OUTSOURCING ASSIGNMENT ON STRATEGIC HUMAN RESOURCE MANAGEMENT

SUBMITTED TO SIGAMANI P DEPARTMENT OF SOCIAL WORK JAMIA MILIA ISLAMIA UNIVERSITY

SUBMITTED BY ANINDITA BURAGOHAIN M.A(HRM)-IV SEMESTER DEPARTMENT OF SOCIAL WORK

INDEX INDEX NO. TOPIC PAGE NO

1. 2. 3. 4. 5. 6. 7.

INTRODUCTION CASE 1 CASE 2 CASE 3 CASE 4 CASE 5 CONCLUSION

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INTRODUCTION

The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider. In this sense, two organizations may enter into a contractual agreement involving an exchange of services and payments.The concept of outsourcing thereby helps the firms to perform well in their core competencies and thus mitigating rise of skill or expertise shortage in the areas where they want to outsource. Of recent concern is the ability of businesses to outsource to suppliers outside the nation, sometimes referred to as offshoring or offshore outsourcing. In addition, several related terms have emerged to grasp various aspects of the complex relationship between economic organizations or networks, such as nearshoring, multisourcing and strategic outsourcing. One of the biggest changes of recent years has come from the growth of groups of people using online technologies to use outsourcing as a way to build a viable service delivery business that can be run from virtually anywhere in the world. The preferential contract rates that can be obtained by temporarily employing experts in specific areas to deliver elements of a project purely online means that there is a growing number of small businesses that operate entirely online using offshore outsourced contractors to deliver the work before repackaging it to deliver to the client. One common area where this business model thrives is in provided website creating, analysis and marketing services. All elements can be done remotely and delivered digitally and service providers can leverage the scale and economy of outsourcing to deliver high value services at vastly reduced end customer prices.

Organizations that outsource are seeking to realize benefits or address the following issues:

Cost savings The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, and cost re-structuring. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.

Focus on Core Business Resources (for example investment, people, infrastructure) are focused on developing the core business. For example often organizations outsource their IT support to specialised IT services companies.

Cost restructuring Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.

Improve quality Achieve a steep change in quality through contracting out the service with a new service level agreement. Knowledge Access to intellectual property and wider experience and knowledge. Contract Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services. Operational expertise Access to operational best practice that would be too difficult or time consuming to develop in-house. Access to talent Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering. Capacity management An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.

Catalyst for change An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The outsourcer becomes a Change agent in the process.

Enhance capacity for innovation Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation. Reduce time to market The acceleration of the development or production of a product through the additional capability brought by the supplier. Commodification The trend of standardizing business processes, IT Services, and application services which enable to buy at the right price, allows businesses access to services which were only available to large corporations.

Risk management An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation. Venture Capital Some countries match government funds venture capital with private venture capital for start-ups that start businesses in their country. Tax Benefit Countries offer tax incentives to move manufacturing operations to counter high corporate taxes within another country.

Scalability The outsourced company will usually be prepared to manage a temporary or permanent increase or decrease in production.

Creating leisure time Individuals may wish to outsource their work in order to optimise their work-leisure balance. Liability Organizations choose to transfer liabilities inherent to specific business processes or services that are outside of their core competencies. Revenue The classic outsourcing "mega-deal" tended to be the sale of a function and its associated capital [equipment, people, etc.] to an external vendor. The function was then rented back from the vendor over a series of years. The result was a short-run windfall.

The most commonly outsourced streams of business include:

IT outsourcing Legal outsourcing Content Development Web Design and Maintenance Recruitment Logistics Manufacturing Technical/Customer Support

The Advantages of Outsourcing

Swiftness and Expertise: Most of the times tasks are outsourced to vendors who specialize in their field. The outsourced vendors also have specific equipment and technical expertise, most of the times better than the ones at the outsourcing organization. Effectively the tasks can be completed faster and with better quality output

Concentrating on core process rather than the supporting ones: Outsourcing the supporting processes gives the organization more time to strengthen their core business process.

Risk-sharing: one of the most crucial factors determining the outcome of a campaign is risk-analysis. Outsourcing certain components of your business process helps the organization to shift certain responsibilities to the outsourced vendor. Since the outsourced vendor is a specialist, they plan your risk-mitigating factors better.

Reduced Operational and Recruitment costs: Outsourcing eludes the need to hire individuals in-house; hence recruitment and operational costs can be minimized to a great extent. This is one of the prime advantages of offshore outsourcing.

