2. Outsourcing &
Types
Outsourcing is the process of assigning
company’s business processes to an external
agency in lieu of enhancing service quality,
driving innovation or deriving benefits of lower
labor costs.
There are 5 types:
1. Contracting out the activities
2. Outsourcing the service
3. In sourcing
4. Co-sourcing
5. Benefit based relationship.
4. Motivation of Outsourcing
3 major categories of motivations
for outsourcing: cost, strategy, and
politics.
• Cost driven outsourcing (pvt.
industry)
• Strategy-driven outsourcing (pvt.
industry)
• Politically-driven outsourcing.
5. Key Driving Factors
• Absence of specialists or experts
• Irregular demand for personnel
• High risk factor
• Emphasis on perfect processes
• Savings in management time
• Achieving and maintaining
objectivity.
9. Outsourcing Decision Matrix
The Outsourcing Decision Matrix, helps you consider two
important factors in outsourcing a task:
• How strategically important is the task to your business?
Strategically important tasks are sources of competitive
advantage.
• What is the task's impact on your organization's operational
performance?
Tasks which have a high impact on operational performance.
11. Offshore or Home shore? The choice is yours!
• Small businesses are maturing to look at a variety of factors
before making the outsourcing decision. Tasks that require
presence in the same time zone and a cultural awareness
are being Home shored. Tasks that are not time sensitive or
heavily influenced by culture are being Offshore.
How to benefit from this trend:
• Evaluate if your outsourcing partners can train themselves
on some of the cultural aspects if they belong to a different
geography.
• Offshore only those tasks that are well defined. For tasks
that need your input several times a day, choose a provider
who can work in your own time zone.
12. Factors for Successful Outsourcing
• Understanding company goals and objectives
• Strategic vision and plan
• Selecting the right vendor
• Properly structured contract
• Open communication
• Senior Executive support and involvement
• Use of outside expertise.
13. Vendor Decisions
• Technical Expertise
• Quality
• Vendor's Expertise in Your
Business Space
• Overall Business Strategy
14. IBM
• IBM was a vertically integrated company in the 1990s.
• Until 1995 IBM built 100% of its printed circuit boards PCBs. Now it
makes 10% of them.
• IBM used to make 85% of the memory chips used in its computers;
in 1999 its 15% .
• Keyboards and power supplies were built in house in the past now
outsourced.
• IBM used to assemble all its own computers now contract
manufacturers build most of them.
15. • Why outsourcing ?
Outside suppliers had the required technology
Suppliers providing at lower costs
• 1986-96, proportion of IBM’s revenue spent on outside
suppliers increased from 28% to 51%.
• The strategy adopted is “where we make a difference”
• Competitive advantage- they got the components at a
lower price
• HOW TO CHOOSE VENDOR ?
Control component sources by directing contract
manufacturers to specific sources, thereby reducing costs
by 65 million dollars
• ECONOMIC OUTCOME- reduction in costs by 20%
16. CONCLUSION- Current
Scenario
Global Scenario:
• Trends changing gradually.
• Traditional model of outsourcing is now replaced
with a global sourcing model.
Indian Scenario:
• Not merely as a cost reduction solution but one of
co-creating future value.
