Documente Academic
Documente Profesional
Documente Cultură
1
AN OUTSOURCING
1.1Introduction to an Outsourcing
Outsourcing can be defined as an allocation of specific business processes to a
specialist external service provider. Most of the times an organization cannot handle all
aspects of a business process internally. Additionally some processes are temporary and the
organization does not intend to hire in-house professionals to perform the tasks. Once the
task is assigned to the service provider, he will take the responsibility of carrying out the
tasks and maintaining the organizations assets.
Organizations outsource their business process due to: Lack of expert-labor in some portions of the business process
Availability of cheaper labor, whilst not comprising on the quality of output
Ability and feasibility to concentrate on the other crucial business process
Expertise in communication capabilities
For technical expertise
Outsourcing can be undertaken to varying degrees, ranging from total outsourcing to
selective outsourcing. Total outsourcing may involve dismantling entire departments or
divisions and transferring the employees, facilities, equipment, and complete responsibility
for a product or function to an outside vendor. In contrast, selective outsourcing may target a
single, time-consuming task within a department, such as preparing the payroll or
manufacturing a minor component, that can be handled more efficiently by an outside
specialist.
However prior to outsourcing any component of business to a third-party vendor, it is
essential to understand the advantages and disadvantages of outsourcing. Although
outsourcing presents a variety of benefits to your organization, it could also pose difficulties
if not outsourced to the right service provider. Some common examples of outsourcing
include manufacturing of components, computer programming services, tax compliance and
other accounting functions, training administration, customer service, transportation of
products, benefits and compensation planning, payroll, and other human resource functions.
A relatively new trend in outsourcing is employee leasing, in which specialized vendors
recruit, hire, train, and pay their clients' employees, as well as arrange health care coverage
and other benefits.
Outsourcing is a phenomenon which has many names. In business terms some call it
'off shoring'; some call it 'BPO' and some call it 'global sourcing' which means delocalization
in laymens language. Regardless of how you call it, it is common to all the MNE's as it is
major mart of their business to get the work done cheaply and quickly and spread their
business across the world.
Outsourcing is defined as the management and/or day-to-day execution of an entire
business function by a third party service provider. Outsourcing involves transferring or
giving a significant amount of management control to the supplier. Buying products from
supplier is not outsourcing, buying services from provider is not necessarily outsourcing.
Outsourcing involves considerable degree of two way information exchanges coordination
and trust. For instance if you buy a product from a vendor it is not outsourcing updating your
requirements to him and having direct contact with the worker who is manufacturing the
product and getting you product is known as outsourcing.
The idea of outsourcing has its roots in the 'competitive advantage' theory propagated
by Adam Smith in his book 'The Wealth of Nations' which was published in 1776.over the
years the meaning of outsourcing has undergone significant changes. These changes started
the movement of manufacturing units to the countries which provide cheap labour during the
period of industrial revolution which is the context of the present scenario. Over the past few
years IT has the backbone for the world economy this boosted the companies to outsource
more rapidly. Outsourcing is the processes of a company hand over a part of its work to other
company where it can be done cheaply and quickly. The work transfer to other company is
constantly monitored and processed according to the requirements and specifications of the
outsourcing company. This process id beneficial to both the outsourcing company and the
service provider, as it enables the outsourcer to reduce costs and increase quality and provide
service to a lot of customers at a time. The service provider also benefits by providing
employment to the staff and expand its business.
In a nutshell, outsourcing is an accepted management tool for restructuring and
refocusing the way an organization does business.
Globalization of economies over the past years have reduced international trade
barriers and have resulted in an increasingly interlinked global economy and intense global
competition, putting pressure on business managers across the world to cut costs of
operations. At the same time a paradigm shift in the possibilities of communication that the
Internet and the telecommunications revolution has bought about has opened up a plethora of
opportunities in outsourcing business processes across continents.
Traditionally starting with just sub-contracting in manufacturing, now a holistic
definition of outsourcing involves transferring any value contributing activities, processes
and/or services to the premises of ones own or an agent primarily to save cost and/or to
increasingly focus on its area of core competence.
Today, every organization is aiming at achieving productivity by enhancing return on
investments and achieving the economies of scale. In this context, it makes sense to focus
only on the organizations core competencies and outsource non-critical business activities.
Therefore, routine administrative work, although important, can be outsourced to third party
vendors.
Here is the general process in which outsourcing is done.