The Disadvantages of Outsourcing

Risk of exposing confidential data: When an organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party. 6

Synchronizing the deliverables: In case you do not choose a right partner for outsourcing, some of the common problem areas include stretched delivery time frames, sub-standard quality output and inappropriate categorization of responsibilities. At times it is easier to regulate these factors inside an organization rather than with an outsourced partner.

Hidden costs: Although outsourcing most of the times is cost-effective at times the hidden costs involved in signing a contract while signing a contract across international boundaries may pose a serious threat.

Lack of customer focus: An outsourced vendor may be catering to the expertiseneeds of multiple organizations at a time. In such situations vendors may lack complete focus on your organizations tasks.

History of outsourcing to India-

The history of outsourcing to India is not just an interesting journey, but also because, even after a decade of competitive global outsourcing, most roads for outsourcing lead to India. Reaching this pre-eminence has been a long haul in the history of outsourcing to India one that started in the West. The central character in the evolution of outsourcing to India is not the U.S., or even the Internetits the economic and commercial necessity of outsourcing itselfand its irreversibility. Nevertheless, outsourcing to India did not begin in a vacuum, and it will not be re-shaped in a vacuum. The idea of outsourcing has its roots in the 'competitive advantage' theory suggested by Adam Smith in his book 'The Wealth of Nations', which was published in the year 1776. This theory gained acceptance during the Industrial Revolution as companies mechanized and kept labor costs low to have an advantage over competition.

As land, shipping, and air routes developed between the 15th and 21st centuries more nations looked to outsource trade to more nationsleading to outsourcing to India and other nations. With the development of fiber optics and satellite communication, Internet-enabled communication and transfer of data became possiblepaving the path for outsourcing to India. And as soon as Internet penetration increased globally, the potential to outsource communication and data-dependent services became possible. The build-up of technological advances came to a head in mid 1990s, making it possible for companies to outsource entire global processes and services to remote locations. So when the US and Europe faced a shortage of skilled workers due to after-effects of the dotcom bust in the mid and late 90s, U.S. companies and companies in Europe, increasingly concerned about profit margins, started outsourcing to India back office work. When clients first dipped their toes in Indias outsourcing watersthey decided to outsource basic customer care. Soon Indias IT and telecommunication infrastructure became competent enough for clients to outsource more complex projects. In due time, outsourcing to India critical software applications, became a norm. Today, if companies want to overhaul their IT systems or develop engineering automation, outsourcing to India is the number one option, closely followed by China, and the Philippines. While the above is a mini-history of outsourcing to India, the entire history of outsourcing requires would require hundreds of pages. But the following sections encapsulate the turning points in the fascinating story of outsourcing to India. Time line of how outsourcing to India began in the West and reached Indian shores

18th and 19th centuries: The idea of offshore manufacturing becomes operational with huge whaling fleets and massive floating factory shipsin which many people lived and worked for months and yearsand often changed locations depending on where they sighted opportunity. 1960s: Hundreds of call centers spring up in the U.S. and the UK. Companies from oil majors, telecom operators, pharma firms to FMCG firms, begin to outsource customer care, telemarketing, payroll, etcpaving the way for outsourcing to India. 1983: Infosys wins first clientData Basics Corporation of the U.S., which chooses Infosys to outsource software development. Mid 80s: Global Airlines begins outsourcing to India, open offices in New Delhi for back office work. The airline is quickly joined by firms such as American Express to outsourceregion based data management. 1985: American company Texas Instruments starts outsourcing to India for the first time, and opens office in Bangalore. 1989: Jack Welch visits India and kicks-off GE off shoring initiative. Welchs visit triggers rapid growth of captive services for non-Indian operations, and the start of the first large offshore operation in India. 1980-1990: U.S. and European companies begin to outsource to Ireland, Israel, and Canada. Ireland particularly benefits as costs are lower, and it offers multi language capability. At their peak, the over 100 call centers in Ireland employ over 300,000 staff. 1990-1999: Indian management professor C K Prahalad's core competency theory expounded in a Harvard Business School paper; and catches imagination of large corporations around the world. The basic lessons of the theoryidentify your core competencies, focus on them, and exit everything else. American Express, Swissair, British

