Is the Crisis Over?

Thomas D. Nastas
Board Director
BpoCom

Has the world economic crisis reached its bottom? Clearly, the first signs of recovery have appeared. This means that the hope of improvement in the labor market has appeared too. Is it possible that the lean times have already passed, and that the end of the extremely complicated situation in the world markets will be as sudden as its beginning? What lessons can Russian executives draw from the preceding crisis?

Without a doubt, emotional reactions to recent economic proceedings can have a real effect on market behavior, accelerating loss or enabling gain, but market confidence alone is not enough for a quick recovery in collapsed economies. It is impossible to deny that the recent economic crisis has been not only felt, but very painful to all strata of the population. However, just as exposure to disease is necessary for the human immune system to improve itself, this crisis will have a most favorable effect on the Russian economy, by providing country, company and individual with a good lesson in crisis management. The only complaint is that the majority has and will pay a very high price for that education.

Never before in the era of the Russian free market has it been necessary for executives of so many different enterprises to implement such large-scale reductions of expenses, due to decreased production, examining each expense “with a fine-toothed comb.” Never before has the “human factor,” a fundamental component of any production process, been as poignant and painful as at this time. Seven out of 10 businesses were forced to reduce personnel, on a limited or extensive scale, to ensure the survival of their company and protect as many jobs as possible under prevailing conditions. The tragedy of reductions served as a good motivator for the analysis and revision of earlier common models, concerning traditional labor mobilization. Many looked at what had once seemed a natural and beneficial resource, i.e. their own personnel, with a new perspective, and began to assess the real costs, risks and social benefits. More and more executives, who are responsible for a company’s profitability, began to look at modern methods of safeguarding their business and alternatives to hiring their own personnel.

As the economy improves, companies look to hire new staff to manage increased workloads. But higher employee headcount adds fixed expenses to the balance sheet, and given the unpredictability of the recovery, companies might consider outsourcing as a variable cost solution to manage increased work loads. Since outsourcing is ‘scalable’ to the workload, it gives companies a way to adjust variable costs as economic conditions dictate.

The amount of outsourcing services available in Russia today is already great enough that any company can take advantage of them to fulfill any number of functions, which had earlier been handled by internal departments, saving both time and money on the hiring, training and management of personnel. Accounting, payroll, clerical services, tech-support, call-centers and office management are some classic examples of formerly internal services transferred onto the market in order to optimize business.

Outsourcing transforms fixed expenses into variable costs so employers can better manage time, resources, capital and cash. Outsourcing reduces clients’ personnel expenses as they outsource only the necessary amount of tasks to get results desired.

Outsourcing has other benefits; because service providers are experts in business processes, they have deep knowledge in the most modern management and technology techniques used to manage these functions. Such expertise ensures the continuity of their clients’ business so companies can concentrate their efforts and resources on their profit centers as new revenue opportunities open in the market. Staff leasing and temporary staff services for accounting, payroll and tax declarations are just three of the prime cost centers ripe for outsourcing in today’s market.

Simultaneously the demand for outsourcing services also requires people to be ready to consider nonstandard conditions regarding the use of their labor. This testifies to a sufficiently high level on the market and high level of outsourcing’s development. In particular, it testifies to its ability to resist negative factors inherent in the global economy and to guarantee adaptability and stability.

One could also see the readiness of people to adapt to temporarily complicated conditions as “sagging” under a changing world, or on the contrary, as a developed ability to resist and to defend their long-term vital interests and plans, through the manifestation of flexibility and readiness to make concessions.

Today it can confidently be said that, due to crisis conditions, outsourcing will find a second and prolonged life. It will become one of the most popular business tools, not only in all areas of recovering economies, but also as a long term method of maintaining the stability and effectiveness of business models.