Outsourcing is becoming more and more prevalent at many organizations.
The main reasons for using this method of operation are to focus on the core businesses, streamline operations and improve the quality of operations of a unit managed by a trained provider.
In the field of computers, in which this type of activity is particularly widespread, the majority of outsourced employees worked previously in a company’s computer department and are now experiencing a significant change as they become workers under a service provider, with all that entails.
Two senior managers at Ness Technologies, Israel’s largest outsourcing services provider, told us what the change involves and how to cope with it.
The practical significance of the outsourcing method of employment is that the IT provider executes work on a constant basis (in contrast with a project that has a set deadline) on another company’s premises, i.e. at the client site, taking responsibility for operations and committing to a specified level of service.
Outsourcing is particularly common in certain industries. The most prominent is computers, a labor-intensive field that demands a high level of professional knowledge. To acquire this knowledge requires long-term specialization, which is not always possible at the client organization. The specialized service provider takes full responsibility for the area it makes an obligation to oversee at the company.
Ness Technologies employs 3,200 workers in Israel, including 1,000 outsourcing workers serving dozens of clients from a range of industries.
We spoke with two senior managers from Ness about the reasons why organizations forge contact with an outsourcing provider in the field of computers and how workers are employed under this framework.
Effi Kotek - SVP, Outsourcing Group Yoav Zur - SVP, Business Development
& Financial Sector
Yoav Zur: “The organization’s motivation to transfer its computing services to management by an outside provider is based on several reasons: The most common reason in Israel is the desire to increase efficiency, i.e. cost reduction. The assumption is a large and experienced provider can distribute fixed costs over a large number of activity sites and bring a portion of the savings to the client."
“Another reason is technological improvement. It stands to reason that a large computer company brings with it greater knowledge and experience than that which is found at the computer department of an organization not involved in computing fields. “
“A third reason (which is the most common reason outside of Israel) is focusing on the core businesses. An organization not involved in computing does not necessarily have to engage in an area with which it is not conversant and waste managing resources on it. “
“A fourth reason is strong support in business, e.g. going onto the market on time with a product that demands computer support. “
“Sometimes computing causes a bottleneck effect. The marketing department wants to go onto the market with a new product ‘first thing tomorrow morning.’ Timing is important because the competition might beat them to it. But the computing department claims (rightfully so) the task will take a while longer ‘because our department has size limitations.’ Outsourcing solves these types of problems since the client can request increased output.”
It’s possible to request increased output from an outside provider even if you don’t receive outsourcing services from it, but I imagine valuable time is then wasted learning about the organization.
“Right, that’s precisely the point. The setup learning curve is very big. That’s the advantage of linking up with a large outsourcing provider, which cuts down the time to market. It’s comparable to the difference between a standing army and a reserve army. Reserve recruitment is a process that takes time. “
“A large provider that works with a variety of clients can mobilize workers based on the needs and constraints created during the work life. For instance, at hospitals the ‘peak season’ is the month of December. Winter illnesses, such as acute pneumonia, cause numerous hospitalizations. On the other hand for a tourism company August is the peak season.”
Companies tend not to turn over all of their computer services to outsourcing. Some view this as too great a risk.
Effi Kotek: “That depends on the client’s considerations; he is free to decide which sector of activity to outsource. The most common choice is the help desk and infrastructures. But some organizations outsource everything – even applications and development. “
“When it comes to infrastructures, organizations don’t really face a dilemma and they prefer to have the matter handled through outsourcing: operating and supporting servers, workstations, storage and backup systems or information security. Really this is a service capacity that does not vary significantly from one organization to the next. Turning to an outside provider does not pose a substantial risk since the service does not touch at the organization’s business core. The same applies regarding customer service centers. “
“On the other hand applications is a more involved matter. In many cases the clients do want to maintain control over this, because it represents a central component of their business."
“In the area of infrastructures, most of the employees are technology experts in various fields, whereas in applications the organization has special know-how, so most of the employees are experts who have an understanding of the core of the organization. For instance at a bank the applications person must be a software person but also has to understand the banking product.”
In each of these areas do you employ workers from different professions?
“Definitely. In infrastructures there are system engineers and technicians involved in operating systems, implementation and backup. In applications you can find developers, systems analysts and designers. “
“In Israel, Ness has dozens of customers that receive outsourcing services. The vast majority of them are provided outsourcing services for infrastructures, while some also turn over to Ness the task of handling applications.”
Can you cite an example of an organization of this kind?
“A medical center in Israel that turned over to us not just infrastructures and applications, but even the responsibility for development and assimilation at the organization.”
Why did they take such a gamble and let you run everything?
“First of all they have a information systems director who believes in outsourcing and had a successful experience elsewhere with this mode of operation. Furthermore, a small organization has limited management resources. At such organizations focusing on the core businesses is even more critical – even more than increasing efficiency. “
“Also worthy of mention are clients such as Shiva Hospital (Tel Hashomer), the ORT chain, the Bank for Industrial Development, Brom Ltd., Hagihon (Jerusalem Water Company), Migdal, etc.”