Airways and General Electric (GE) start captive units in India. 1997-2001: Internet and telecommunication boom makes waves in India and across the world. Indian government and U.S. companies invest heavily in laying countrywide fiber optic network for Internet penetration. 1996-2000: Globally, companies outsource Y2K related projects- outsourcing to India numerous projects. 1999: India initiates New Telecom Policy 1999; it ends state monopoly on international calling facilities; heralds growth of inbound/outbound call centers and data processing centers. Medical Transcription becomes one of the first outsourced services to third party players. 2000-2005: Indian mobile and broadband market explodes into action, and records phenomenal growth over the next nine years. Indias English-educated technical and nontechnical graduates start paying rich dividendswith clients outsourcing to India in droves. Third party outsourcing players spring up in India; by 2005 end, over 300 open shop in India and beyond; about 45 global destinations compete to get a slice of the annual $300 billion outsourcing pie; MNCs establish wholly owned subsidiaries to cater to off shoring requirements of their parent companies. 2009: Bucking worldwide recessionary trends, India, the most favored outsourcing destination since 2004, records 12 per cent growth in IT-BPO in 2008-09 to reach $71.7 billion in aggregate revenue. How outsourcing to India grew due to Internet and telecommunication boom For western economies outsourcing to India to save costs it was essential that the location for outsourcing had adequate telecommunication and Internet infrastructure. India did not have this till the late 90s.

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Introduction of the National Telecom Policy (NTP) in 1999 and deregulation of the telecommunication industry opened up national, long distance, and international connectivity to competition. The cost of managing work in a distant location fell dramatically, and a core requirement to outsource became a reality. Soon, the Indian government identified ITES (Information Technology Enabled Services) as a key contributor to economic growth, and for companies considering outsourcing to India. The thrust towards ITES enabled the establishment of Software Technology Parks and Export Enterprise Zones. Indias National Association of Software and Service Companies (NASSCOM) too played a critical role in outsourcing as an 'advisor, consultant and coordinating body' for the outsourcing industry. It created a platform for the dissemination of knowledge and research in the outsourcing industry through its surveys and conferences. For a majority of companies around the world outsourcing to India has been a satisfactory and profitable experience, so much so that many countries in Asia have followed in Indias footsteps and many in Africa want to emulate Indias success in the global outsourcing industry. And its to the credit of Indian outsourcing companies and successive enabling Indian governments that Indian outsourcing vendors have continuously adapted to external and internal challenges, and continue to do so.

CASE 1-THE SUN MICROSYSTEMS CASE

Service/maintenance contract sales are highly profitable for many high-tech businesses. In 11

order to reap the financial rewards however, a company must have in place a focused channel strategy for implementing and managing maintenance contract sales. It is well documented that an expertly run contract sales program can net a corporation millions in incremental revenue. Without such a program much of that income is lost. Sun Microsystems is a case in point. When they discovered that this important revenue stream was eroding, they quickly identified the cause: Because their field sales force did not have the "bandwidth" to provide cost- effective service contract sales to small-to-mid-size customers, they were not adequately covering those accounts. This opened the door to thirdparty vendors and also resulted in customers who were out of warranty or whose contracts had expired. When they needed assistance, those customers would have to renew before they could get service. Needless to say, these were not satisfied customers. Sun decided to outsource the development of a dedicated TeleServices Center - in essence creating a new distribution channel for this product. Working closely together, they designed and installed an on-site TeleSales Center whose charge is to thwart third-party vendors and to comprehensively target contract renewals in small-to-mid-size accounts. Selling maintenance contracts requires TSRs who understand the service requirements of each customer. The right TSR has a background in both inside sales and customer service and can identify decision makers and close a sale. In addition, they must be "specialists" in Sun's service products. The typical sales cycle for a renewal contract is 90 days, involves two decision makers, and six-to-twelve conversations with the customer. Each TSR can contact and service 25-30 customers per day, far more than possible with field staff alone. They developed a Renewal Program based on a 90/60/30-day strategy: Quotes are sent out 90 days prior to the contract expiration date, a phone call is made 60 days prior to the expire date, and the contract is renewed at 30 days. Results of this program speak for themselves:

Increased the contract renewal rate 24.6% Reduced the cost to retain customers 34.5%

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Lowered the cost of new customer contracts more than 33% Freed field staff to focus on major accounts Developed a renewal management database to efficiently handle the contract renewal process Designed an instructional curriculum that reduced TSR training time by 40%

CASE 2-THE IBM CASE

In 1992 IBM encountered a different set of problems. Facing fierce competition, they realized the need to re-engineer their go-to-market strategy to dramatically reduce both sales and service costs - to move away from a "blue suit," field sales business model.

