Outsourcing &Types

Outsourcing is the process of assigning

company’s business processes to an external

agency in lieu of enhancing service quality,

driving innovation or deriving benefits of lower

labor costs.

There are 5 types:

1. Contracting out the activities

2. Outsourcing the service

3. In sourcing

4. Co-sourcing

5. Benefit based relationship.

Motivation for outsourcing

Consider outsourcing

Identify functions to outsource

Vendor decisions

continue

benefits risks

factors yes

noend

OUTSOURCING DECISION FRAMEWORK

Motivation of Outsourcing

3 major categories of motivations for outsourcing: cost, strategy, and politics.

• Cost driven outsourcing (pvt. industry)

• Strategy-driven outsourcing (pvt. industry)

• Politically-driven outsourcing.

Key Driving Factors• Absence of specialists or experts

• Irregular demand for personnel

• High risk factor

• Emphasis on perfect processes

• Savings in management time

• Achieving and maintaining objectivity.

Advantages of

Outsourcing

Enhanced returns on investment

Lower labor cost

Economies of scale

Better revenue realization

InnovationEfficiency of management

Decisions

Increases speed and quality.

Optimizes resource utilization

Reduces cash outflow

Flexibility in terms of Service delivery

Disadvantages of

Outsourcing

Loss of control

Quality problems

Sluggish response times

Hidden costs Low benefits and results

Lingual accent variation

Enraged employee

unions

Bad publicity & ill will

Outsourcing Decision Matrix The Outsourcing Decision Matrix, helps you consider two

important factors in outsourcing a task:

• How strategically important is the task to your business? Strategically important tasks are sources of competitive

advantage.

• What is the task's impact on your organization's operational performance?

Tasks which have a high impact on operational performance.

Outsourcing Decision Matrix

Offshore or Home shore? The choice is yours! • Small businesses are maturing to look at a variety of factors

before making the outsourcing decision. Tasks that require presence in the same time zone and a cultural awareness are being Home shored. Tasks that are not time sensitive or heavily influenced by culture are being Offshore.

How to benefit from this trend:• Evaluate if your outsourcing partners can train themselves

on some of the cultural aspects if they belong to a different geography.

• Offshore only those tasks that are well defined. For tasks that need your input several times a day, choose a provider who can work in your own time zone.

Factors for Successful Outsourcing• Understanding company goals and objectives

• Strategic vision and plan

• Selecting the right vendor

• Properly structured contract

• Open communication

• Senior Executive support and involvement

• Use of outside expertise.

Vendor Decisions• Technical Expertise

• Quality

• Vendor's Expertise in Your Business Space

• Overall Business Strategy

IBM

• IBM was a vertically integrated company in the 1990s.

• Until 1995 IBM built 100% of its printed circuit boards PCBs. Now it makes 10% of them.

• IBM used to make 85% of the memory chips used in its computers; in 1999 its 15% .

• Keyboards and power supplies were built in house in the past now outsourced.

• IBM used to assemble all its own computers now contract manufacturers build most of them.

• Why outsourcing ?Outside suppliers had the required technologySuppliers providing at lower costs• 1986-96, proportion of IBM’s revenue spent on outside

suppliers increased from 28% to 51%.• The strategy adopted is “where we make a difference”• Competitive advantage- they got the components at a

lower price• HOW TO CHOOSE VENDOR ?Control component sources by directing contract

manufacturers to specific sources, thereby reducing costs by 65 million dollars

• ECONOMIC OUTCOME- reduction in costs by 20%

CONCLUSION- Current Scenario

Global Scenario:• Trends changing gradually.• Traditional model of outsourcing is now replaced

with a global sourcing model.

Indian Scenario:• Not merely as a cost reduction solution but one of

co-creating future value.

THANK YOU!• Juhi Pancholi• Deeksha Mirakhur• Rashne Gautam• Pranavi Kapur• Nishant Chachra• Pranay Chand• Mili Vasani.