How Companies Can Painlessly Save Millions and Increase Onshore Productivity from Offshore Staff Augmentation in the Philippines
Staff augmentation is simply the use of outside personnel on a temporary or permanent basis to augment the capacity of an organization. Staff augmentation has traditionally been used in the IT space where a company would augment their IT staff by adding several team members (e.g. programmers) to augment the existing in-house staff of programmers. The team manager would hire the external programmers from an IT staff
provider but would manage the programmers directly like part of their team. This contrasts with outsourcing where the work is handed over to a third-party organization and they are given goals and KPI’s to meet.
Administrative Staff Augmentation is applying this traditional IT model to all administrative functions in a company – HR, Finance, Back Office Operations, Marketing, etc. It allows an organization to find pockets of work throughout their company that may be small but add up to significant savings when aggregated across the enterprise and moved to an Offshore cost structure. Oftentimes, this work doesn’t lend itself to a full
outsourcing model because there isn’t enough volume to make an outsourcing model effective.
Case Study
Let’s use a real-life example for a company that I personally helped manage to illustrate. Like many, this company, let’s call them XYZ, had a large customer service and operations team that was prone to an outsourcing model. These were large, high-volume, repeatable processes that could be efficiently managed at scale and for which clear KPI’s could be developed. Therefore, it was easy to hold other organizations responsible to manage and deliver to clearly understood KPI’s. It was consequently a good fit for an outsourcing model and they were able to leverage the benefit of that model for these teams.
However, that is not always the case. There are many pockets in every company where there are small volume processes or disparate tasks that need to be performed that don’t lend themselves to a high-volume outsourcing production line. In most cases, that work remains hidden and buried in departments throughout an organization. It is work that has to be done but since it is not high volume it is never considered for an outsourcing/offshoring model. It is often small quantities of lower value work that is being done by high value employees. At XYZ which was located in downtown Chicago, their fully allocated cost for this work was $39.15 per staffed hour (1960 hours in a year after adjusting for vacation/holidays) in their downtown location. It was $29.93 in their Phoenix office. It was $12.50 in the Philippines for the same work at a quality Offshore provider.
As you can see, the potential savings are huge. Moving a single employee from downtown Chicago to the Philippines would save nearly $27 per hour which
equates to $52,000 per year in savings. Even moving an employee from the more reasonable Phoenix cost structure would still save over $17 per hour or $34,000 per year.
So, what if these pockets of low volume work could be unearthed and moved to a lower cost location like the Philippines but still be managed by their current manager as an extension of the existing team. Well, that is exactly what XYZ did. They socialized this
model with all their department heads throughout the company and gave the department heads a solution to lower their cost and/or get a lot more done with the existing budget they had. It was often the case that important work was going undone
because they just didn’t have the bandwidth to complete it.
An easy way to start is to identify a department that needs to backfill a position and is struggling to keep up with their work. Rather than backfilling a single position in the US, they choose to add 3 positions in the Philippines for approximately the same cost. This strategy allows them to significantly increase their work throughput, catching up with their work demand at the same cost, without threatening any onshore personnel.
Pockets Unearthed
For XYZ, the roles that they moved into this model came from across the company. They included recruiters and HR Admins from the HR department; account coordinators, QA analysts, overnight staff and vendor sourcers from the Operations Department; schedulers and proactive sourcers from the Vendor Management department, reporting analysts and data analysts from the Business Intelligence team, and engineers from the
IT department. No single group represented more than 8 employees but when it was added all up it came to 44 individuals which saved them over $1.5m per year. Notably, this allowed the departments to refocus their onshore resources on higher value items which were going undone. So, in the end, XYZ was able to save $1.5m while increasing the productivity of their onshore team and getting more work done and increasing
customer satisfaction.
Overcome Internal Politics
Importantly this exercise wasn’t framed to the Department Heads as an exercise to move their staff members out of their department and into a centralized operations team. Rather, it was framed as a way for them to get more done with less within their own departments. This was an important strategy for adoption. When these Department Heads didn’t see this initiative as a threat they embraced it. It may make sense to centralize the high volume, outsource friendly functions but these smaller pockets of work are often integral to their departments and need to be kept within them. So, by embracing the Administrative Staff Augmentation model in an Offshore location, these Departments were able to achieve dramatic savings when aggregated across the company.
Typically, a program champion will market this solution throughout the organization and all the departments. This champion explains the model and the benefits but makes it clear to the organization that it is their decision and is non-threatening. This champion can come from the Operations Team, Customer Experience Team or even Human Resources Team.
Don’t Get Greedy
The savings from staff augmentation from the Philippines can be dramatic. A typical comparison for a fully loaded staff member in the US versus a quality operation in the Philippines would produce a net savings of $17.50/hour, from $30/hour to $12.50/hour. For a single individual this would add up to $34,300 for the organization. So, it only takes about 30 FTE to save $1m.
However, some organizations are lured by bottom feeder offers for extremely low hourly rates. In the Philippines, these typically come from freelance agents or small companies that are dodging governmental regulations. Don’t kill the goose that laid the golden egg. Like everything else in life, you get what you pay for in Offshore Outsourcing and Staffing. If you go for the lowest price you will get garbage quality and your project will fail. You will bring the work back onshore with nothing to show for it and perpetuate a belief that offshoring doesn’t work. Your company will be scarred by the experience and will be hesitant to embrace the model thereby losing the opportunity and falling behind your competitors that do figure it out and deploy it the right way. So, quality makes a difference when you are offshoring and you need to use a reputable, capable and responsive provider.
Conclusion
US Companies can painlessly save millions by identifying and offshoring simple tasks to the Philippines. They key is to identify a champion to scour your company to understand the low value pockets of work being performed by high value employees and then overcoming the internal politics of centralization by allowing each department to use a staff augmentation model to drive savings for their particular area while maintaining direct control of those functions.
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