OUTSOURCING

Submitted To
Prof. Mridula Goel
Faculty
Jaipuria Institute of Management

Submitted By
Prateek Shrivastav
Students,
Jaipuria Institute of Management

7 December 2007
Jaipuria Institute of Management, Lucknow
OUTSOURCING
 WHAT IS OUTSOURCING

Outsourcing is contracting with another company or person to do a particular

function. Almost every organization outsources in some way. Typically, the
function being outsourced is considered non-core to the business. The outside
firms that are providing the outsourcing services are third-party providers, or
as they are more commonly called, service providers.
Although outsourcing has been around as long as work specialization has
existed, in recent history, companies began employing the outsourcing model
to carry out narrow functions, such as payroll, billing and data entry. Those
processes could be done more efficiently and therefore more cost-effectively,
by other companies with specialized tools and facilities and specially trained
personnel.
Currently, outsourcing takes many forms. Organizations still hire service
providers to handle distinct business processes, such as benefits management.
But some organizations outsource whole operations. The most common forms
are information technology outsourcing (ITO) and business process
outsourcing (BPO).
Business process outsourcing encompasses call center outsourcing, human
resources outsourcing (HRO), finance and accounting outsourcing, and claims
processing outsourcing. These outsourcing deals involve multi-year contracts
that can run into hundreds of millions of dollars. Frequently, the people
performing the work internally for the client firm are transferred and become
employees for the service provider.
The process of outsourcing generally encompasses four stages: 1) strategic
thinking, to develop the organization's philosophy about the role of
outsourcing in its activities; 2) evaluation and selection, to decide on the
appropriate outsourcing projects and potential locations for the work to be
done and service providers to do it; 3) contract development, to work out the
legal, pricing and service level agreement (SLA) terms; and 4) outsourcing
management or governance, to refine the ongoing working relationship
between the client and outsourcing service providers.
In all cases, outsourcing success depends on three factors: executive-level
support in the client organization for the outsourcing mission; ample
communication to affected employees; and the client's ability to manage its
service providers. The outsourcing professionals in charge of the work on
both the client and provider sides need a combination of skills in such areas as
negotiation, communication, project management, the ability to understand
the terms and conditions of the contracts and service level agreements
(SLAs), and, above all, the willingness to be flexible as business needs
change.
The challenges of outsourcing become especially acute when the work is
being done in a different country (offshored), since that involves language,
cultural and time zone differences.
THE 5 W’s OF OUTSOURCING

Who should outsource?

Every company can reap big benefits through outsourcing. Outsourcing can
change the way companies do business - through people, processes and
technology. Whether B2B or B2C, whether SMEs or large diversified
companies or small home offices, every company can leverage the power of
outsourcing for business transformation.
Technology is the key to the competitive edge in the marketplace, and
outsourcing helps companies to leverage the latest and most sophisticated
workflow technologies - without capital investment - to optimize their
business processes and get "more bang for the buck." Outsourcing opens the
door to a global talent pool of human resources with the qualifications and
skillsets to harness this technology effectively. The internet along with
workflow technology has streamlined the processing, transfer and delivery of
data so that large volumes of work can be quickly and efficiently completed
and delivered. Process maturity in the outsourcing arena has revolutionized
the way the world conducts business, and radically improved business
processes to make them faster, cheaper and better.
Outsourcing has been proven to reduce capital costs, increase efficiency,
speed up time-to-market, reduce labor costs, and enable core business focus.
Outsourcing has actually helped companies find newer and better ways to do
things, thus adding value to their products and services.
Why should a company Outsource?
Outsourcing gives:

 The competitive edge - through sophisticated technology and people

 Support to do tasks faster, better and cheaper

 Operational efficiencies without capital investment

 Leading-edge e-business infrastructural support and facilities

 Management

 Better performance
  Lower cost

 Security

 Process maturity
What should a company Outsource?
Outsourcing is a technology-driven, process-centric service business.
Business process outsourcing (BPO) refers to definable, repeatable business
processes that involve scale and volume. Research and Analysis outsourcing
is the higher end of the BPO spectrum, involving advanced analytical skills,
domain knowledge, expertise and judgment.
When should a company Outsource?

