Last week with the help of Fed, JP Morgan Chase bid for one of the top Wall Street firms, Bear Stearns at the price of $2 a share. Just last year, Bear Sterns share stood at $170 but it is now likely to go for a meager $10 per share. It’s quite obvious that it  was a desperate measure hastily orchestrated by Fed in the hope that this might rein in the crash of US financial markets.

Irresponsible lending, questionable trades, greed and above all improper governance and lack of oversight could be the probable reasons these financial-services firms like Bear Stearns, Countrywide Financial, Citigroup and Merrill Lynch, so called pillars of global financial  market, are in such dire straits.  Already, SEC investigations and Senate hearings are in progress to find out if these financial companies had proper governing standards in place.

For the outsourcing industry, it heralds a perfect storm in view of the deepening economic crisis, renewed outsourcing debates and data-security breaches by contractors. The global sourcing industry has much to learn from the undoing of the financial sector.

Just as the financial industry had poor regulatory mechanisms that led to the inevitable financial crisis, the global outsourcing industry also inherently lacks global governance standards and regulations, and is therefore vulnerable to similar failures.

Global governing standards
While businesses are increasingly offshoring many of the business processes, the industry still lacks standards-based best practices and rules of governance. Relationship between the user organization and the service provider is governed mostly by common sense and experience of the relationship managers and legal advisors who help in drafting the legal terms and conditions governing the project. The contract at best governs the relationship between the service provider and the client in terms of service levels and project milestones but there are no provisions to assess and manage the impact on the client’s clients who in many cases are rightful stakeholders. There are also no standards to factor in country-specific requirements under the overall global framework, something which is most essential in projects delivered using the global delivery model. In the event of a dispute, this could have serious consequences if the user organization wants to take  legal recourse to address the dispute. Legal and advisory spending may escalate very fast. Complexity of local laws can only add to the cost and pain. Against this backdrop, it is important that relationship managers factor in ground realities of local laws, political and social setup from where the service organizations originate. To minimize the impact of variances, one has to make sure the expected governing standards are documented well in the contract, are periodically reviewed and are adjusted to protect from any discrepancies that may show up. While ironing out the details of contract and even during the course of the contract, it might be prudent to get some professional and legal advice specialized in the geographical location of the service provider.

Different security thresholds
Customers and service providers are increasingly challenged to effectively protect business-critical information assets. Interestingly, data security is as much a challenge for the western customers as it is for offshoring providers. However, in the context of this new global order, it has many new dimensions:

• Complexity of data protection increases as the customer has to factor in security procedures of multiple service providers who are responsible for managing its different business functions.
• Service providers often have different security thresholds, legal setups and compliance laws from that of companies in the Western economies.
• Outsourcing remains a hot button issue and it still generates negative emotions not only among the work force but also in the Western media. Any security breach can become a publicity nightmare for the user organization and depending upon the nature and extent of the breach business can also potentially loose value and can trigger many different internal and external investigations.
• Service organizations have high attrition rates and may not have tradition, will or be willing to commit resources to perform due diligence in performing background checks of all the resources that access clients sensitive and critical information.
• Worldwide online frauds related to ID thefts are increasing by leaps and bounds.
• Financial motives are making attackers more sophisticated. Attacks are much more targeted than before. User workstations are the easiest path into the network. Identity theft has become the preferred route for criminals.