12 Step Program for Successful Offshoring and Outsourcing

Offshoring can be seen in the context of either production offshoring or services.  After joining the World Trade Organization 2001, China emerged as a popular destination for production. After technical progress in telecommunications improved, India became a leading offshoring provider.  Ten years after the WTO, the U.S. should examine the cost of the initiative in terms of job loss, loss of expertise and reduced quality.  If offshoring served as a 10-year lesson on what not to do, it should have encouraged American companies to optimize quality, improve efficiency, and compete globally with American labor.

The economic logic is to reduce costs. If some people can use some of their skills more cheaply than others, those people have the comparative advantage. The idea is that countries should freely trade the items that cost the least for them to produce. However, the cost of reduced quality and the costs associated with managing an offshore or process need to be considered early in the plan.

A common shortcoming in both captive and outsourced operations originates from unrealistic ramp-up expectations, and a failure to communicate U.S. Standards and market requirements and ensure that they are delivered.  Project planners try to start up too much new offshore process too quickly.

Quality could be sacrificed for cost and quantity but has been corrected over time. What has not been addressed is job and skill loss in America

The most important lesson that new project managers should to learn is that quality must be achieved before up large numbers of seats — or quality will never be achieved. Risk factors in quality usually should include customer satisfaction. Customer sat with remote call centers, fulfillment, language and time zones should be carefully scrutinized at the planning phase and reviewed after roll out to continuously measure results.

The planning and implementation processes for moving work offshore is similar for back office, customer service, and knowledge process outsourcing. Firms should plan to choose between outsourcing and opening a captive facility once they have completed an assessment of the types of work that could be shifted. Key decision points are identified — to enable them to be recognized and formally presented to a senior management authority. Describing work plan format enables it to be quickly translated into an implementation document. Once the initial management goals have been set and planning have been completed it make take between six to twelve months to establish an offshore presence and have transferred operations up. Time frames for a new offshore operation to “go live” vary according to the size of the project, complexity and training.

It is also important to ensure that labor savings alone are not used to create the business model and the ROI. There will be additional costs of managing an offshore or outsourced organization that will counter the cost savings.  Manufacturing appliances and textiles has succeeded offshore as have electronic.  Software developed offshore has had mixed results.  Arguably, software will be more important strategically than textiles or appliance in the future.

Twelve Step Program for Successful Offshoring and Outsourcing Should now Be used to Wean U.S. from China and India to Onshoring Again

1. Set business goals with senior management for expected benefits of offshoring (cycle time, cost, quality, customer satisfaction) and make sure these are measurable metrics.

2. Identify the low-hanging fruit in the project – seek an initial process that marries reasonable exposure to risk with an attractive ROI

3. Use Business Process Mapping (BPM) to map the existing process and simulate it VISUALLY. Ensure that business stakeholders buy in to what exists today. Consider using a Lean “Kaizen” approach to ensure that team members, not just management have input into what the current process is and the new process will be.

a. Ishikawa or ‘Fishbone’ diagrams are also useful for root cause analysis.

b. healthcare related processes must comply with U.S. privacy and security rules under HIPAA and the HITECH Act

4. Use Business Process Mapping (BPM) to map the new process, and simulate the new process in a VISUAL way for senior management and ensure that they buy-in to the new process, costs, timing, and change management process.

5. Socialize metrics for success with the team

6. Catalog and baseline work that could be shifted offshore

7. Assess infrastructure requirements

8. Develop tax and other compliance strategies

9. Develop a labor strategy and personnel procedures

10. Determine whether to “make” your own presence offshore or partner

11. Train

12. Roll out first process


Michael F. Arrigo

Michael Arrigo, an expert witness, and healthcare executive, brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health I.T., and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations that provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and billing, fraud damages, and electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, malpractice, and insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software S.A. (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for the top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls I.T. audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto-economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and published in Healthcare I.T. News. Mr. Arrigo serves as a member of the board of directors of a publicly traded company in the healthcare and data analytics industry, where his duties include: member, audit committee; chair, compensation committee; member, special committee.

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