Written Assignment Format

Name: Vineet Kumar Rai Due Date / Day: 16/02/11, Class: C, 28th Batch Roll No: 2804358 Subject: Business Information System

Assignment No: 2 Topic: Outsourcing Title of the assignment: Outsourcing- IT Services Signature: (Of the student):

Name (Of the Faculty): Prof. Meenakshi Gupta Signature: Date of Evaluation:

Marks out of 15

Remarks (By Faculty): _________________________________________ ________________________________________ _________________________________________ _________________________________________

Outsourcing
Outsourcing is a concept became popular in the 1980s and is now an indispensable tool in business. It involves transferring the management and execution of a business process or function to an external service provider by entering into a contract that defines the process or function. Service providers in far flung destinations such as India, China, Philippines and even Brazil are working for corporations across the world. Truly, globalization has spawned innovative business and engagement models. Outsourcing is often viewed as involving the contracting out of a business function - commonly one previously performed in-house - to an external provider. In this sense, two organizations may enter into a contractual agreement involving an exchange of services and payments. Of recent concern is the ability of businesses to outsource to suppliers outside the nation, sometimes referred to as off shoring or offshore outsourcing (which is odd terms because doing business with another country do not mean you have to go offshore). In addition, several related terms have emerged to grasp various aspects of the complex relationship between economic organizations or networks, such as near shoring, multi sourcing and strategic outsourcing.

Reasons:Organizations that outsource are seeking to realize benefits or address the following issues.

Cost savings:- The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, and cost restructuring. Access to lower cost economies through off shoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.

Focus on Core Business:- Resources (for example investment, people, and infrastructure) are focused on developing the core business. For example often organizations outsource their IT support to specialized IT services companies. Cost restructuring:- Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable. Improve quality:- Achieve a steep change in quality through contracting out the service with a new service level agreement. Knowledge:- Access to intellectual property and wider experience and knowledge. Contract:- Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services. Operational expertise:- Access to operational best practice that would be too difficult or time consuming to develop in-house. Access to talent:- Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering. Capacity management:- An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier. Catalyst for change:- An organization can use an outsourcing agreement as a catalyst for major step change that cannot be achieved alone. The outsourcer becomes a Change agent in the process.

Enhance capacity for innovation:- Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation. Reduce time to market:- The acceleration of the development or production of a product through the additional capability brought by the supplier. Risk management:- An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation. Venture Capital:- Some countries match government funds venture capital with private venture capital for start-ups that start businesses in their country. Tax Benefit:- Countries offer tax incentives to move manufacturing operations to counter high corporate taxes within another country. Scalability:- The outsourced company will usually be prepared to manage a temporary or permanent increase or decrease in production. Creating leisure time:- Individuals may wish to outsource their work in order to optimize their work-leisure balance.

Pros and Cons of Outsourcing:-

Pros of Outsourcing
Cost Advantage and savings Increase in business Access to specialized services Concentrate more on your core business Make faster deliveries to customers Improved customer satisfaction Benefit from time zone advantages Increased efficiency Give your business a competitive edge

Cons of Outsourcing
The hidden costs are difficult to calculate Loss of managerial control Threat to security and confidentiality Loss of flexibility in reacting to changing business conditions Lack of internal and external customer focus Sharing cost saving Unfavorable contract length Problems in contract renewal Contractual misunderstandings

Risk for customers:-

Risk
Economic Risk Country Risk Reputation Risk

Areas of concern
Supplier financial instability/corporate fraud Currency fluctuations, inflation Political, social and legal climate uncertainties Regulatory and legal restrictions Poor service from third party Inconsistent customer interaction Third party practices not in line with customer practices Privacy laws are not complied with Inadequate compliance systems and controls Breach of confidentiality agreements and data protection standards Failure to meet service levels Technology Failure Volatile demand for services / Inadequate infrastructure Limited ability to return services to home location due to lack of staff or loss of intellectual capital Inadequate knowledge retention and data capture Level of control over suppliers Systemic risk to industry as a whole Ability to recovery within defined requirements Control over recovery processes/procedures External review and validation of employees Loss of confidentiality, integrity or availability of information or assets

Compliance Risk

Operational Risk

Exit Strategy Risk

Concentration/ Systemic Risk Continuity Risk People Risk Security Risk

The Advantages and Disadvantages of Outsourcing

The advantages and disadvantages of outsourcing can help your organization decide if outsourcing is right for your business. The following is a list of the advantages and disadvantages of outsourcing:

The Advantages of Outsourcing

Outsourcing your non-core activities will give you more time to concentrate on your core business processes. Off shoring can give you access to professional, expert and high-quality services. With outsourcing your organization can experience increased efficiency and productivity in non-core business processes. Outsourcing can help you streamline your business operations. Offshore outsourcing can help you save on time, effort, manpower, operating costs and training costs amongst others. Outsourcing can make your organization more flexible to change. You can experience an increased control of your business with outsourcing. Your organization can save on investing in the latest technology, software and infrastructure as your outsourcing partner would be investing in these. Outsourcing can give you assurance that your business processes are being carried out efficiently, proficiently and within a fast turnaround time. Off shoring can help your organization save on capital expenditures. By outsourcing, your company can save on management problems as your offshore partner will be managing the team who does your work. By outsourcing, you can cater to the new and challenging demands of your customers. Outsourcing can help your organization to free up its cash flow. Sharing your business risks is possible with outsourcing. Outsourcing can give your business a competitive advantage as you will be able to increase productivity in all the areas of your business. Outsourcing can help your organization to cut is operational costs to more than half.

The Disadvantages of Outsourcing

At times, it is more cost-effective to conduct a particular business process, rather than outsourcing it. While outsourcing services such as payroll processing services and tax preparation services, your outsourcing provider will be able to see your companys confidential information and hence there is a threat to security and confidentiality in outsourcing. When you begin to outsource your business processes, you might find it difficult to manage the offshore provider when compared to managing processes within your organization.

 Off shoring can create potential redundancies for your organization. In case, your offshore service provider becomes bankrupt or goes out of business, your organization will have to immediately move your business processes in-house or find another outsourcing provider. The employees in your organization might not like the idea of you outsourcing your processes and they might express lack of interest or lack of quality at work. Your outsourcing provider might not be only providing services for your organization. Since your provider might be catering to the needs of several companies, there might be not be complete devotion to you and your company. By outsourcing, you might forget to cater to the needs of your valuable customers as your focus will be on the business process that is outsourced. In outsourcing, you may lose your control over the process that is outsourced. Outsourcing, though cost-effective, might have hidden costs, such as the legal costs incurred while signing a contract between companies. You might also have to spend a lot of time and effort in getting the contract signed. With outsourcing, your organization might suffer from a lack of customer focus. There can be several disadvantages in outsourcing, such as, renewing contracts, misunderstanding of the contract, lack of communication, poor quality and delayed services amongst others.

Top ten outsourcing companies in India:- As part of the same

survey, NASSCOM also released a ranking of the top ten Indian BPO companies; given below are some facts about these ten companies and their present state in India.
1. GENPACT: Founded in 1997, Genpactthe erstwhile-outsourcing wing of GE Capitalleads the pact. Having formed an independent entity in 2005, Genpact has a network in 13 countries of more than 30 operations centers, including leading enterprises such as Nissan, Wachovia, Hyatt and GE. It offers a wide range of services including finance, IT infrastructure, supply chain management and analytics and hence is guaranteed to stay at the top of the list for years to come. With a workforce of more than 37,000 employees, Genpacts revenue for the year 2008 stood at $1040 million. 2. WNS Services: Principally distinguished by its deep domain expertise and end-to-end service offerings, WNS Global Services occupies the second place in this list. Based in Mumbai, Warburg Pincus is its main investor firm. WNS boasts of 215 plus global clients. Established in 1996, this Nasdaq-listed company has been serving numerous industries such as healthcare, manufacturing, retail, distribution, insurance and travel. At present, WNS has more than 21,000 persons working for it and has clocked revenues of about $539 million as of 2008. 3. IBM DAKSH: The brainchild of four ambitious and talented professionals, IBM Daksh grew from a relatively small enterprise to a global hub that employs more than 30,000 people today. Celebrated for its excellent leadership and empowering vision, IBM Daksh has been effortlessly managing business processes for its international clientele over the