 When you want to focus on your core business and leave tasks that are
not mission-critical to those expert in doing them

 When you want it fast, you want it now, you want it cheaper and better
- and you don't have the time, money and people to do it all yourself

 When you need specialized skills which are which aren't readily
available in your market - or cost the earth

 When you want to gain the competitive edge

Where should a company outsource?
Firms are considering outsourcing more than ever before -- and their choices
are growing by the minute The company should outsource keeping in mind
costs, geographical locations, cheap labor, high quality service and price
competitiveness.
BENEFITS OF OUTSOURCING

 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, cost re-structuring.

 Improve quality: Achieve a step 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.

 Operational expertise: Access to operational best practice that would

be too difficult or time consuming to develop in-house.

 Staffing issues: Access to a larger talent pool and a sustainable source

of skills.

 Time zone: A sequential task can be done during normal day shift in
different time zones - to make it seamlessly available 24x7.
Same/similar can be done on a longer term between earth's
hemispheres of summer/winter.
 Increase in business: Benefit of outsourcing is seeing a big increase
in your profits, productivity, level of quality, business value, business
performance and much more.
 Concentrate more on your core business: One of the benefits of
outsourcing is that your organization will be free to concentrate on
your core business. By outsourcing all your non-core functions, your
employees can be put to better use and you will be able to see a huge
growth in your core business.
 Make faster deliveries to customers: Another benefit of outsourcing
is that you can make quicker deliveries to customers. Your outsourcing
partner will be able to provide faster deliverables and you in turn will
be able to make quick deliveries to your customer. Faster deliveries
can also help you save on time.
 Improved customer satisfaction: With timely deliveries and high-
quality services you can impress your customers. Outsourcing can
help you benefit from increased customer satisfaction and your
customers will remain loyal to your organization.
DISADVANTAGES OF OUTSOURCING

 Lose of control
 Quality problems
 Slow response time
 Can't understand foreign accents
 Slow resolution times
 Can't produce desired results
 Reduced sales
 Irritated customers
 Irritated employees, unions, people within community

TYPES OF OUTSOURCING
NEARSHORING
Nearshoring is one of the forms of outsourcing, where an organization
outsourcers its business processes to an outsourcing partner who provides
cheaper services. The main differentiator between offshore outsourcing and
nearshore outsourcing is that the outsourcing partner in nearshore outsourcing
is located geographically closer than the outsourcing partner in offshore
outsourcing. The term "Nearshore" has been taken from the fishing industry
and now it is used widely in the world of outsourcing.
Advantages of Nearshore Outsourcing

 Closer proximity

 Both the outsourcer and the vendor are in the same time zone

 Better coordination and communication

 Similar culture, mindset and language

 Frequent visits to the outsourcing partner is possible

 Greater efficiency
OFFSHORING
Offshoring simply means having the outsourced business functions done in
another country. Frequently, work is offshored in order to reduce labor
expenses. Other times, the reasons for offshoring are strategic - to enter new
markets, to tap talent currently unavailable domestically or to overcome
regulations that prevent specific activities domestically.

ONSHORING

Onshore outsourcing (also called domestic outsourcing) is the obtaining of

services from someone outside a company but within the same country. The
process of engaging another company within your own country for BPO or
ITO services.

ADVANTAGES OF OFFSHORING AND ONSHORING:

 Reduce and control operating costs

 Improve company focus on its core competencies and strategic
imperatives
 Access to world-class capabilities and best of breed technology
 Re-allocate internal resources to higher-value purposes
 Address the issue of limited internal resources
 Accelerate re-engineering/transformation efforts
 Manage more effectively a difficult or problematic function
INFORMATION TECHNOLOGY OUTSOURCING

IT outsourcing occurs when an organization contracts a service provider to

perform an IT function instead of performing the function itself. The service
provider could be a third party or another division or subsidiary of a single
corporate entity. Increasingly, organizations are looking offshore for the
means to minimize IT service costs and related taxes. Many times, the
outsourcing decision results in a transfer or sale of the information processing
assets and the people who performed the in-house function to the service
provider. Outsourcing is also a common option for start-up operations and for
organizations entering new business lines. Rather than devoting time, energy
and capital to the creation of IT processing services, organizations feel they
can minimize the start-up time required to enter new markets by contracting a
third party to provide those services immediately.

