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Management Strategies

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Uncovering Offshore Secrets

Overly generous cost savings estimates can doom a carrier's offshore outsourcing effort before it even begins. In order to optimize success and manage expectations accordingly, insurers must take the hidden costs of these deals into consideration.

At first glance the offshore outsourcing option seems like a no-brainer, right? The labor arbitrage alone promises to cut your human resources expenses drastically and for insurers-most of whom don't even measure on the CMM level scale-the quality of services offered is far superior to what can be achieved in-house.

But don't go beating down your boss' door with promises of cost savings in the 50 percent range just yet. First, consider the reality that companies have just broken even despite 40 to 50 percent labor savings, according to the META Group (Stamford, Conn.) study "Offshore Outsourcing Subtleties." If this news comes as a shock, just imagine the reaction of senior management after the delivery of the first year's results. But theirs won't be the only reaction that you'll likely lose sleep over. As the political debate over the practice brews, consumer backlash and the possibility of legislative restrictions must also be taken into account. (Editor's note: See related story on page 15).

Certainly, the idea of sending functions offshore isn't exactly an innovative one. If you have not yet jumped on the bandwagon, your competition doubtless has. Fortunately for all levels of expertise, whether you're new to the game, taking a second stab at it or are a more seasoned player-it's not too late to optimize your offshore results.

Success depends on understanding the rules of the game so that you can manage expectations accordingly. No matter your position, experts stress that it is crucial to consider everything from the hidden costs associated with outsourcing right on down to your own organization's CMM level. Even insignificant-seeming factors can have a drastic effect on your productivity and cost-savings realization-which, according to Dean Davison, vice president, META Group-will be modest in the first year of an initiative, no matter how well-prepared you are.

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