An increasing number of Mexican executives are turning to outsourcing service providers, citing benefits such as increased flexibility, access to experienced workers on an on-demand basis, and greater opportunities to focus on core their businesses.
Of 600 executives and managers surveyed in the KPMG study “Mexico’s Upper Management Outlook 2013,” around 75% had made use of outsourcing services in the last three years: 7% more than the 68% reported in the 2012 survey. Seventy-seven percent of those surveyed cited cost reduction and more effectively managed spending as the main benefits, followed by improved administrative efficiency and a better response system.
Are those in charge of IT seeing significant savings as a result of outsourcing? Are the service providers and the companies themselves really learning from each other? Are they enabled to focus on activities that result in real benefits? We spoke to three Mexican CEOs who answered these questions and more.
Two things the CEOs all have in common are that they are used to subcontracting temporary projects, whether short or long-term, and that they all require highly qualified, certified personnel, experienced in areas such as software development and testing, implementing and managing infrastructure, and managing and improving company software systems (ERP).
“We have worked with a great number of external providers, and they’ve proven to be lifesaving,” states Juan Manuel Zenil, IT and Communications Director at the School of Banking and Commerce (EBC). In what sense? By heading up important technological projects, staying on budget and sticking to deadlines, he says. “If we had to contract, train and certify the specialists needed to undertake these technological projects, it would be extremely complicated, not to mention expensive,” he says.
Outsourcing, he claims, gives them better control of the budget and time frame, while providing them with qualified personnel, brought onboard by the service providers. “It would be extremely costly for us to recruit the expert personnel needed, and even more so to hold on to them, as they are highly sought after. It would be too difficult to compete with rival companies who offer higher salaries.”
According to Jorge Blanco, Information Technology Director for the Motorexa Group, an auto sales company in western Mexico, “It is impossible to be a Jack of all trades, especially when the number of people in the IT industry is falling.” As Blanco states, in the large global companies IT personnel comprises only 5% of the total organization. In national companies this is further reduced to 1 or 2%. “Trying to do everything on our own is impossible. That’s where outsourcing becomes a must. Currently, in our company, software development, security, emailing, ERP and IT infrastructure are all being outsourced.”
As previously mentioned, reduced costs and more effective management of spending have long been considered the main advantages of outsourcing. Miguel Avila, CEO of the Alcione Group, an electrical goods company, claims that subcontracting services have helped him to cut costs. In his experience, grouping a variety of services into one “bundle” provides significant advantages when negotiating outsourcing contracts and ultimately help to bring down the costs.
According to Zenil from EBC, it is possible to reduce both time and costs, which is especially important when working with a limited budget. He also highlights the importance of paying special attention to the legal aspects of the outsourcing contracts: “We pay special attention to the details of the contracts, limiting their scope, so there’s no ambiguity in the terms of agreement.” He adds that cooperation between all departments involved (including legal and IT) is vital.
In Blanco’s opinion, the costs often increase significantly, albeit temporarily. For example, imagine a company contracts a specialist at the rate of 20,000 Mexican pesos a month; with outsourcing the cost rises to 50,000 pesos, as the provider is responsible for recruitment, training and management. The cost is doubled but the advantage is that it is possible able to employ the specialist for only six months, or as needed. Upon finishing the project, the IT department is no longer burdened with additional staff. According to Motormexa’s IT Director, the real saving lies in the fact that the training period is avoided and the employee is productive right from the very first day.
According to Business Monitor’s calculations, the IT services market will grow at a rate of 11% a year over the next five years. Mexico’s Economic Ministry says there are more than 25 IT clusters bringing together more than 700 companies across the country, and that the private sector has joined forces with the government to develop 24 new technological parks. This indicates growth in the number of local providers that are joining the ranks of the global players already represented in Mexico, such as Accenture, Capgemini, Softtek, Tata Consulting and Neoris, among others.
Faced with a wide choice of service providers, who are IT leaders leaning towards? The consensus is to work with a mixture of local and global providers. In general the CEOs look to work with consolidated outsourcing service providers, giving access to a huge database of qualified, certified personnel, who have proven experience in the specific field required by the business and are even able to provide financing options. “Everything depends on the type of project we decide to embark upon,” states EBC’s Zenil. “We aim always to work with businesses that are tried and tested and can guarantee qualified personnel, as well as a 24/7 support service.”
Zenil adds that they have used local or smaller companies for specific, less important tasks, but when projects involve a larger investment, capacity or impact – from both a financial and technological point of view – it’s important the business or consultant be proven to have experience. “There are providers that look to learn from us, while what we really need is to learn from them,” he said.
For Avila, from the Alcione Group, it is of vital importance to know the abilities and experience of the personnel that will be in charge of the project, whether it involves management, updating infrastructure, or software and applications development. Especially when dealing with smaller outsourcing service providers. The global players, he explains, have tried and tested IT procedures and they follow the guidelines laid down by the SLAs, as well as contracting highly qualified specialists. “When I work with a smaller outsourcer, I inform myself of the potential employee’s qualifications, ensuring he will be available 24/7 and that he has successfully worked with businesses in the same sector as our own in the past.”
Knowledge management involves the development and application of all knowledge pertinent to a business, with the aim of improving problem solving and maintaining the business’ competitive edge. This is why a great number of organizations look to collaborating closely with their subcontracting service providers, looking to learn all they can from them during the IT projects, something that isn’t always as easy as it sounds.
In EBC´s case, Zenil explains, the contract stipulates that an IT staff member accompany the consultants throughout the process. “We place someone in charge of assimilating as much information as possible. We also ask for formal, documented training.”
This is something they’ve learned from past experience, as, when neither a technical report nor training have been provided, problems often arise when using the new services, which results in having to return to the provider for help. Obviously additional costs and time delays are incurred.
“There are projects in which the businesses don´t necessarily need to take on board all the “know-how”, while in others it is vital to the ongoing running of the business that they learn all they can,” comments Avila from the Alcione Group. “For example, when we installed our new ERP version it was vital to retain the new information.”
Avila admits that it is important to set aside some personnel so that they can focus on absorbing the new information, which means they will have to take themselves out of the day-to-day running of the business. The problem is compounded when the IT work force is below the recommended 5%.
“There is not enough time for IT to assimilate all this new information,” states Blanco, from the Motormexa Group. “The quality of the current service is reduced a little in order to dedicate time to implementing the new methods. This limits our ability to absorb the new information because we have to care for the new setup and, at the same time, the day-to-day running of the business.”
By outsourcing specific functions, these professionals are able to free up time to work on innovation and productivity. “Without a doubt,” comments Zenil, “outsourcing has enabled a quicker turnaround time, which, in turn, lends credibility and allows personnel to focus on getting to know the real needs of the user and of the business itself.”
“We should really focus on our specific role within the company.” states Miguel Avila. “I believe that making the IT department, and ultimately, the organization itself more profitable and productive is something that is made possible by subcontracting. I also believe we should reevaluate which services would be better off being subcontracted.”
Jorge Blanco, a confirmed supporter of outsourcing, agrees that it’s good to analyze which of the business and IT functions would be better off being outsourced. He claims, “The most important thing is to lose the fear of outsourcing. If the policies are set up and their proceedings are in line with the organization´s directives, you can be sure that things will run smoothly.”
At the end of the day, it doesn’t matter how many IT operations or business processes are put in the hands of the consultants and outsourcing providers, the responsibility for its continued running always falls to the IT department. “Businesses will never lose their IT department. What will happen, is that it will gradually be transformed into an administrative department in charge of the outsourcing of technological projects” concludes Zenil.