Typhoon Haiyan Points to Outsourcing Risks

By Samuel Greengard

Managing global IT issues and interconnected systems is tough enough during the best of times. But a series of natural disasters over the last few years—including the Tohoku earthquake and tsunami in Japan in 2011, Hurricane Sandy in 2012, and Typhoon Haiyan in the Philippines a few weeks ago—have demonstrated the risks of outsourcing and offshoring.

“In many respects, businesses were fortunate that the storm hit a largely agricultural area rather than an outsourcing hub a few hundred miles to the north,” notes David Rutchik, a partner at management consulting and IT outsourcing advisory firm Pace Harmon. “From a humanitarian aspect it was terrible. From a business aspect it wasn’t a significant event.” In fact, a number of major firms operate global business and contact centers in the Philippines, particularly in the cities of Manila, Cebu and Davao. The list includes Accenture, Convergys, SPi Global and TeleTech.

The typhoon is a reminder that businesses must put upfront thinking and ongoing analysis into the offshoring and outsourcing choices they make, says Rutchik. What’s more, decisions must extend beyond costs, risk profile for a location, political stability of a country and whether service agents can speak English well. “It’s critical to have IT redundancies in place and make sure the technology exists to automatically reroute calls on the fly,” says Rutchik. “The worst case scenario is for customers to experience disruptions and encounter connection or service problems.”

In fact, a number of factors influence how an organization approaches offshoring and outsourcing. A starting point, Rutchik says, is to develop a comprehensive business continuity plan that focuses on the outsourcing component. Among other things, it must take into account how a facility that goes offline affects other centers and how the disruption impacts the business and its customers. There’s also a need to understand how switching to a different location affects both data and voice traffic. “A call center and data center operate very differently,” Rutchik notes. While it’s fairly easy to make an instantaneous adjustment to reroute voice traffic, it’s not always as simple to switch data centers and data traffic.

Another key, Rutchik says, is to thoroughly test systems—and switchover capabilities—before they’re required during an emergency situation. Businesses that operate globally face steeper challenges. “It’s important to know that connectivity is possible from multiple locations and that there isn’t a single point of failure,” he points out. Too often, “companies do not thoroughly test their plans or business leaders don’t think through all the nuances and repercussions when a plan goes live,” says Rutchik. “They don’t understand how things will play out in the real world.”

Remarkably, many companies stumble because executives do not adequately review contracts and closely examine service level agreements. Rutchik says that it is important to visit and tour facilities, conduct security audits, and review IT systems residing at a site as well as the enterprise network and IT infrastructure that supports an offshoring or outsourcing initiative. Vendor management meetings and consistent reviews—typically on a quarterly basis—are critical. In the end, Rutchik says, “it’s important to understand the total cost of ownership.”

Samuel Greengard
Samuel Greengard
Samuel Greengard writes about business, technology and other topics. His book, The Internet of Things (MIT Press) was released in the spring of 2015.

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