Yoav Zur: “From a financial standpoint, at large computer companies it’s still feasible to divide tasks – to farm out only part of company activity through outsourcing. This kind of division at small computer departments prevents them from making the most of the size advantage we have to offer. “
“If there is a computer department numbering 200 employees and you outsource 80 of those involved in infrastructures, you will have already increased efficiency considerably. But if the entire computer department numbers 15 employees and you divide it, what do you accomplish?”
Who are the workers employed in Ness’ outsourcing division?
Effi Kotek: “Generally the recruitment is from a single source – the majority of workers employed in the client’s computer department become Ness employees. In the case of the medical center, for instance, not only did we take in all of its computer employees, but we also added other workers from Ness to meet the improved service standards we had committed to provide.”
In general, are the employees later used to serve other clients?
Yoav Zur: “Such an employee becomes a Ness employee, which opens up before him possibilities of promotion throughout Ness. It also depends on the individual. Some prefer to remain in the same place while others are glad to have opportunities for promotion open to them. There is a natural limit on possibilities for promotion at an internal computer department. “
“This kind of worker undergoes a psychological change as well. At the organization where he worked previously, such as the private medical center, he was a part of a unit providing a service to the core units. Now he has become a part of system in which computing is its business. As an analogy you could say at Ness he goes from airplane technician to pilot. The change in status also has an impact on the possibility for promotion.”
Still, when you enter an organization and take over its computer department, that’s a significant change. It could very well be that a portion of the employees will be replaced. Are there fears associated with the arrival of an outsourcing provider?
Effi Kotek: “Nobody likes change because it brings fear of the unknown; but generally the majority of workers remain in the computer department. The few who leave generally do so by choice. If I commit to raise the level of professionalism and service, which is what I’m brought in to do, I have to increase efficiency and improve processes and bring them to a higher level. “
“The preferred option is to retrain the existing workers and reinforce them with additional Ness workers who have complementary knowledge. A portion of the workers will be mobilized within Ness and among its clients as part of a possible promotion track.”
Yoav Zur: “The annual turnover rate in our industry ranges from 10%-20%. At Ness it’s relatively low. Approximately 90% of the employees continue to work with us. And you have to take into account that some of the employees would have left as part of the natural process at the source unit, regardless of the change.”
Do the majority remain at the same computer department at the client company they came from?
Effi Kotek: “We haven’t gauged this because there has been a natural dynamic over the years. Many people stay because they are not eager for another change. Others prefer professional advancement and varying their work environment as part of the personal advancement process.”
Yoav Zur: “Some want stability and that’s fine. Not every worker can change tasks every two years.”
Those who welcome variety remain in the same field. Do they work in outsourcing activity for another client?
Yoav Zur: “Not necessarily. They enter the regular activity and promotion pool together with all Ness employees. They can join another outsourcing project or a different task at Ness.”
Effi Kotek: “In our world of computer technologies, change is perceived as something positive. People seek challenges and new types of work, becoming familiar with new technologies and new work teams. They are looking for variety. In many cases a lack of variety is more of a problem.”
I’d like to assess the status of the outsourcing computer unit you operate compared to the client’s workers. They are on site at the organization, which has an organizational culture that differs from yours. For instance, they drive different kinds of cars, which could cause jealousy; or the client, in order to prevent any chance of them being perceived as employees, creates a barrier through measures that can be unpleasant, such as not allowing two different groups of workers to eat lunch together even though they work together.
Yoav Zur: “This is a real dilemma. It does exist and one has to know how to handle it. It also has other, even more substantive components to it. A worker in the computer department has to change his whole approach. Until now the attitude toward those who made use of the organization’s services was, ‘We’ll do our best.’ But now they are obligated to meet higher standards of service as defined in the contract. “
“The employees undergo retraining. Now they represent Ness. They are instilled with service consciousness and standards of service are set. The worker goes from being an internal service provider at the organization to an outside service provider. This is a whole different ballgame, because there is a contractual obligation. “
“The relationship with the customers changes. Not necessarily for the worse, but there is a change. “
“You’re right in what you said about cars and benefits in general. In the field of computers the standards of benefits are high and it’s common to provide cars for a sizable portion of the employees. Imagine if they operate a computer department at a traditional industrial organization that does not offer these kinds of benefits and compensation. This is liable to create envy. Therefore we sit down in advance to coordinate expectations with the organization’s human resources department and construct a coordinated transition plan to make sure there are no surprises.”
Can you give us an example of this type of coordination?
“For instance, if we want to promote an employ that transferred to us, we won’t disregard the career track that was built for him in his previous circumstances. If he was given promises of promotion, we will treat them seriously. Rather than erasing the employee’s history we maintain continuity. “
“Another example: We try to label the work site as a Ness unit. We hang posters on the walls and use Ness letterhead. We won’t do all of this without discussing it with the client. Not in all cases is there a separate facility. Sometimes Ness employees work at the same facility together with the client’s employees. Everything has to be done in coordination.”
For the Hebrew Article