Outsourcing

Unit IV
 Introduction To outsourcing
• Outsourcing has seen a lot of press over the years.
• Some look to outsourcing as the savior of their company, while
others see outsourcing as an evil, job-killing management tactic.
• Before you start to evaluate if an outsourcing strategy is right for
your company, you need to understand what it is and what it is
not.
• Outsourcing is the contracting out of any task, operation, job or
process that was originally performed by employees within your
company to a third party for a significant period of time.
• These outsourced functions can be performed by the third party
on-site or off-site.
• Hiring a temporary employee while your secretary is on
maternity leave is not outsourcing.
• In addition, the functions that are performed by the other party
can be performed on-site or off-site.
• The most common model of outsourcing that is in the news
today refers to jobs that are being sent overseas to countries like
India or China. This is more commonly called off shoring.
• Examples include telephone call centers, tech-support and
computer programming.
• Business process outsourcing (BPO) can be defined as the act
of giving a other party responsibility of performing what would
otherwise be an internal system or service.
• For instance, an insurance company might outsource their
claims processing program or a bank might outsource their loan
processing system.
• Other common examples of BPO are call centres and payroll
outsourcing.
• Typically, companies that are looking at business process
outsourcing are hoping to achieve cost savings by handing over
the work to a third-party that can take advantage of economies
of scale by doing the same work for many companies. Or perhaps
the cost savings can be achieved because labour costs are lower
due to different costs of living in different countries.
• BPO is often divided into two categories: back office outsourcing
which includes internal business functions such as billing or
purchasing, and front office outsourcing which includes
customer-related services such as marketing or technical support.
BPO.
 Need for Outsourcing
• Resource Shortages
• A particularly strong reason to outsource involves a shortage of
a critical resource. This can be available employees that possess
knowledge in a certain area (e.g., engineers), the availability of
raw material (e.g., petroleum or minerals) and an available
labor force that possesses a necessary level of expertise at the
right price.
• Realignment with Core Business
• Some peripheral operations are outsourced frequently. It gives
the managers the ability to concentrate on the core business
issues instead of devoting resources to areas that may be
necessary but are not related to the business' core
competencies. A good example is a major hospital that
outsources its security operations to an outside company that
specializes in security.
• Cost Savings
• The prices of labor and/or materials keep increasing, and competition
keeps forcing prices lower. If there is an outsourcing solution that can
save your company money and overcome the disadvantages of
outsourcing, these areas should be investigated.
• Outsourcing Provides Flexibility
• Seasonal or cyclical demands that ebb-and-flow put varying demands
on the resources of the company. An outsourcing contract could
provide the flexibility needed to stabilize these varying demands.
Example: A business brings in extra retail assistants to help at busy
periods or additional stewards are required to manage a festival or
event.
• Reduced Overhead Costs
Some functions require a large outlay of money just to get started.
This expenditure could be avoided by contracting with a third party.
For example, outsourcing a call center rather than undertaking a
costly expansion to the telephone system and office space to meet
increasing customer service demands.
 Scope of Outsourcing
• Financial Services
• Technology translation Services
• Writing Services – Copywriting and
proofreading
• Customer Support Services – Marketing ,
Customer Analytics, Sales, Support
 Outsourcing: IT and Business Processes
• IT Outsourcing :
• IT outsourcing is the use of external service providers to
effectively deliver IT-enabled business process, application
service and infrastructure solutions for business outcomes.
• Outsourcing, which also includes utility services, software as a
service and cloud-enabled outsourcing, helps clients to develop
the right sourcing strategies and vision, select the right IT
service providers, structure the best possible contracts, and
govern deals for sustainable win-win relationships with external
providers.
• Outsourcing can enable enterprises to reduce costs, accelerate
time to market, and take advantage of external expertise, assets
and/or intellectual property.
• An information technology (IT) outsourcing strategy is a plan
derived from assessing which IT functions are better performed
by an IT outsourcing service provider than by an organization's
internal IT department.
• An IT outsourcing strategy can require input from many
departments, including operations, legal, supply chain and
human resources. The responsibility for the outcome of an IT
outsourcing strategy, however, usually lies with the organization's
chief information officer (CIO).
 Business Process Outsourcing
• Business process outsourcing (BPO) is the contracting of a specific
business task, such as payroll, human resources (HR) or
accounting, to a third-party service provider. Usually, BPO is
implemented as a cost-saving measure for tasks that a company
requires but does not depend upon to maintain their position in
the marketplace.
• BPO services
• Two categories BPO is often divided into are back office
outsourcing, which includes internal business functions such as
billing or purchasing, and front office outsourcing, which includes
customer-related services such as marketing or tech support.
• Back office outsourcing offers organizations services to help
manage tasks like data entry, data management, surveys, payment
processing, quality assurance and accounting support.
• Back office tasks are integral to a company's core
