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A new source of profit?

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In the first article in a two-page debate, we look at the positive benefits of outsourcing tasks abroad

Securing the client relationship from early planning stages has always been the key to the architect's leadership position. To capture client confidence, architects must deliver the best project outcome in the face of all competition.

When predictable and routine backoffice activities can be delegated with full confidence, practice leaders are more able to focus on managing clients, developing new skills, and shaping distinctive projects.

One response is for UK practices to outsource appropriate documentation packages to offshore service providers, for example in India or Vietnam, while concentrating in-house resources on activities of maximum impact. Business process outsourcing has become a huge industry - according to some estimates worth US$5,000 billion (£2,960 billion) per annum globally.

While much of the attention has focused on the growing use of Indian-based professionals servicing the IT and financial services sectors, the outsourcing of 'back-office' processes to professional and white collar workforces offshore is an emerging trend across many professional services sectors.

Experience from lead industries demonstrates that the most relevant advantages include:

lreduced and controlled operating costs;

limproved resource base flexibility;

laccess to resources that are unaffordable internally;

limproved 'best practice' capabilities;

lrefocusing of internal resources towards higher-value activities;

limproved service to clients;

lassistance with a difficult-tomanage function;

lrisk sharing with the outsource provider; and lgreater job satisfaction for more junior practice staff.

Architects often strive to focus attention on activities with most impact, but too often find themselves distracted by daily fire-fighting. A common culprit is the struggle to deliver working drawings within budgeted cost and timelines. Overruns at E, F and G stages often drain profitability from otherwise successful projects.

Offshore service providers are offering documentation packages at 40 per cent to 70 per cent of the RIBA scheduled fee. Furthermore, for practices, obtaining a watertight fixed-cost contract offloads overrun risk. Our modelling, based on conservative assumptions, indicates that successful outsourcing of the E, F and G stages will convert up to 20 per cent of project fee into additional profit. Vendor analysis proposes that an outsourcing-driven redeployment of existing in-house resources can add as much as 40 per cent of fee revenue to operating profit.

In the economically volatile, project-based construction industry, human resource flexibility is important to survival. The availability of high-quality documentation resources on demand gives architectural practices a powerful tool for managing fluctuating workloads.

Less inhibited by resource worries, ambitious practices can aggressively tender for projects.

A low-cost, flexible, high-quality external resource base also offers a tool for leveraging in-house talent.

Access to external resources has allowed some practices to punch above their weight. For example, Willmore Iles, a small architectural practice based in Bristol, was able to handle a £30 million student accommodation project, and by using offshore outsourcing it was able to do so without taking on additional office space, staff or, more importantly, increasing project risk.

While practices prepared to make offshore outsourcing work are seeing benefits, this success has required competence, commitment and good judgement. In the first place, experience indicates that the quality of providers is highly variable: the selection of offshore partner is critical. Secondly, to gain full benefits, practices require strong commitment, informed judgement and an ability to manage workloads and work processes.

Not all practices are capable of developing the competencies required to outsource successfully, and many will lack motivation. Illinformed decisions and inadequate implementation will expose those poorly prepared practices to considerable operational and strategic risk.

Effective dissemination of information, as well as ongoing monitoring and research, is required.

British architects increasingly face global competition for attractive UK projects. Well-resourced and competitive foreign practices and construction companies are winning major contracts in, for example, the UK PFI healthcare market. Even where global practices operate through an acquired UK practice, control, profit and design expertise tend to migrate overseas. Should UK architects fail to capture and deliver the value available from integrated offshore/onshore operations, contractors will act, splitting the architect's package to their own best advantage. Practices aspiring to harness the efficiency transformation promised by offshore outsourcing must set the pace, or lose out to industry competitors.

Alex Ford is a practising architect. This article is based on his recent research carried out as part of the MBA programme at the London Business School.

For further information, contact ajhford. mba2002@london. edu

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