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Looking for the best solution, IBM decided a call center would provide the best blend of quality and cost- efficiency as a channel for both sales and customer service. They also recognized they had no experience designing, much less managing, a call center. And, as if this weren't enough of a challenge, the center needed to be up and running "yesterday." "Outsourcing enables executives to focus their energies on the "what" of their business and less on the "how." Executives believe this is often the most compelling reason for outsourcing".The Outsource Institute IBM outsourced the design, staffing, and management of a TeleServices Center capable of supporting customers in all phases of their life cycle. Within 90 days, the first TeleServices Center was up and running - a third of the time IBM estimated it would take to accomplish internally. Working in partnership, they set up a strategically located call center at an IBM facility in California. The call center was charged with all facets of customer acquisition and retention - from lead generation to assuring customer satisfaction to inbound customer service and support. To provide truly integrated and comprehensive marketing, the IBM TeleServices Center was carefully organized into three groups: The Customer Service Group handles simple inquiries as well as provides customers with technical support and assistance solving complex problems. The Telesales Group handles account management and sales of IBM products and services that do not require field sales support. The Direct Marketing Group is responsible for generating new product leads, upgrades, service contracts and seminar attendance. The successful integration of the TeleServices Center within IBM's corporate structure requires that TSRs receive training to develop the required product knowledge and customer skills to act as an agent of IBM. As one would expect from such thorough planning and implementation, the results have been dramatic:

Reduced the cost of customer contact 97% - from $500 for field contact to $15 for telesales contact Shortened the field sales cycles up to 80% Generated 125% of goal for leads 14

Exceeded customer expectations 78% of the time - based on a customer service satisfaction survey Built a marketing database - with customer information that improves targeting, responsiveness, relationships, and retention.

CASE 3-THE SIEMENS ROLM CASE

There are many aftermarket sales that cannot be handled cost- effectively by field sales staff - their cost-of-sales-to-revenue ratio is too high. Yet the sale of these products offers significant income possibilities and can serve as a relationship bridge that helps identify future big-dollar sales. Siemens ROLM was faced with just such a dilemma; they needed to devise a strategic and cost-effective program for aftermarket sales. They required a solution

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that allowed field staff to focus on strategic clients while developing a low-cost distribution channel to support mid-tier clients. Siemens ROLM working in conjunction with an outsource agency, designed and implemented an on-site Client Call Center. With performance goals jointly set by field staff, management, and the agency, the center's three pronged mission is to manage leads, stop third-party encroachment, and extend client relationships and contracts. The call center, which provides a cost-efficient alternate sales and marketing channel for Siemens ROLM's move/add/change (MAC) product lines, has more than proved its worth. Both leads and sales generated far exceeded goals, the center reversed a projected MAC revenue decline, and more than 2,800 customers are contacted each month. In the first six months of operation, the center:

Generated 116% of goal for sales leads Grossed over $4.2 million in MAC sales Produced leads valued as high as $1M

The center allows field staff to concentrate on what they do best: develop face-to-face client relationships and sales; and the outsource agency to focus on what it does best; provide teleservices for lead generation and sales.

CASE 4-MERCEDES CIBER CASE

Mercedes-Benz (Mercedes) is an international manufacturer of passenger automobiles and commercial vehicles. Mercedes has more than 50 production and assembly plants, as well as 6,300 services and support outlets throughout the world. The Situation

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Mercedes needed to support its 15,000 North American Information Technology (IT) users. In order to do this, it had to effectively manage a leased inventory of over 50,000 units. This posed significant logistical challenges. The Solution CIBER has managed the Mercedes inventory of leased equipment for 10 years. The contract covers desktops, laptops and printers a total of more than 50,000 devices. CIBERs team of three managers and 12 technicians supports 15,000 Mercedes employees in four locations in New Jersey and one site in New York, along with special projects throughout North America. CIBERs services at Mercedes include receiving, checking and installing all equipment and managing inventory. CIBER manages and tests the Mercedes image on each PC. When users have problems, they call the help desk, which sends trouble tickets to CIBER. CIBER guarantees a response time of two to four for a high-priority problem and next day service for low-priority calls. Users complete a survey the day after the service call and CIBER continuously monitors customer satisfaction to ensure that it remains high. Prior to engaging CIBER, Mercedes struggled with its leasing program, often incurring penalties for late returns. Through its dedication to outstanding service, CIBER has been able to minimize these unnecessary costs, enabling Mercedes to avoid more than $25,000 in late charges each year. CIBERs experts have implemented best practices to streamline the return process and speed closure. Throughout their partnership, CIBER has worked hard to be flexible to accommodate Mercedes needs. CIBER has completed emergency on-site service, reorganized CIBER staff to support additional Mercedes locations, upgraded 8,000 desktops to Windows XP, kept printers, copiers and fax in working order (including adding toner, paper and clearing jams) and supported the conversion to Lotus Notes. By providing these valuable services, CIBER is enhancing the productivity of Mercedes employees. The IT staff can focus more attention on business-critical projects. All 17

Mercedes employees can spend less time on mundane office tasks and more time on their jobs. Whats more, Mercedes benefits from contracting all of these tasks to a team of highly skilled professionals who are experienced in the Mercedes environment. The Benefit For more than a decade, CIBER has consistently delivered excellent service and optimum flexibility to Mercedes. This valued business partnership has empowered Mercedes to increase user satisfaction, reduce costs and enhance productivity.

