Outsourcing

What is Outsourcing
Outsourcing means finding better ways of doing business.

It helps companies to look to the value chain for high leverage

areas and helps them to better utilise their resources to
exploit these areas.

Outsourcing is a means to achieve competitive advantage by

focusing on core competencies.
 Components and Types
Outsourcing essentially implies the transfer of non-
core services to third parties who specialize in providing
such services.

It can cover a wide range of components depending upon

the core competency as well as the requirements of the
outsourcer.

Outsourcing may be broadly classified into the following

types:
Information Technology (IT);
Human Resource (HR);
Customer Service;
Engineering;
Knowledge Services;
R&D; etc.
 BPO and KPO
Business Processing Outsourcing (BPO) and Knowledge Processing
Outsourcing (KPO) are the two major components of the
outsourcing industry in India.

Business process outsourcing may be defined as the delegation of

one or more IT intensive business processes to an external agency,
which inturn owns, administers and manages the selected process
based on definite and measurable performance.

Knowledge process outsourcing may be defined as a high added

value process chain where the achievement of objectives is
dependent on the skills, domain knowledge and experience of the
people carrying out the activity. It is being claimed that KPO is one
step extension of BPO.
 KPO
KPO involves business processing outsourcing, research
process outsourcing and analysis process outsourcing.
KPO business entities provide typical domain-based
processes, advanced analytical skills and business
expertise, rather than just process expertise.
KPO Industry handles more amount of high skilled
work other than the BPO Industry.
In other words, while KPO derives its strength from the
depth of knowledge, experience and judgment factor.
BPO is more about size, volume and efficiency.
 Advantages of Outsourcing
The main motive behind business process
outsourcing is to allow a company to invest
more time, money and human resources in
core active items without losing quality and
name.
Thus, cost advantage followed by increased
ability to focus on core competencies is the
major driving factor.
 Advantages
Other advantages for a firm include:
Improved efficiency and operational performance;
Productivity improvements;
Access to expertise and superior competency;
Operational cost control;
Improved accountability;
Shorter project delivery times;
Opportunity to focus on core business concerns;
Enhanced employment opportunities;
Handling of miscellaneous jobs;
Access to newer markets (in case offshoring);
benefits derived from the experience of the service provider; etc.
 Disadvantages of Out souring
Service expectation mismatch;
Lower than anticipated cost savings;
Data theft;
Intellectual property protection;
Higher training costs;
Monitoring costs;
Compromising confidentiality;
Loss of control;
Information security;
Customer dissatisfaction;etc.
In case of offshore outsourcing, cultural mismatch or
language barrier can pose a great challenge.
 What to Outsource
CRM (Customer Relationship Management)
SCM (Supply Chain Management)
Back Office
Payroll
Billing
Accounting
Investor Relationship Management Share Transfer &
Fixed Deposit Accounting
 Opportunities for India in terms of outsourcing
In services that require advanced English, like KPO, Content
and Medicine, India will continue to excel. NASSCOM
predicts that India will emerge as a global hub for
knowledge services by 2015.

India has a large pool of English-speaking lawyers with

expertise in foreign legal systems who can offer legal
support and patent services. A few Indian companies are
already affiliated with American legal firms and they have
captured a small part of the American market.

India is now the leader , with many Fortune 500 companies

already having their outsourced operations in India with
firms like IBM, ACS, TCS etc.
 Opportunities
India has a big market in pharmaceuticals, in terms of clinical
research and manufacturing. Availability of talent for high-
quality trials and data management gives it an edge over
competitors. Ranbaxy, a major Indian pharmaceutical firm,
has tied up with GlaxoSmithKline to manufacture certain
compounds together.

Another vertical that presents great potential for India is

Infrastructure Management Services. A wide range of
management services for IT infrastructure, application
operations, IT security and maintenance can be provided.

According to a study done by Booze and Company, India will

become a dominant player in the Engineering R&D market
which is expected to expand to $1.4 trillion by 2020. India's
domestic market is expected to contribute 10-15% of the
global ER&D services market.
 Challenges for the Indian Outsourcing Industry
The industry is growing rapidly and requires
corresponding growth in infrastructure as well, an area
where India is lackingthis needs to be addressed.

Due to the rise in labor costs in Indian metro cities,

companies are moving towards smaller Tier II cities.

Though India continues to be the world leader in the

outsourcing business, it will face tougher challenges in
the near future, from South-east Asian countries like
Indonesia, Malaysia, the Philippines, Singapore,
Vietnam and Thailand, which are improving their
positioning as alternative offshore locations.
 Challenges
India's competitiveness is being challenged by
countries like Indonesia, which offer cheaper
labor in IT and business process skills, while
India is experiencing increased labor costs and
high attrition, which are of concern, and need
to be addressed.
In-house Vs. Outsourcing Key Questions
Speed and cost for transformation how long will it
take to transform the function or process internally
vs. externally?
Management attention should management
devote a significant amount of time and energy to
this process?
Talent are we putting our best people, with the
appropriate skill sets, into these processes?
 Motivators for Outsourcing
The followings are the major reasons given for taking
outsourcing decisions

Difficulty of hiring skilled professionals (28.8

percent),
Lack of in-house skills to deliver the desired levels of
quality (20.3 percent),
Budgetary considerations (13.6 percent),
Mandate from the management (11.9 percent).
 Minimising Risks
Choose a service provider that has a proven track
record - talk to customers of the service provider
Know your requirements, both current and future,
and put them in the contract
Stay away from variable costs in the contract like
communication, travel etc.
Treat the outsourced relationship as a partnership
and the employees and extended team members
 Minimizing Risks
Choose a service provider who provides you with
value adds, services or products that may not be in
the contract.
Develop a strong partnership with the vendor
Secure a confidentiality agreement
Simplify the interface between the two organisations
Focus communications
 Top 10 Outsourcing Companies in
India
1. Genpact Limited
2. Tata Consultancy Services BPO
3. Serco Global Services Ltd
4. Aegis Limited
5. WNS Global Services
6. Wipro
7. Infosys BPO Limited
8. Aditya Birla Minacs
9. HCL
10. Firstsource Solutions Ltd
The Outsourcing Process
The Outsourcing
Process
Avoiding Outsourcing
Pitfalls