business process and help keep business running
smoothly.
• Front office outsourcing services deal with customer
interactions. Examples of front office tasks include
phone conversations, email, fax and other forms of
communication with customers. Front office
outsourcing providers' service lists include:
• Telemarketing
• Customer service/support
• Technical support/help desk
• Appointment scheduling
• Inbound/outbound sales
• Market research
• Outsourcing Options
• BPO that is contracted outside a company's own country
is sometimes called offshore outsourcing. BPO that is
contracted to a company's neighbouring country is
sometimes called nearshore outsourcing, and BPO that
is contracted with the company's own county is
sometimes called onshore outsourcing.
 Business Process Outsourcing(BPO)
• In recent years, the term Business Process Outsourcing or BPO
has gained prominence and the trend of outsourcing back office
operations to centers in India and Philippines along with other
countries in Asia has taken center stage.
• why should any company in the west outsource its back office
operations?
• There are several reasons for this and the primary driver is the
cost factor. Since wages in India and other Asian countries are
cheap in Dollar terms which mean that for the same amount of
money that the firms are paying their employees in the west,
they can get a highly leveraged amount of work when they
outsource to India and other Asian countries.
• Next, because of the fact that the time zones of the West and
Asia complement each other to ensure that work gets done in a
24/7 cycle. whenever it is night-time in the US, it is daytime in
Asia and vice versa meaning that the work can be done round
the clock.
• Third, the BPO employees in the India and Asian countries like
Philippines are proficient in English and with some training can
be taught to talk in an American accent or a British Accent.
• Finally, because of the way in which the BPO phenomenon has
developed over the years, many companies in India and other
parts of Asia are now better at the back office work than their
American or European counterparts which means that not only
is the cost an important criterion, quality of service offered is
also excellent.
• Because of these factors, there are humungous benefits for
American and European countries to outsource their back
office operations to companies in the East.
 Benefits of the BPO
In spite of the challenges in the BPO
industry, one of main reasons
behind its success is the availability
of a large number of talented
English speaking individuals at very
low costs. This has turned countries
such as India into highly sought
after destinations for business
process outsourcing.
India owes its success to well-
educated individuals, the majority
of whom are very young, and it's
unique location and time-zone
advantage.
• Cost Reduction: Outsourcing helps organizations cut costs and
save money, and is one of the most important reasons for
people opting to outsource their business process. BPO has
given rise to a talented pool of employees available at low
wages results in huge cost reductions, which in turn results in
better revenues for the company
• Availability of Experienced Professionals: Recruiting new
employees and training them involves a lot of hassle and is a
huge cost to the company. When the tasks are outsourced to an
already established company with all the resources, the
troubles of hiring and training is conveniently avoided
• Ability to Focus on Core Business: Since a considerable chunk of
the business is outsourced to a service provider, the top
management of the company can focus their attention on core
operational areas. This also leads to better employee
productivity and helps them make better and more informed
business decisions
• Excellent Source of Customer Feedback: Most BPO employees are in direct
contact with the customers, as a result of which they are able to receive a
first-hand feedback about products and services. This valuable feedback, in
turn, helps the company to improve upon the services provided
• Access to the Latest Updated Technologies: Buying a licensed version of
the latest software and other technologies is very expensive. This
proposition is also risky, especially for small to medium-sized businesses
who cannot afford to dedicate a steady budget to buying the latest
technologies. Therefore, it becomes difficult for a company to stay updated
with the latest developments. Outsourcing to companies that already have
access to the technology and have the relevant expertise therefore proves
to be more advantageous for global organizations
• Excellent Employment Opportunity: The BPO industry is one of the highest
job providers in most countries. In fact, it is the ranked second in terms of
the number of jobs created in some of the Asian countries. The
remuneration provided to the employees is also one of the best in the
industry, which is one of the major reasons for youngsters to work in BPO.
The BPO industry has provided employment to a lot of talented youngsters
and has single-handedly changed the GDP of various small countries
 Scope of BPO
• Outsourcing BPO services has become a significant part of almost all
businesses these days. The BPO industry has been responsible for providing
cost-effective services to a lot of businesses. The wide range of business
domains in which the BPO industry serves include:
• IT/ITES: Software development, IT staffing, Helpdesk services, Infrastructure
Management Services
• Financial Services: Bookkeeping, Payroll Processing, Financial Analysis Services
• Healthcare Services: Teleradiology Services, Medical Transcription Services,
Healthcare Claims Adjudication
• Call Center Services: Inbound and outbound call centers, telemarketing, email
support, technical support services, etc.
• e-commerce Websites: Online ordering, Refund Processing
• Travel Industry: Bookings, Cancellations
• Retail Services: Ordering, Status checking
• Educational Institutions: Course information, Fees Processing
• Manufacturing: Component information, Ordering, Help services
• Telecom sector: Service information, Complaint processing
 IT Services , ITeS and BPO