IT outsourcing is an attractive option for many organizations. IT outsourcing

should be an integral part of an organization’s overall business strategy,
involving senior executives and key IT staff. The rationale for pursuing
outsourcing options involves the strategic, financial and technological
benefits to be gained.

KNOWLEDGE PROCESS OUTSOURCING

Knowledge process can be defined as high added value processes chain where
the achievement of objectives is highly dependent on the skills, domain
knowledge and experience of the people carrying out the activity. And when
this activity gets outsourced a new business activity emerges, which is
generally known as Knowledge Process Outsourcing. Knowledge Processing
Outsourcing (popularly known as a KPO), calls for the application of
specialized domain pertinent knowledge of a high level.

In fact, it is the evolution and maturity of the Indian BPO sector that has
given rise to yet another wave in the global outsourcing scenario: KPO or
Knowledge Process Outsourcing. The success achieved by many overseas
companies in outsourcing business process operations to India has
encouraged many of the said companies to start outsourcing their high-end
knowledge work as well. Cost savings, operational efficiencies, availability of
and access to a highly skilled and talented workforce and improved quality
are all underlying expectations in outsourcing high-end processes to India.
BUSINESS PROCESS OUTSOURCING
Business process outsourcing (BPO) is the contracting of a specific business
task, such as payroll, to a third-party service provider. Usually, BPO is
implemented as a cost-saving measure for tasks that a company requires but
does not depend upon to maintain its position in the marketplace. BPO is the
process of hiring another company to handle business activities for you.
Business process outsourcing is the latest thing to affect all the industries in a
positive way. (BPO) Business Process Outsourcing has a common thing for
every business. It helps the businesses take care of certain tasks, which, if
done in house, will prove to be nothing but a waste of time, and both financial
and human resources.
Every business has various tasks to be taken care of, both internal and
external. These tasks also involve some, not worthy of the time, money, and
manpower, which could be spent on something better and more productive.
But still, these tasks have to be finished. This is where BPO business process
outsourcing comes in handy.
A company can acquire business process outsourcing service for many types
of work. But, the services provided are broadly divided into two groups. The
first one is for the internal operations or tasks, and is called the back office
outsourcing. It tackles various operations within the organization. For
instance, a company may hire a business process outsourcing company for the
purpose of hiring or payroll.
The other type of business process outsourcing services deal with the external
operations of a company. These could be anything such as providing customer
services, providing technical support to the customers, or anything similar.
Such services are called front office outsourcing.
Benefits derived from BPO can be summarized as follows:

 Productivity Improvements

 Access to expertise

 Operational cost control

 Cost savings

 Improved accountability

 Improved HR
 Opportunity to focus on core business
EFFECT OF BPO ON EMPLOYMENT

The continuously growing BPO sector in India is the new call for young
generations of the country who are on the verge of make their careers. The
BPO industry boom in India is bringing along with numerous of job
opportunities for young as well as old from various different backgrounds.

Business Process Outsourcing (BPO) in India gives tremendous

opportunities for professionals pertaining to different backgrounds. BPO
undertakes tasks of various natures. There are opportunities in operations,
quality maintenance and control, client servicing etc.

People with clear voice modulation can account for call center facilities
thriving in India. All the major Product and Service providing companies
longs to have a strong customer based program to enhance their customer
base. As such they implement call center facility that deals with customer
through telephones. The inbound and outbound calling ensures that there is a
constant touch with the customers.

