path of shifting non-core activities to outside vendors, whether
domestic or overseas. If you have ever made an airline reservation by
phone with an operator in the Philippines, or spoken with a computer
help-line tech from the Canadian maritimes, or called your credit card
company to speak with someone in a call center in South Dakota, you’ve
already been on the receiving end of big-company outsourcing. But very
few companies large or small have moved to what Iyer considers the
next step in outsourcing: using it to alter the way they do business.
“Although many multinational companies have embraced outsourcing, few
businesses outsource at the enterprise level, meaning that the
outsourcing practice increases the company’s global competitiveness,”
says Iyer, who is writing a book on the subject. “For instance, there
are a high percentage of companies that outsource their human
resources, but if it doesn’t give you a competitive advantage since
everyone is doing it, then it doesn’t really matter.”
Iyer develops what he calls an “extended enterprise” model for the
companies he works with. As Iyer describes it, this model helps
companies become more flexible and centrally focused on the
macro-management of a network of in-house employees and outside
consultants and vendors all working together to advance the
organization’s value-adding capabilities.
“We perform an operations assessment to help businesses figure out
what their core competencies are, and those stay in house,” Iyer
explains. “Usually that is only about 20 to 30 percent of the
business’ operations.” Which means 70 to 80 percent of the business
moves elsewhere. And that’s the tricky part: very few managers are
comfortable letting go of that large a portion of what they thought
their business was about.
“In order to outsource, you must be willing to give up certain
powers,” Iyer says, acknowledging that this can be a difficult task
for those accustomed to micromanaging every aspect of their
businesses. Successful outsourcing, Iyer believes, involves the art of
macro-management of only those aspects of your business that really
matter in the marketplace.
This can be an especially difficult task for the mid-size businesses
on which Argea focuses, Iyer says.
“Often the biggest problem mid-market companies face is that the
senior management lacks the global perspective necessary to implement
effective outsourcing practices,” Iyer notes. “The business model has
to be driven from the top which requires enlightened leadership.”
Companies large and small also need to have appropriate expectations
when it comes to outsourcing, Iyer says. “When considering
outsourcing, look beyond the cheap labor; look at the business model,”
he says. “It is an opportunity to learn.”
But from an employee’s perspective, it’s also an opportunity to lose
your job.
“Outsourcing is good for U.S. companies – but not necessarily good for
workers in the short term,” Iyer admits. He sees a silver lining,
however: “While in the short term workers may lose their jobs, it will
hopefully motivate them to re-skill when standing on the burning
platform – in the long run, it can provide opportunities.”
Service sector jobs that do not require customer contact are the most
at risk of being outsourced, Iyer believes, including telemarketing,
accounting, computer programming, engineering, and scientific
research. Anything that can be done remotely (which includes the
increasing number of jobs becoming `remotable’ thanks to technology,
Iyer notes) and does not have to be done immediately can be
outsourced. Jobs that need to be performed and delivered locally and
immediately, conversely, will always remain local.
So if you’re a hairdresser, rest easy. If you do data entry, take
steps now, Iyer recommends. “You need to provide more value,” he
counsels. “You need to set yourself apart though innovation and hard
work. Income makes you a target, and being highly paid makes you
expendable. If you are not worth your pay check, you’ll be cut.”
On an individual level, that’s a painful prognosis. But in Iyer’s
view, each time a job that can be done elsewhere for less moves there
– whether to Bangalore or Arkansas – the creative talents and
reskilled energies of experienced, educated workers in such high-cost
locales as central New Jersey are freed to invent, innovate, and
increase the overall value of the companies they work for and the
economy they power.
But what about the smaller companies most of us work for – the law
firms and accounting firms, the retailers and service companies, the
organizations with less, sometimes far less, than $100 million in
revenue that provide most of the jobs not just in Princeton but across
the country? Can we outsource too?
In a word, no. “For small companies looking to reduce costs,
outsourcing to an offshore is generally not a good first choice,” Iyer
says. “Except for functions where the delivery models support the
scale of small firms, outsourcing is not a good option –
simplification and automation are better choices. Moreover, the cost
of managing offshore vendors could be prohibitive and the skills for
doing are generally not existent in most small companies.”
Beyond that, in order to successfully outsource, you have to be
prepared to let go of control to an extent most small business
managers just can’t handle. “Are you emotionally ready to turn the
whole package over to someone else?” Iyer asks. “That is where the
real savings would come.”
As an example, Iyer himself could have saved money and aggravation by
outsourcing his entire website, including the hosting, to India. Yet
he just couldn’t bring himself to turn over the hosting of
www.argea.com. Why? “It just didn’t feel right not to have it here.”
So he lets the company in Mumbai put the content together, but the
site is hosted in the United States.
So if you’re a small business, outsourcing is probably not for you.