1. Deciding to outsource
2. Supplier proposals
3. Supplier competition
4. Negotiations
5. Contract finalization
6. Transition
7. Transformation
8. Ongoing service delivery
9. Termination or renewal
Here are the main reasons why a company will look to outsource:
1. Cost savings
2. Cost restructuring
3. Improve quality
4. Knowledge
5. Contract
6. Operational expertise
7. Staffing issues
8. Capacity management
1.3 The Disadvantages of Outsourcing:Some of the major disadvantages to outsourcing include poor quality control, decreased
company loyalty, a lengthy bid process, and a loss of strategic alignment ,etc .Following are
the important disadvantages of outsourcing : Risk of exposing confidential data:
When an organization outsources HR, Payroll and Recruitment services, it involves a
risk if exposing confidential company information to a third-party.
Hidden costs:
Although outsourcing most of the times is cost-effective at times the hidden costs
involved in signing a contract while signing a contract across international boundaries may
pose a serious threat.
Lack of customer focus:
An outsourced vendor may be catering to the expertise-needs of multiple organizations at
a time. In such situations vendors may lack complete focus on your organizations tasks.
Synchronizing the deliverables:
In case you do not choose a right partner for outsourcing, some of the common problem
areas include stretched delivery timeframes, sub-standard quality output and inappropriate
categorization of responsibilities. At times it is easier to regulate these factors inside an
organization rather than with an outsourced partner.
Undesirable results:One of the biggest disadvantages of outsourcing is undesirable results. This is especially
true when a company hires a third-party vendor to mass produce a product. In the event that
the finished products do not meet quality standards, the manufacturing process must be
repeated by a different vendor. Not only is this a waste of time and materials, it can also be
very costly for the company who outsourced the project. They are essentially paying twice
for the same job. In addition there is always the possibility that the company may lose sales,
during this same period because of the lack of available product.
Unemployment:
Global Outsourcing
Creates and expands new markets
Effectively and efficiently promotes global citizenship
Recognizes the benefits of a global economy
Enhances technological creativity and diversity
Makes good social, financial, and economic sense
Trend setting factors
Conservative companies to experiment with going offshore to withstand competition.
Broadening of the IT services offered by the experienced vendors.
The launching of captive offshore centers by user companies for business process
outsourcing (BPO).
Onshore IT technology and services vendors setting up shop in locations like India and
China to widen their services. The main three facets;
o Availability of aptly skilled resources
o Lower costs of manpower
o Ability to create better quality of work, more efficiently
CHAPTER NO.2
TYPES OF OUTSOURCING
1.1 Introduction:Outsourcing can be defined as an allocation of specific business processes to a
specialist external service provider. Most of the times an organization cannot handle all
aspects of a business process internally. Additionally some processes are temporary and the
organization does not intend to hire in-house professionals to perform the tasks. Once the
task is assigned to the service provider, he will take the responsibility of carrying out the
tasks and maintaining the organizations assets.
Contracting with a vendor to provide a service rather than providing it yourself
Outsourcing, in literal terms, means sourcing from outside. It is the contracting out of a
company's non-core, non-revenue producing activities to specialists. Principle types
Traditional outsourcing: Here the routine jobs or tasks that the staff of the organization
does not perform are identified and the service provider usually hires staff for this job.
Greenfield outsourcing: Without hiring the service provider the organization can directly
hire an imminent company that can execute their business that was not done in the
organization internally.
Outsourcing
Outsourcing
Payroll Outsourcing
ss
e Process
Process
Legal
Outsourcing
Outsourcing
Process
Payroll Outsourcing
OutBusiness Process Outsourcing
sourcing
CHAPTER NO.3
BUSINESS PROCESS OUTSOURCING (BPO)
1.1 Introduction
Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting
of the operations and responsibilities of specific business functions (or processes) to a thirdparty service provider. Originally, this was associated with manufacturing firms, such as
Coca Cola that outsourced large segments of its supply chain. [1] In the contemporary context,
it is primarily used to refer to the outsourcing of business processing services to an outside
firm, replacing in-house services with labor from an outside firm.
BPO is typically categorized into back office outsourcing - which includes internal business
functions such as human resources or finance and accounting, and front office outsourcing which includes customer-related services such as contact centre services.
BPO that is contracted outside a company's country is called offshore outsourcing. BPO that
is contracted to a company's neighboring (or nearby) country is called near shore
outsourcing.
