Rationale for Outsourcing

Do what you do best and outsource the rest.

Tom Peters Tom Peters

Presented at HR Round Table organized by ISPe & UPES, Dehradun

Defining Outsourcing
Term coined by Eastman Kodak Co. in 1989 when it handed over its information technology department to three providers. Do what you do best and outsource the
rest.

Rationale for outsourcing : why manage in house what can be done better, cheaper, outside? Outsourcing is defined as having an external vendor provide, on a recurring basis, a service that would normally be performed within the organization. The vendor Tom Peters is also accountable for providing predefined levels of service to the organization.

PwC Perspective
Outsourcing captures a broader range of strategic partnerships. It represents a continuum straddling :

discrete relationships with business consultants and tax advisers on one end partnerships with outsourcing vendors for a particular service or function in the middle broader arrangements such as employee leasing, virtual organizations, and webs of inclusion on the other end

Benefits Of Outsourcing
Performance & Best Practices Access to Best Practices Enhanced Performance Greater Experience Base Off-load Turnover Impact Access to Cyclical Needs Reduce Off-the-shelf Resource Retention Requirement

Access to Resources Access to Management Expertise Depth and Breadth of Resources Access to Tools, Templates & Repeatable Processes Cost Management Capital Investment Avoidance Benefits of Leverage Variable Cost Opportunity

Benefits Of Outsourcing
Partnering with a world-class vendor can offer some advantages like:
Access to new technology, tools, and techniques, industry knowledge and expertise Avoidance of the cost of chasing technology and associated training costs Better career opportunities for personnel who transition to the outsource vendor Enable staff to concentrate on building new and improved capabilities that meet business requirements rather than managing current operations Fewer operational problems due to more structured methodologies, procedures and documentation and more experienced staff Competitive advantage through expanding skills A better price/value mix on investments; Project management/ on-site personnel to support the client organisations needs

Is Outsourcing Really Happening?

A CEO wants the senior HR executive to be a business strategist who effectively uses the workforce, and not a Master of morbid detail. Dave Ulrich, University of Michigan
The average number of functions outsourced by organizations has risen 225% over the past 5 years and will go on growing. (PA Consulting group (U.K) ) Outsourcing is moving from the peripheral activities towards more central ones. National US Survey of HR Executives has found that:
Most HR Departments are outsourcing at least one service or function Every HR service or function is being outsourced HR leaders are outsourcing services and functions for many different reasons

Approximately 35% Fortune 1000 companies are outsourcing strategically

Managing Risks In Outsourcing

There are a few risks perceived in an outsourcing arrangement. However, there are effective ways of managing these risks and ensuring the success of an outsourcing relationship. The Perceived Risks
Loss of Control Loss of Intellectual Property Loss of Security Service Quality Degradation Cost Escalation Change Issues HR Issues Transition Issues Exit Strategy

Suggested Mitigation Measures

Strategic Partnering/SLA Terms SLA - License, Usage and Rights Standard Operating Procedures SLA Service Levels - Incentivization Process Improvements, Shared Risks and Rewards Flexible SLAs, Formal Change Mgmt. Proceses Targeted Commn. Strategies, Processes & Culture Methodology, Joint Risk Management SLA Exit & Transition Mechanisms

Opportunities In Outsourcing
Procurement Manage logistics Develop products Perform marketing

Supplier network

Perform sales

Customer network

Customer service

Human Resources
Production

Outsourcing to flexible value added organisations

Opportunities In Outsourcing
Design Consulting
Developing vision-mission and core values Organisation design of new business units HR Strategy development Design/ review of new processes/systems supporting the restructuring and vision Manpower planning and staff redeployment /Resource Pool Studies Recruitment of additional staff in skill shortage areas Assessment and selection of key staff Cost forecasts/budgets for staffing levels Training needs analysis and training delivery advice Competency mapping Change management.

Operations Consulting
Recruitment administration Training administration and record keeping Compensation and Benefits: payroll, taxation Leave management Relocation / expatriate services Health and Welfare management Employee Communication eg newsletters Grievance handling Managing HR data, management information and the employee work/life interface eg
Continuous Content Development for the intranet/B2E portal : policy updates Records and documentation eg : legal and compliance Management HRIS reporting eg tracking head count, absence, overtime records Updating personal records HR Help desks

Mail Room management Termination / Exit administration

The HR Agenda 2005

Change Makers
1.Define Org Structure 2.Strategic resource planning 3.Build Learning Culture 4.Recommend Action to Board

STRATEGIC
1.Internal Comms
2.Flexi-Training 3.Market Company 4. Understand global cultures& local Flavours Advise on packages 1.Recruitment Admin 2.Pay - Benefits Admin 3Legal Data Capture 4. Contract Admin 5.Disciplinarians

Advisors

Interventionist
1Policy Setting 2.Contract Development 3.Compliance

M&A

Non Interventionist

Regulators OPERATIONAL

Service Providers