• Frequently , BPO is also referred to as ITES information technology

- enabled services.
• Technically speaking BPO can be called as a subset of ITES.
• Information technology-enabled services BPO is an outsourcing
model that uses IT.
• companies outsource business operations to enable specialists to
handle processes that are not part of the core business .
• E..g : HRM , accounting payroll , data entry, customer service
• ITES BPO is a type of outsourcing that relies on technology to
deliver the requested service.
• The service is delivered electronically, typically over the Internet,
but can use any sort of telecommunications or data network
instead.
• An example of ITES BPO that is not Internet-based is an
outsourced IT helpdesk.
• E..g : Companies use an internal IT helpdesk to troubleshoot their
own network. If this function is outsourced, the service provider
manages service requests by phone or email , logs into the
company's network, uses software to remotely view and control
an employee's terminal, and solves problems through these and
other electronic means.

• Internet-based ITES BPO projects have become the most popular

application of this type of outsourcing.
• An example of ITES BPO delivered over the Internet is a web-
based customer service help desk system.
• Companies hire service firms to manage the email help desk that
is part of a company's website. The service provider uses a
software solution to manage contacts by customers. Customers
submit trouble tickets electronically over the Internet. The service
provider processes the tickets and answers the questions via
email.
• Another example is document processing.
• A company that needs information culled from
documents can hire an ITES BPO service provider to
handle the documents electronically. The documents
can be transmitted to the firm electronically over the
Internet or, if they are in hard copy, scanned and then
transmitted. Employees of the service provider process
the document into a database, code information,
categorize content, and clean up character recognition
as required. The database is also accessible to the client
company and its employees over the Internet.
 BPO Business Model

• The BPO industry features five business

models:
• The Global Delivery Model -
• The Hybrid Model or Dual-shore Model.
• The Offshore Multi-sourcing Model or Hub-
and-spoke Model.
• The Build-operate-transfer or BOT Model.
• The Global Shared Services Model.
 The Global Delivery Model -
• The term Global Delivery Model is typically associated with
companies engaged in IT consulting and services delivery
business.
• The global delivery model (also called blended outsourcing) is
a trademark offering of multinational service providers such
as Accenture, EDS, and IBM that combines onsite, offsite
onshore, and offshore resources.
• Large multi-national outsourcing service providers offer this
model where work can be best shored or multi shored to the
location where optimal cost and labour efficiencies are met to
predetermined performance standard.
 The Hybrid Model or Dual-shore Model.
• The Hybrid Model is also known as Dual-Shore model as it is
the combination of both onshore and offshore services.
• In these both the client and outsourcing vendor works
together in tandem to complete the task. For instance if 20%
of the work is likely to be done at onshore, then the
remaining 80% work is carried out by the offshore team.
• The Hybrid Model is becoming the business model for
midsize service providers headquartered offshore in
countries such as India.
• In hybrid model requirements gathering and the
development of detailed specification is done onsite , while
programming or process work is done offshore.
 The Offshore Multi-sourcing Model or Hub-and-spoke Model.

• Multisourcing is the practice of using multiple offshore business

models and supplies.
• A narrower view of multisourcing is simply doing business with
multiple vendor to mitigate risk
• They have multiple offshore operations of their own as well as
three or more partners with whom they collaborate.
• The business get some of their partners to actually work with
them in their own hub centres , train them and then send them
back to spoke centers.
 The Build-operate-transfer or BOT Model
• A build-operate-transfer (BOT) contract is a model used to
finance large projects, typically infrastructure projects
developed through public-private partnerships.
• BOT projects are normally large-scale, greenfield infrastructure
projects that would otherwise be financed, built and operated
solely by the government.
• Under a build-operate-transfer (BOT) contract, an entity—
usually a government—grants a concession to a private
company to finance, build and operate a project for a period of
20-30 years, hoping to earn a profit.
• After that period, the project is returned to the public entity
that originally granted the concession.
 The Global Shared Services Model.
• The Global Shared Services Model is also known as captive
centres or offshore in sourcing are a combination of onshore –
shred services and offshore captive centres.
• The objective is to create a customer – focused mind set ,
which enables high quality , cost effective and timely service.
• The global centres run as an independent business with its own
budget and bottom –line accountability.