Could the Western Balkans help the UK reverse the damage done from over a decade of poor outsourcing projects in many key industries?

The Balkans are not the first place one thinks of when it comes to cutting edge research and innovative new product design.  However, that assumption is being challenged by recent generations of businesses and the transformation of existing businesses established before the breakup of the former Yugoslavia.

The good news for countries like Macedonia, in the heart of the Western Balkans, is that business in the region is very much alive and well.  Struck a mere “glancing blow” by the Economic catastrophes plaguing much of Europe, while banking in the region can be restrictive to local businesses, the conservative approach taken in previous years by regional high street lenders is paying dividends in turbulent times. A financially savvy Macedonian can take savings to a high street bank and get 7.0% return as a matter of routine even today.

The cost of labour in the region is extremely cost effective and the level of skill and education relatively high.  European companies which may have traditionally looked for outsourcing partners in India or the Philippines to gain cost advantages against competitors within the EU are now starting to realise that there is a safe middle ground.  Salary costs in the typical non European outsourcing destinations have been steadily rising for a decade. Some countries are evolving their own model away from cost to complete enterprise outsourcing to try and combat the cost focussed acquisition model they previously adopted.

A friend of mine is a surgeon with a conscience. He will not leave as many of his colleagues have done to practice abroad but instead stays in state employ treating people that really need him.  The salary expectation of an admittedly relative newly qualified surgeon? 500-800 Euros per month.   This gives you some idea of the cost differential when comparing salaries between the UK and this part of Europe.  If you are thinking at this point that this is going to be another “remove your Western European labour force and re-employ somewhere cheap or outsource to win” type message,  you would be very wrong indeed.  Read on…

This is often referred to as Outsource 2.0 but known to those who have spent years working in outsourcing hungry environments as “WDNY”  We don’t need you.  To be fair, why would they?  Businesses handed the big outsourcing companies their client relationships then gave them their data and trained their people. These businesses are then surprised when someone worked out that there is a middle man in the process adding no value.  It’s them.

Greatly reducing the management overhead of outsourcing and retaining control has been an ambition only vaguely realised by many of the most experienced among us.  The key skill of many of these companies in outsourcing destinations has been to perfect the art of producing statistics that make it very hard for clients to gain any meaningful measure of the real impact of these decisions. Until reality bites and the implications are so obviously manifest that shareholders demand explanation.   In an area where standards of governance are under more scrutiny than ever, it has never been easier for the board to bury its collective head in the sand.

Creating a virtual team which can function as one with your organisation when working on an intercontinental basis is highly challenging, even when the resources are in house. This can often mitigate the benefits one set out to realise. Assume then that the same company, or its neighbour or more often “sister” company, are doing the same for three of your competitors.  Then one wonders how the wonderful looking presentation made to the board seems to have overridden the critical decision making faculties of everyone in the room.

I have been there. I would argue that in hindsight, basic sanity and due diligence seem to dictate another course.   Different choices are made by people sitting in safe and successful environments debating history than those made at the front lines under fire.

Beleaguered boards seeing shareholder confidence falling due to slow sales, financial challenges and market collapse such as that which has been taking place since 2007 have been more keen than ever to reach out to what seems to be a panacea to their problems.  Internal and external pressure all drive a decision which may sadly be less than ideal for the long term prospects of the company.  One would hope that effective governance procedures would be in place to ensure, that despite the pressures of the moment, information relevant to the long term health of the business is being presented in a consistent fashion no matter the tactical situation.

The lesson here is that perhaps some boards are made up of real people too and that we have been kidding ourselves way too long.  We can no longer say that management has been given all information necessary to make properly balanced decisions.  We are choosing to remain wilfully ignorant of the facts and failing in our duty to critically review the data before us.

What is it about outsourcing that causes normally highly effective executives to set aside their critical faculties?

Reversing outsourcing decisions can be very hard indeed and gets more difficult the further down the cycle of dependency a business gets.