CASE 5-BRITISH TELECOM

Background information British Group, formerly known as British Telecom, is one of the leading providers of telecommunications in the UK. With its primary focus in the UK, the company has operations worldwide through partnerships and joint ventures. British Telecom is working in a changing and competitive environment. The nature of the environment requires innovation because of a short product life cycle. Its principal activities include local, long distance and international telecommunications, internet services, broadband network solutions, and providing web hosting and other IT solutions.

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BT outsourcing BT serves around 21 million customers. These customers represent different customer groups with particular needs. The nature of market and industrial context requires permanent innovation and introduction of new, more sophisticated solutions. BT is a "heavy hitter" in the outsourcing stakes, sitting in third and fourth position in the overall outsourcing and mega-deal leagues respectively. Those organisations in the FTSE 100 within the telecommunications industry have 16.62% of their operations contracted out to Business Process Outsourcing (Morgan, 2001). The fundamentals of BTs strategy include customer satisfaction, financial discipline and diverse, skilled and motivated people. Verwaayen (2003) defined BTs strategy valuecreation for shareholders, being best provider of communications services globally throughout Europe, through partnership. For this, "BT is planning a new wave of cost cuts and outsourcing" (Moran, 2003). BT has outsourced back-office functions: accounting and financial services; printing and dispatch; HR; Internet Service; their real-estate management; and call centre functions. This is "in line with BTs strategy of maximising shareholder value by focusing on core business" (Livingstone, 2002). Price (2002) explains that these measures will provide BT with costs savings, service quality and development opportunities for BT staff. BT is retrenching and concentrating on its core business. According to Accentry (2004), their aims for additional value through key partners and suppliers will represent significant financial benefits for BT by outsourcing non-core competencies. BT HR outsourcing According to Accenture (2004) the recognition of the need for the transformation of HR services evolved out of fundamental transactional needs of the rapidly changing company. Already in 1991, the functional restructuring of the company, to provide greater focus on customer needs, highlighted a clear need to consolidate the administrative operations separately from the business-unit HR activities. This step was believed to set the basis for rapid realignment of people as the companys evolution continued. After a series of consolidations, the senior management came to the decision of creating a totally 19

consolidated internal transactional service on the basis of a stand-alone subsidiary, joint venture or separate business entity. To increase shareholder value, sustain progress and cope with the pace of change, BT decided on an entirely new approach to HR in the late 1990s outsourcing its transactional HR functions: the moves, changes, employment data, employee records, administrative call centre and payroll - as well as the non-transactional recruitment function, part of the training function, and later part of the HR business-partner function. BT management decided to deal with a single outsourcing provider because it wanted to have a long-term strategic relationship covering a range of HR processes. After considering various options the company signed an agreement with Accenture. The company started with ASP outsourcing, with the gradual switch to BPO. Besides costreduction and the increase of operational efficiency, the company sought the solution that would enable the remaining in-house HR people to focus on much more strategic issues. This solution was expected to free BT's HR executives to focus on strategic people matters, with a secure base of sound transactional services behind them. It was also expected to create a real commercial opportunity the opportunity to compete and win in the new marketplace for outsourced HR services. In August 2000 the new step towards PEO outsourcing was taken. BT transferred over 1,000 of its HR people to a new joint venture with Accenture. The partners created a fullscale, end-to-end HR transactional solution that covered the complete employee life cycle, with services in resourcing, learning, managing performance, performance appraisal, employee relations, safety, health and delayering. BT retained the right to set and implement strategic HR issues related to organisational development, including specialist centres of excellence focused on policy formulation and close-in HR account management in each of its business units. In the spring of 2002, BT decided to resort to full-scale PEO outsourcing.

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As a result of outsourcing, BT reduced its HR function from 14,500 to 600 HR people. This transformation was delivered entirely through restructuring, process improvement, elimination of duplication and focus on productivity

CONCLUSIONEach case presented in this paper have their own positives and negatives. Each one portrays a different outlook on outsourcing in various arenas. A comparison of the cases is not feasible as each has a different background and context. The diversity in the cases helps us to understand that outsourcing has a very wide spectrum. But in each and every case the point which is highlighted is that outsourcing is very essential in todays competitive market for big organizations but otsourcing done without planning and proper execution leads the organization to severe professional hazards.

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