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 $1 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.”
Argea Inc., 12 Roszel Road, Suite A204, Princeton 08540; 609-734-9100. Ram Iyer, CEO. www.argea.com
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.”