To contemplate the need to do so requires an admission that a poor decision was made previously and may require the board to face up to the fact that meeting shareholder expectations during difficult market conditions may require a more creative solution than the dead end cycle of endless cost cutting.

True, many enterprises have actually benefitted from difficult market conditions as they have had to take a very realistic view of their cost base and in many cases have trimmed the fat appropriately as a result.  However, cost savings have a finite life and in a responsibly governed company there should not be too much fat to trim other than that which was planned to support growth or mitigate risk.

Cut too far and a business is often cutting its own throat by removing the people that create and support its revenue and provide its ability to execute against any plan.

The result is that businesses get trapped into a cycle of dependency created by poor outsourcing choices due to which they lost sight of the key benefits a long time ago. This may only be believed within the company itself but who hasn’t spent at least part of their career in a company where push back or any view not aligned with current thinking is not only unappreciated but mercilessly crushed in favour of a healthy dose of the own brand Kool Aid.  Close your eyes and swallow if you want that next promotion or find yourself in one of those emails from HR which lets everyone know you’re off “considering other opportunities”.

Outsourcing more locally can provide a great middle ground, reversing the damage that may have been done while maintaining the advantages and cost structures to which consumers and companies have become addicted.   Like a Heroin addict with real physical symptoms and the prospect of extremely painful withdrawal, many businesses cannot just stop outsourcing overnight. Indeed the mere thought of dealing with their problem is just so painful that no one wants to contemplate it.  The delusion continues even as the very real symptoms of the addiction start to affect the company’s very health and the foundations of governance.  Mention it at board meetings and the silence that ensues is palpable and the brave soul chairing any related motion is likely to find themselves “managing our investments in Syria”.

Disengaging from a cycle of outsourcing requires gentle weaning off the thing which seemed so good at that first board where the slides showed exciting returns.  One must continue on the basis of cost structures which are aligned with those during the period of outsourcing.  This is necessary to avoid a potential drop in shareholder confidence and must enable the company to retain skills to support their clients and products effectively.  In most cases, an outsourcing recovery plan must enable the company to develop the new skills essential to growth and target additional wallet share from every client or customer.  This protect and grow methodology is one well familiar to those in some of the world’s most successful organisations.

We all know retaining a customer has a far greater return pound for pound to short and maybe even medium term revenues than winning a new one but entrenching, while important, is no long term strategy.  So, we need the people, budget and capabilities necessary to evolve and address new opportunity.   Wasn’t this the same thing we were sold on by those outsourcing companies?  Reducing costs enabling us to redeploy resources to address new markets and revenues and innovate.

Unfortunately for many companies, falling sales and difficult market conditions made it easier to forget the purpose and instead just keep outsourcing departments to feed a cycle of addiction.  For a while there, it was easier to keep reducing cost and publishing the profits aligned with forecast than admit that we sold our long term capability to support existing clients and win new ones along the way.

I spent much of my career in large corporate IT manufacturing and system integration businesses. Having been party to some significant outsourcing projects, I have seen remarkably few which made any customer happy to pay for the goods or service they purchased.  Still fewer which encouraged loyalty or expansion into new markets and some which actually lead to a backlash against the company making those decision’s.   Often due to customer service issues, poor training and integration, a lack of empowerment of the people facing the client or a simple lack of client knowledge.   Despite this I have seen few companies which have yet managed to reverse what the management data is telling them was a bad decision, or at least a poorly executed one.    The solution to a poor outsourcing decision has often been (you have probably guessed this by now) yes, more outsourcing to cover the revenue gap caused by the initial poor decision.

The interesting thing about IT is that one company may be the biggest customer of another IT company. This is because the skills required can be extremely broad yet extremely niche so partnerships and collaboration are essential. Delivering cost effective services to customers who usually prefer a one stop solution from one company creates conflicts of interest between vendor and customer. This is often referred to as the “one neck to grab” principle by former colleagues in the industry.  This actually has a sensible genesis as technological systems became ever more important and far reaching. Support often involved more and more companies.  No one wanted to be caught in the middle of different vendors with less than crystal clear accountability so the “one stop solution” was born.

