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Outsourcing
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What is Outsourcing?
Outsourcing -
the strategic use of outside resources to perform
activities traditionally handled by internal staff
and resources Dave Griffiths
Why Outsource?
Provide services that are scalable, secure, andefficient, while improving overall service andreducing costs
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Types of Outsourcing
Common processes outsourced are Purchasing
Logistics
R&D
Operations
Service management
Human resourcesFinance/accounting
Customer relations
Sales/marketing Training
Legal processes
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Focus on core competency
Buyer can focus on its core strength
Allows buyer to differentiate from its competitors
Increased flexibility
The ability to better react to changes in customer demand
The ability to gain access to new technologies and innovation.
Critical in certain industries:
High tech where technologies change very frequently
Fashion where products have a short life cycle
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Problems With Outsourcing
Loss of Control
Increased cash outflow
Confidentiality and security
Selection of supplier
Too dependent on service provider
Loss of staff or moral problems
Time consuming
Provider may not understand businessenvironment
Provider slow to react to changes in strategy
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The risk concept Risk is an ambiguous
concept .
Risk denotes the precise probability of
specific eventualities .
Technically, risk has no value, so these
eventualities can be beneficial or adverse (i.e.
financial risk).
RISK = f (Probability, Consequences)
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What is risk?
Risk :
exposure to the chance of injury or loss
hazard or dangerous chance
chance ofloss
degree ofprobability of such a loss
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Risks in Outsourcing
Outsourcing can be risky
As many as half of all outsourcing agreementsfail because of inappropriate planning and
analysisErratic power grids, government difficulties,
inexperienced managers, and unmotivatedlabor can create problems
Failure to achieve unrealistic goals sometimescreate the impression of failure
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Risks in Outsourcing
Outsourcing Process
Identify non-core
competencies
Identify non-core activities
that should be outsourced
Identify impact on existingfacilities, capacity, and
logistics
Examples of PossibleRisks
Can be incorrectly
identified as a non-core
competency Just because the activity is
not a core competence for
your firm does not mean an
outsource provider is more
competent and efficient
May fail to understand the
change in resources and
talents needed internally
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Risks in Outsourcing
Outsourcing Process
Establish goals and draftoutsourcing agreementspecifications
Identify and selectoutsource provider
Negotiate goals andmeasures of outsourcingperformance
Examples of PossibleRisks
Goals can be set so highthat failure is certain
Can select the wrongoutsource provider
Can misinterpret measuresand goals, how they aremeasured, and what theymean
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Risks in Outsourcing
Outsourcing Process
Monitor and control
current outsourcing
program
Evaluate and give feedback
to outsource provider
Evaluate international
political and currency risks
Examples of PossibleRisks
May be unable to controlproduct development,schedules, and quality
May have non-responsiveprovider (i.e., one thatignores feedback)
Countys currency may beunstable, a country may bepolitically unstable, orcultural and languagedifferences may inhibitsuccessful operations