But small businesses will be affected by outsourcing and globalization
in one important way, Iyer believes: the number of your competitors
may increase exponentially, and in many cases their costs are likely
to be way lower.
“In my view, small and midsized companies in the U.S. have to pay
attention to offshore competitors who can provide similar services for
a dramatically lower price,” Iyer says. For instance, a company
located in Belarus, MoveYourWeb.com, advertises on
www.newjersey.craigslist.org and offers a full-time graphic/web
designer for $950 per month. Another craigslist advertiser, based in
Buenos Aires, has skilled office services for $6 per hour.
In the Princeton market, Epam Systems, with 50 workers on Lenox Drive,
is the leading software outsourcing firm for Eastern Europe (U.S. 1,
November 16, 2005). Bramha Infotech, based at Lawrence Commons (U.S.
1, September 28, 2005), is among the dozen Princeton-area firms that
outsource programming work to India. Other outsourcers include
Quintegra Solutions and ITC Infotech (both on Alexander Road), Infinix
Corporation (at Princeton Meadows Office Center), and Optima Global
Solutions Inc. (on Quakerbridge Road).
If you are in a business that provides a product or service that could
reasonably be supplied by a low-cost competitor from elsewhere, you’re
going to have to “think about a business model that will allow you to
provide a more cost-competitive solution to your clients,” Iyer says.
But ignore the doomsayers who predict that cheap labor in faraway
lands will consign the United States economy to eternal servitude in a
matter of months, if not sooner, Iyer says.
That’s just not going to happen. “The impact of outsourcing is
overblown,” he declares. “The far larger factor is substituting
technology for labor. We are the leading technology innovator in the
world, and also the most technologically advanced.” Our economy will
succeed in a global market, Iyer says, by using technology to create
higher paying jobs in the U.S. and exporting U.S.-developed technology
to companies across the globe.
“As the economy evolves, some roles become more or less valuable,
while other roles are created or destroyed,” Iyer says, taking the
long-term view. “There will always be jobs pumping gas in New Jersey,
but what will really matter is that our companies and our people
become more globally competitive.” – Anne Browning
Argea Inc., 12 Roszel Road, Suite A204, Princeton 08540; 609-734-9100.
Ram Iyer, CEO. www.argea.com
Outsourcing Strategies
Outsourcing is an obvious answer for reducing costs in mid-size and
large firms. For instance, Argea reduced a large client’s finance
costs by 30 percent by documenting and streamlining the accounts
payable and receivable and then helping them outsource those functions
to an offshore vendor.
Argea has re-engineered the cash management operations of a large
multinational company and helped clients outsource software
applications development and maintenance to an offshore vendor. For a
large pharmaceutical firm with outsourcing projects across multiple
locations, it provides cross-cultural business communications
training.
But for a small company, says Argea’s Ram Iyer, outsourcing cannot be
the logical first answer. First, look at what you are trying to
achieve. Automation may be a better answer for a small firm; software
can streamline a procedure.
Is the market mature? Outsourcing can work in areas where the market
has matured, such as bookkeeping. A company in India or the
Philippines can help a company that has two positions doing accounts
receivable and/or accounts payable. An example of an immature market
is the custom software application, where the cost of managing a
project might be prohibitive.
How much interaction is required, aside from E-mail communication, by
telephone or in person? Though “follow the sun” and “24/7” are mantras
for selling offshore consulting, in real life the boss in the United
States is going to be conducting business during hours that are
convenient to his consultants, not hours convenient to the boss. “It
can be painful,” says Iyer, who has outsourced his own website to
India but retains control of changes. When he wants to make a change,
“all I can do is sit down and wait.”
Are the processes well understood and stable? The procedures for many
activities in a small company are likely to change. If you, as a boss,
change your mind, that is no problem when you are supervising an
employee in your office. If you have farmed that out to an offshore
provider, the reaction will be, “Oh? You changed? The price goes up.”
What are the cross-cultural communication barriers? Especially in
programming, the nuances of communication can be a rat’s nest. In
America, you can ask someone whether the solution will be ready by
Friday and get a yes or a no. In India, the reply will be “We’ll see.”
The programmer in India does not want to commit to a schedule without
a chance to think about it. So the better question in India would be,
“Can we speak tomorrow, Thursday afternoon, about whether you think it
will be ready by Friday?”
What are the redundancy costs? Redundancy costs, to pay for existing
employees to leave, are a big deterrent and often make business cases
for outsourcing very unattractive. For example, the accepted norm in
large established companies or the government mandates in many
European countries result in redundancy costs of two years’ salary. In
these scenarios, the high-paid executives, with their expensive golden
parachutes, stay, and lowest-paid employees get bumped off first.
Are you emotionally ready to turn the whole package over to someone
else? Though Iyer was not ready to turn over the website, including
the hosting, to India, he is content to outsource his word processing.
Says Iyer: “It’s just a mental thing.”