Outsourcing to the Balkans may be part of the solution for outsourcing addicted companies in the UK and Western Europe.   Only 2-3 hours from most of Europe and in the same general time zone it is possible to create true virtual teams.

This model is by no means limited to I.T or customer services. When did “customer” and “service” when put in the same sentence stop having any emphasis on “customer? In the outsourced world “customers? we keep them as far away as possible” has become the norm. Yet, companies actually grew out of great customer service.  First Direct, the online bank, is a great example of this in action today. Great customer service combined with a published strategy sensitive to the public dislike of offshore call-centres has paid dividends to First Direct Shareholders.  This has seen them named the UK’s number one company for customer service by WHICH magazine.

So reversing these decisions means re equipping our businesses to support what we have to do to re-enable our organisation to compete and to do so cost effectively.

This will require some outsourcing!.  Hopefully, far less than today and managed far more appropriately as an adjunct to the business as a whole.  Outsourcing within Europe it is possible to actually cross train team members between organisations without endless intercontinental travel.  Avoiding language tuition, cultural and interpersonal training programmes and other initiatives synonymous with going further afield offers advantage to the recovering addict.  English is mandatory learning at most educational facilities in the Western Balkans, particularly countries like Macedonia and and others in the the Former Yugoslavian region. Generally, language skills are high in this region.   IT and customer service are well understood both as skills and concepts.  Western European culture is embedded in the DNA of the countries in the region to varying degrees since their emergence from the communist days of Yugoslavia.   The younger generation of people here have often lived or studied in the UK, Switzerland, Germany, Austria or France and have a shared world view with those who would be their peers in the UK.

Where is the next generation of talent coming from in the UK when we removed an entire tier of entry level positions across so many industries?

It is fair to say that the customer services, sales, technical support and design in some industries were largely wiped out through outsourcing. In some industries this left little opportunity for the next generation to engage and gain experience.  Companies wishing to reverse the trend have to be mindful that this is a long term strategy and that in the short term one must create an environment which supports the business today while enabling the development of in house resources.

One option would be to utilise the pool of available talent in the Western Balkans to augment a UK businesses capabilities. One can manage a gradual migration of services with the creation of virtual teams in Europe who can easily be managed and controlled due to geographic proximity.  The most appealing thing to me about virtual teams sharing the same time zones is that the opportunities for cross training and knowledge transfer are greatly improved enabling UK businesses to fast track the development of in house resources at the same time as enjoying the cost benefits of offshore resources.

As a Director of the British Business Group in Macedonia I have seen a number of these projects taking place already in the region. It has been a delight to see the ways in which businesses have been addressing past outsourcing challenges by coming to the region to look at new options for cost saving with control.  It is gratifying to see companies in the SME with ambitions to export their products and services which want to look at creating subsidiaries and joint ventures to leverage advantages when entering markets such as France, Germany, Austria, Turkey, Switzerland and even China.

As Europe has opened the door to trade with companies from the Former Yugoslavia in particular, opportunities have been made available for investment, procurement and collaboration across the entire Western Balkans.   British Businesses can benefit from support with people that have been “on the ground” in the region for over sixteen years with extensive knowledge of the vastly different business environments and opportunities across the region.  As British Chambers it is our mission to reduce risk and ensure that your engagement with the region is as productive as possible.

If you are thinking of investment or procurement in Agriculture, IT and Software, Infrastructure projects, Mining or Drilling,  Energy, Tourism or Transport the British Business Group have investor ready projects which may suit your criteria and offer you our full support through the lifecycle of your investment.

Simon Harris
www.theuniversalgroup.net
Director       @ The British Business Group
Group CEO @ The Universal Group

The Universal Group provide Corporate Governance and Company Secretarial services as well as international notary services and business documentation.  Get your corporate governance health check today:   http://www.theuniversalgroup.net/Corporate-Governance-Services.aspx