past 5 years. As a result, it has won accolades for its outstanding performance, including the Most Respected BPO Company in India by Business World. The company has 25 service delivery centers in India and the Philippines. While IBM Daksh is primarily a solutions provider for various industries such as financial services, communication and distribution, it also offers its expertise to the hospitality and travel sectors. 4. WIPRO BPO: Spectramind was acquired by Wipro in 2002 and renamed as Wipro BPO Solutions, which has since then carved a niche for itself in the outsourcing industry. The company has been rated one of the Best Employers in India by the Best Employers Hewitt Survey in 2007. The HQ of Wipro BPO is based in Bangalore, with over 19,000 employees committed to providing high quality services to its customers. As of 2008, the company generated revenue of approximately $395 million, thus giving it recognition as one of the top 10 BPOs in India. Wipro BPO offers financial and accounting services, HR services and knowledge services to industries including insurance, healthcare, telecom, travel and hospitality, among others. 5. TCS BPO: One of the key players in the present-day outsourcing industry, TCS BPO offers various services in the realm of healthcare, telecom, travel, media, KPO and banking, among others. TCS BPO has won accolades for its services and performances as a result of which it was named one of the worlds top BPO providers by the International Association of Outsourcing Professionals, in 2006. Although its headquarters is based in Bangalore, it is spread across the heart of the country with branches in Goa, Pune, Mumbai, Lucknow, Gurgaon and Hyderabad. TCS BPO Its clientele includes 132 entities that span over 32 countries. At the end of fiscal year 2008-09, the BPO contributed around Rs 1,900 crores to the companys revenues. 6. FIRSTSOURCE SOLUTIONS: Firstsource was established in 2001 and was formerly known as ICICI Onesource. Ranked among the top 10 ITES companies in 2007 (by Nasscom), it is a leading player in global business process management. It is commendable to note that Firstsource is the first pure play BPO company in the world to secure ISO 20000 and ISO 27001 certifications. It has numerous leading global clients to whom it offers BPO services spanning customer care, billing and collections, business research and analytics and customer acquisition. Among several notable clients, Firstsource boasts of a clientele subsuming FTSE 100 media companies, 3 of the 5 largest US banks, top 5 UK banks and 2 of the worlds largest telecom companies. 7. ADITYA BIRLA MINACS: A global IT business solutions company and subsidiary of Aditya Birla Nuvo, Aditya Birla Minacs has over 26 years of experience in offering BPO solutions to over 15 Fortune 500 companies. Nasscom 2006-07 ranked the company as Indias third largest BPO, by export revenues. With a primary focus on three areas, namely contact centre solutions, integrated marketing services, and knowledge process outsourcing, Aditya Birla Minacs has employed over 13,000 employees across its facilities in the world.

8. AEGIS: A leading player in customer care and acquisition for over thirty years, Aegis has numerable Fortune 500 clients to whom it provides immeasurable support by way of customer interaction, back office and other routine business processes. Aegis has been recognized as eighth among the top 15 BPO exporters for 2008-09 by Nasscom. It operates out of 40 locations spread across the globe with complete support from a 39,000-strong staff strength. Its headquarters are based in Mumbai. Essar Global Limited, its parent company, is an $18 billion group well established in 130 countries. 9. Infosys Technologies: Infosys Technologies set up Infosys BPO in April 2002 as its business process outsourcing subsidiary. With a focus on integrated end-to-end outsourcing through lesser costs, Infosys BPO holds high ranking among the top BPO companies of India. It clocked revenues of $250 million for fiscal year 2007-08 and has its operation centres in Mexico, Bangkok, India, Poland, China, the Philippines, among others. Backed by over 16,295 employees, Infosys BPO Ltd. is bound to stay put in the slot for top 10 BPOs in India for many years to come. 10. HCL BPO: Founded in 2001, HCL BPO is a subsidiary of HCL Technologies Ltd. It offers services in various realms of operations such as customer relationship management, finance and accounting services, supply chain management, knowledge and legal services to diverse industries including retail, telecom, media, insurance, and publishing and entertainment sectors. Even before the IT industry had recognized the potential and opportunity in the BPO sector, HCL was one of the first IT companies to penetrate into this area. Financial year 2008 witnessed a revenue generation of about $232.15 million by this fast emerging BPO.

Analysis
International business machine & Hewlett Packard are such companies which gives more emphasis on outsourcing. They contracted their business function to external provider, which commonly done in home. Companies are doing the contractual agreement which involve the payments and exchange of the service. In companies there is physical distance between higher level management and floor employees so to minimize the distance and for direct feedback, the new communication methods are taken like instant messaging, issue tracking system and time tracking software which helps in direct cost estimation and bring transparency in business functions via outsourcing. By outsourcing company can know the satisfaction level of the customer which keeps unbiased view of the quality. For outsourcing the services the language should be understandable for the client as for as company so the call centers are operated by the many companies to understand the need of the clients. It breaks the geographic barriers and avoids the misunderstanding and miscommunication. Outsourcing reduces the communication

gap between companies and the clients. In outsourcing once the people transferred for outsource then there is no changes in desk takes place but the legal level changes. The employees are not directly responsible for organization so because of the legal issues and compliances, security addresses in the better way. For this type of outsourcing, requires specialist third party advisor. The outsourcer may be replaced any point of time so many employees are against this because of job displacement.