Often the business processes are information technology-based, and are referred to as ITESBPO, where ITES stands for Information Technology Enabled Service.
1.2 BPO Industry size in India
India has revenues of US$10.9 billion from offshore BPO and US$30 billion from IT and
total BPO (expected in FY 2008). India thus has some 5-6% share of the total BPO Industry,
but a commanding 63% share of the offshore component. This 63% is a drop from the 70%
offshore share that India enjoyed last year: despite the industry growing 38% in India last
year, other locations like Philippines, and South Africa have emerged to take a share of the
market. China is also trying to grow from a very small base in this industry. However, while
the BPO industry is expected to continue to grow in India, its market share of the offshore
piece is expected to decline. Important centers in India are Bangalore, Hyderabad, Chennai,
Kolkata, Mumbai, Pune, Patna and New Delhi.
The top five Indian BPO exporters for 2009-2010 according to NASSCOM are
Genpact,
TCS BPO,
WNS Global Services,
Wipro BPO, and
Aegis Ltd.
1.3 Benefits and limitations of BPO
An advantage of BPO is the way in which it helps to increase a companys flexibility.
However, several sources have different ways in which they perceive organizational flexibility.
Therefore business process outsourcing enhances the flexibility of an organization in
different ways.
Most services provided by BPO vendors are offered on a fee-for-service basis . This can help
a company becoming more flexible by transforming fixed into variable costs. A variable cost
structure helps a company responding to changes in required capacity and does not require a
company to invest in assets, thereby making the company more flexible. Outsourcing may
provide a firm with increased flexibility in its resource management and may reduce
response times to major environmental changes
Another way in which BPO contributes to a companys flexibility is that a company is able to
focus on its core competencies, without being burdened by the demands of bureaucratic
restraints. Key employees are herewith released from performing non-core or administrative
processes and can invest more time and energy in building the firms core businesses. The
key lies in knowing which of the main value drivers to focus on customer intimacy, product
leadership, or operational excellence. Focusing more on one of these drivers may help a
company create a competitive edge.
A third way in which BPO increases organizational flexibility is by increasing the speed of
business processes. Supply chain management with the effective use of supply chain partners
and business process outsourcing increases the speed of several business processes, such as
the throughput in the case of a manufacturing company.
Finally, flexibility is seen as a stage in the organizational life cycle: A company can maintain
growth goals while avoiding standard business bottlenecks. BPO therefore allows firms to
retain their entrepreneurial speed and agility, which they would otherwise sacrifice in order
to become efficient as they expanded. It avoids a premature internal transition from its
informal entrepreneurial phase to a more bureaucratic mode of operation.
A company may be able to grow at a faster pace as it will be less constrained by large capital
expenditures for people or equipment that may take years to amortize, may become outdated
or turn out to be a poor match for the company over time.
Although the above-mentioned arguments favor the view that BPO increases the flexibility
of organizations, management needs to be careful with the implementation of it as there are
issues, which work against these advantages. Among problems, which arise in practice are: A
failure to meet service levels, unclear contractual issues, changing requirements and
unforeseen charges, and a dependence on the BPO which reduces flexibility. Consequently,
these challenges need to be considered before a company decides to engage in business
process outsourcing.
A further issue is that in many cases there is little that differentiates the BPO providers other
than size. They often provide similar services, have similar geographic footprints, leverage
similar technology stacks, and have similar Quality Improvement approaches.
1.4 Threats or Risk in BPO
Risk is the major drawback with Business Process Outsourcing. Outsourcing of an
Information System, for example, can cause security risks both from a communication and
from a privacy perspective. For example, security of North American or European company
data is more difficult to maintain when accessed or controlled in the Sub-Continent. From a
knowledge perspective, a changing attitude in employees, underestimation of running costs
and the major risk of losing independence, outsourcing leads to a different relationship
between an organization and its contractor.
Risks and threats of outsourcing must therefore be managed, to achieve any benefits. In order
to manage outsourcing in a structured way, maximizing positive outcome, minimizing risks
and avoiding any threats, a Business continuity management (BCM) model is set up. BCM
consists of a set of steps, to successfully identify, manage and control the business processes
that
are,
or
can
be
outsourced.
Systems,
identified
as
AHP,
is
explained.
