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Outsourcing

MIS 5973

Rui Huang, Sujun, Lamont Allison,Allen Burcham


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What is Outsourcing?

Introduction

Outsourcing' is the process through which onecompany hands over part of its work to anothercompany, making it responsible for the designand implementation of certain business processunder the requirements and specifications of the

outsourcing company.Definition

The strategic use of outside resources to performactivities traditionally handled by internal staff andresources Dave Griffiths


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History of Outsourcing

The idea of outsourcing has its roots in the

'competitive advantage' theory propagatedby Adam Smithin his book 'The Wealth ofNations' which was published in the year1776. Over the years, the meaning of the

term 'outsourcing' has undergone a sea-change. What started off as the shifting ofmanufacturing goods to countries providingcheap labor during the Industrial Revolution.


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Why do Companies Outsource?


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Reasons for Outsourcing

Traditional role - reaction to problem

Reduction and control of costs Avoid large capital investment costs

Insufficient resources available

Modern role business strategy

Allows company to focus on their corecompetencies

Keeping up with cutting-edge technology

Creating value for the organization and itscustomers

Building partnerships


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What Can be Outsourced?

system integration

data network

mainframe data center

voice network, internet/intranet

maintenance/repair

applications development

e-commerce

end-user support system


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How to Implement Outsourcing

Program initiation Opinions and ideas shared to form draft

contract

Program implementation Transferring staff Service Level Agreement (SLA)

Establish communications between partners Actual transfer of the service Establish management procedures

Contract agreement

Contract fulfillment


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Advantages


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Privatization and Outsourcing

Liberalization and privatization 1990

Monopoly of Govt on Telecom sector- 1994 Privatization Encouraged 1994

New Telecom Policy/IP Telephony 1999

Tax Benefits 2007-2008


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Growth by Serviceline


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The key trends witnessed in the

Indian ITES-BPO market

Significant increase in capacity

Continued focus on Customer Care and Administration Continued dominance of US and UK market

Enormous interest by potential customer

Rapid maturity of third party vendor

Increased presence of IT services companies Emergence of several under-the-radar opportunities

Geographical diversification of capacity

Changes in ownership structure

Changing customer behavior


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Critical Success Factors in the

ITES-BPO Business

Customer care: including database marketing, customer analytics, telesales/telemarketing, inbound call center, web sales and marketing, sales and marketingAdministrationFinance: including billing services, accounting transactions, tax consulting andcompliance, risk management, financial reporting, financial analysis

Human Resources: including benefits administration, education and training,recruiting and staffing, payroll services, hiring administration, records management

Payment services: credit/debit card services, cheque processing, transactionProcessing

Administration: including tax processing, claims processing, asset management,document management, transcription and translation

Content development: including engineering, design, animation, networkconsultancy and management, biotech research.


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Problems With Outsourcing

Loss of Control

Increased cash outflow

Confidentiality and security

Selection of supplier

Too dependent on serviceprovider

Loss of staff ormoralproblems

Time consuming Providermay not understand

business environment

Provider slow to react to changesin strategy


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Problems With Outsourcing


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Use ofResearch in Outsourcing

BREAKING DOWN OFFSHORINGMODELS:-

A global firm considering offshoring numerousresearch tasks and functions recently engaged BSTAmerica to perform a market study of othercompanies that have been involved with, or are

considering, outsourcing. The study group covered11 companies, including global financial institutions,large consulting firms, and global accounting firms.

icrosoft Office

ord Documen


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When to Outsource

GreyArea

NotOutsourced

In HouseifPossible

Outsource

Competitive

Strategic Non-Strategic

Non-Competitive

PricewaterhouseCoopersModel


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E-CommerceHosting Solution

WAN bandwidth

IT professionals

Hardware/Software

Security issues

24/7 support


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E-CommerceHosting Solution

In-House

Activity costs, inclusive of labor and overhead

Raw materials, inclusive of shipping, storage, handling and overheadCost of invested capital

+ Estimated impact of outsourcing on costs and revenue----------------------------------------------------------------------

Total cost of performing activity in-house

OutsourceProposal for outsourcingAnticipated future pricing adjustmentsAdditional one time costs of outsourcing

+ Additional on-going costs of outsourcing--------------------------------------------------------------------

Total cost of outsourcing activity


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Email Outsourcing

EmailHosting Email@yourdomain POP3 access IMAP4 access Outbound SMTP Virus Scanning External POP Access

24x7 Web-based Support Spell Check Email Forwarding Unlimited Attachment Size Unlimited Storage Folders Multiple attachments

The total cost of ownership for an in-house email system islikely to be in the range of $200 to $400 per user per

month. Outsourcing should reduce TCO by 10% to30%. Ferris Research, June 2001

Typical Services


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Typical Services

CustomWebmail

Customizable, private-label WebMail interface Wireless WAP Access

Automated User Signups

Integrated Ad Server

Customizable to any language in the world

Programming API's for front and back endsystem integration


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Costs

Web Based Email Services with POP 3 access up to 6 Mailboxes PerMonth

0-5,000 Mailboxes $0.99 each5,001-7,000 $0.90 each7,001-10,000 $0.75 each10,001 and up $0.55 each

Minimum Monthly Fee Per Domain is $79.00 Large Install - Setup Fee $199.00 at launchOther Options

Wireless Access - $0.30 per mailbox per month Outgoing SMTP - $0.20 per mailbox per month purchased in blocks of 50. Design Services - $100 flat charge for color scheme consulting. $70 perhour for custom design consulting. Additional Storage - Units of 2mb $0.99 per mailbox per month.

Acadea has customizable email solutions for schools, universities, government

agencies and businesses.

http://www.acadea.com/WebmailPrice.htm


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Costs

Example 4: 100 UserMulti Server,Multi Location NetworkIn-House Cost

Salary For Sr LevelNetwork Engineer $65,000.00

Salary For Software / Hardware Support Technician $40,000.00

Medical Benefits andPayroll Expense(assume 1 married 1 single) $ 18,100.00

Office Spaceand Expenses $ 10,000.00

Continuing Education $ 5,000.00

HardwareRepairParts $ 10,500.00

=========

$148,100.00

Sullivan Data will provide on-sight technician during regular business hours forbetween $90,000.00 and $100,000.00 annually depending on equipment chosen

http://www.sullivandata.com

outsourcing new (1)

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