Staff employed in ITES-BPO: 2002/03: 171,100

2003/04: 245,100

(ITES-BPO: IT enabled Services - Business Process Outsourcing)

Staff employed in outsourced customer service: 2002/03: 65,000

2003/04: 95,000

Standard salary for call centre worker in India: around Rs.1.2 lakh or
Rs.10,000 per month.

GROWTH OF BPO SECTOR IN INDIA

During the first half of 2007 was showing a moderate trend of growth which
is registered at 14%. Five years ago, the growth in this sector was quite low
due to less contracts but the situation is worse now. However, the growth of
the BPO sector is expected to improve.
Indian BPO sector is facing competition from countries like Philippines,
Mexico, Malaysia, China, and Canada.

India has an edge over other countries as we consider the following:

 Tech savvy professionals
  Cost effectiveness

 Superior competency

 24 hour service

 Economy of scale

INDIA- THE MOST PREFERRED DESTINATION

At present, the most preferred destinations for outsourcing include Ireland ,

India , Israel , Canada , Philippines and South Africa.

India is leading the list of the most favored outsourcing destinations across
the world has a proven process maturity model and has captured major share
of the offshore market. The significant increase in offshore outsourcing is in
part, a result of the quality work that India has provided for US companies
and others. There are about 300 million English-speaking Indians, so
language isn't a barrier, and India 's labor costs, though rising, remain low.

India has become the world's outsourcing hub. India offers many competitive
advantages such as technological agility, quality, flexibility, cost control
and faster time-to-market. India is a talent rich country and currently it
exports software to more than 95 countries around the world. India is the best
place to outsource to as you can avail the best-of-breed services at a cost-
effective price.

Philippines is India's closest competitor in terms of low average IT employee

costs. Here the education system is on par with the US system. The total
outsourcing revenues from Philippines is estimated to be under $350million.

Upcoming destinations include Ukraine, Russia , the Czech Republic , Poland

, China , Pakistan , Brazil , Argentina and Mexico.

SOCIO-CULTURAL ENVIRONMENT

Though many qualified Indians continue to migrate, there are enough

qualified people in India, which leads to a high level of entrepreneurship and
availability of managerial talent. Industry and service sectors show high
growth rates, benefiting the outsourcing industry, serving both domestic and
international demand. High value-adding, intellectual work starts to come to
India. Indian outsourcing companies dominate the global competitive
scenario as access to capital becomes easier. Many qualified Indians continue
to migrate, but there's enough quality manpower in India, leading to a high
level of entrepreneurship, as well as the availability of managerial talent for
the outsourcing industry.
If we talk about Indian society, then definitely one can notice and observe the
change brought by the outsourcing services and institutions. Being world’s
second most populated country, human resources are a boon by itself, in
India.
Outsourcing can be both beneficial as well as harmful to the society. This
industry, which booms in metro cities, has caught hold of what can be called
as the jugular vein. Its role is somewhat restricted to the developed cities only
and can be least found in the villages and remote areas of India.
Outsourcing industry has improved Indian economy primarily by employing a
large number of people and building and maintenance of infrastructure. It is
because of the outsourced projects that people at large in India get
opportunities to know and work in multi national corporations.
BPO companies also provide ample opportunities for women and as such help
them in their liberation and liberalization. There is a good percentage of
women workforce employed in the outsourcing companies in the cities. The
role of women has consistently changed and they can better take care of their
finances and their career.
Meanwhile we are also losing on several cultural and traditional benefits.
The outsourcing companies and projects emphasize on the foreign cultural
values, the place from which the original project has been outsourced. The
holidays, the work culture, day-to-day dealings and more tend to lay greater
importance on the social norms that are not part of our system, our
community. We are slowly adapting to the change, accepting the dominant
culture and yielding to such values, which neither we have assigned, nor have
they come from our own social domain
Outsourcing based on call centers comes with a package of cultural and value
systems associated with western culture.
As Indian BPO s serve mainly customers from western countries, their
employees are provided with opportunities and training in understanding the
culture, accent, and customs existing in the outsourcing receiving countries.