CHAPTER NO.4
KNOWLEDGE PROCESS OUTSOURCING (KPO)
1.1
Introduction
Knowledge Processing Outsourcing (popularly known as a KPO), calls for the
application of specialized domain pertinent knowledge of a high level. The KPO typically
involves a component of Business Processing Outsourcing (BPO), Research Process
Outsourcing (RPO) and Analysis Proves Outsourcing (APO). KPO business entities provide
typical domain-based processes, advanced analytical skills and business expertise, rather than
just process expertise. KPO Industry is handling more amount of high skilled work other
than the BPO Industry. While KPO derives its strength from the depth of knowledge,
experience and judgment factor; BPO in contrast is more about size, volume and efficiency.
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
The future of KPO has a high potential as it is not restricted to only Information
Technology (IT) or Information Technology Enabled Services (ITES) sectors and includes
other sectors like Legal Processes, Intellectual Property and Patent related services,
Engineering Services, Web Development application, CAD/CAM Applications, Business
Research and Analytics, Legal Research, Clinical Research, Publishing, Market Research
(Market research KPO ) etc.
USD 17 billion by 2010, of which USD 12 billion would be outsourced to India. Another
report predicts that India will capture more than 70 percent of the KPO sector by 2010. Apart
from India, countries such as Russia, China, the Czech Republic, Ireland, and Israel are also
expected to join the KPO industry.
According to a recent study by Evalueserve, a Gurgaon based outsourcing company
having service chart for global world, the global KPO market is expected to grow at a
cumulative annual growth rate (CAGR) of 46 per cent, from $1.2 billion in 2003 to $17
billion in 2010. Compare this with the prediction for the low-end outsourcing services
market. This is expected to have a CAGR of 26 per cent, from $ 7.7 billion to $39.8 billion in
the same period. Evalueserve says India provided $3.5 billion of BPO and KPO (but non-IT)
services in 2003 and is expected to grow at a CAGR of 36 per cent during 2004 to 2010.
Hence, it is likely to earn $30 billion in 2010 by providing these services.
Says country general manager, Kelly Services, Achal Khanna India still maintains the
competitive advantage for providing, the combination of the most cost-effective and high
quality manpower- this is India's strength in the off-shoring business.
In the future, it is envisaged that KPO has a high potential as it is not restricted only to
Information Technology (IT) or Information Technology Enabled Services (ITES) sectors,
and includes other sectors like Intellectual Property related services, Business Research and
Analytics, Legal Research, Clinical Research, Publishing, Market Research (Market research
KPO), etc.
"Over the past year or two, the outsourcing industry has been throwing up jobs for
Doctors, Engineers, CAs, Architects," says Jacob William of the Bangalore-based
Outsource2India, which employs 500 people and offers services in the big-buzz, big-bucks
area of knowledge process outsourcing. "Unlike the first wave which was more about
entering data and answering phone calls, these jobs involve skill and expertise."
Also, of course, the talent is much more affordable. "Law firms in the US charge an
average of $400-450 per hour, and we do the same work for $75 to $100 an hour" says
Kamlani" who is an outsourcing provider in the same area.
In the Indian context, KPO salaries could be 25-50 per cent higher than those offered
to the same domain experts such as Engineer, Doctor, CA, Lawyer, Architect,
Biotechnologist, Economist, Statistician and MBAs, it said.
In its annual publication Strategic Review 2005, Nasscom has said the high-end
activity of the BPO industrythe KPO or knowledge process outsourcing could be worth
$15.5 billion by 2010.
According to earlier estimates, the BPO industry itself was expected to be about $20bn
by 2008; hence a very significant portion of the sectorin excess of 50% is now projected to
be knowledge based. This represents significant metamorphosis of call centre sector business
to completely different model. Interestingly, Sunil Mehta, Nasscom vice-president research,
distances himself from the estimates.
The projections are based on a white paper released by Evalueserve. The paper cites
reasons for a possible KPO boom. It says higher savings by outsourcing knowledge-based
activities combined with the scarcity of specialized talent in developed countries could lead
to growth in the KPO sector.
Billing rates for KPO are higher at $30-45 per hour compared to just $10-14 in the
BPO business. However, the paper also warns of several challenges like higher quality
standards, greater investments and inadequate talent.
The study estimates that while the compounded growth rate of BPO till 2010 would be
just 26% KPO is expected to be grow at almost 46%
8. Ensure that the company chosen for outsources work is compliant with statutory laws.
9. The company chosen should match work culture and ethics. This will help offshorer in
carrying out smooth communication with the company.
10. Ensure that the chosen company has well-trained professionals on their staff and good
capacity to handle the work.