Business Outsourcing Forum

Disadvantages of Outsourcing

2011-01-14T14:41:00.000+01:00

Outsourcing has many benefits:
* Renewed focus on core business.
* Mitigation of risks by reliance on an expert.
* Improved customer satisfaction through improved processes not part of the enterprise's culture or experience.
* Ability to reward workers with career opportunities in a specialty company.
* Project improvement.
* Service improvements.
* Skills upgrade.
* Skills retention.
* Skills access.
* Technology infusion.
* Cost accounting and overall visibility of accounting and performance in a business process.
* Cost reduction.
* Management of volatility in costs through financial engineering.
* Asset conversion.
* Avoidance of capital investment.
But what are the disadvantages of outsourcing? You'll find a a list of over 25 cons in the Outsourcing Forum of 12manage.

study for "the Economist Intelligence Unit"

2006-09-27T12:43:00.000+02:00

Hello guys,

at the moment I am conducting a 10-minutes-study on "outsourcing habits in the financial industry" for the magazine "Economist". Taking part just requires some knowledge about your company and the questions are simple. You will receive a copy of the whole study with its results afterwards.

Your data will not be shared with any third parties and it is your decision whether you want to receive a book present or not.

As it is very difficult to get through to the right people on the phone I truly need your help to get this job done. Just make an appointment with me and I will call you at your work.

My contact details: tracks4ever@hotmail.com (same for MSN messanger) or ICQ 330535517

Thank you so much.....Marcel

Tapan Mukerji's World

2006-09-08T07:10:00.000+02:00

Engineering Outsourcing

Generally, outsourcing most of the times tends to be related to cost saving. Well, this may be one part of the story but not the single driver. Basically, one goes to outsource when it is not possible to accomplish the same way in-house. So this may be cost, technology, time lines or whatever.

With our experience of handling various projects from offshore, we have seen engineering outsourcing is also interpreted most of the times as drafting assignments. Equally untrue is this interpretation!

There are many areas like design, analysis, project management where the customer simply may not have the expertise. Recently, we did a finite element analysis of a complicated configuration for a large manufacturing US organization. It is interesting to note that the organization had been manufacturing the same product for 20 years but when it came to performing a finite element analysis, they had to outsource offshore.

In this case demand for technology prevailed over everything else. So offshore companies are not solely meant for labor intensive functions - many of them have highly specialized technology skill to offer.

Offshoring IT Services: A book review

2006-04-12T20:36:00.000+02:00

The book titled "Offshoring IT Services", by Mohan Babu K, published by Tata McGraw-Hill is a must read if you want to update yourself on the current trends in the field, and also learn some valuable basic concepts of IT offshoring and IT projects.

The author, an experienced IT professional, who has a project management certification, has included his real life work experiences to serve as example in many instances. Which makes it easier to visualize the issue being discussed and understand its real life picture. The " Case Point" section in the chapters are an interesting read, they serve as case studies in nut shell. The diagrams and illustrations are well placed and serve their purpose.

The book has depth and while reading it you can see that it is a well-reserached book. I suggest that the author market is as a text book, as there are few books on offshoring and outsourcing which are written to serve as text books.

On the shortcomings of the book, I have listed them below:

# on page 19, the speaker is introduced not in the same page but at the end of the chapter.

# for chapter 3, Framework for Managing Global IT Projects,adding about the concept of" 24 hour knowledge factory" would add to the depth of the matter being presented.

# chapter 4, Offshoring:The IT management Context,instead of presenting IT management as "project management", I would suggest to include other management aspects too.

# Offshoring models, which appears as an Appendix, would be better placed as a chapter by itself with more discussion and material.
Also there needs to be more discussion on emerging markets around the world

As a student of outsourcing, I would say the book has added to my knowledge and sometimes made me realize that I need to do more reading(as some new developments mentioned in book caught me off guard).

Go and get the book, if you are serious about outsourcing. But if you are into outsourcing just to make sense out of Lou Dobbs, I don't think this is the right one for you.

Bhumika Ghimire,2006

Reasons for Offshoring changing

2006-03-12T13:18:00.000+01:00

Increasingly, companies no longer perceive offshoring as a way of cost cutting only, but also as a growth strategy. Recent results of an ongoing survey by the Offshoring Research Inititiative finds the following list of reasons for offshoring:

Cost reduction (97%)
Growth strategy (73%)
Competitive pressure (71%)
Access to qualified personnel (70%)
Industry practice (52%)
Improved levels of service (50%)
Business process redesign (48%)
Changing the rules of the game (37%)
Increased speed to market (35%)
System redundancy (33%)
Access to new markets (25%)

The goal of the research is to objectively benchmark key performance metrics and the current perceptions of financial, operational and political risk associated with the five leading Offshore operational models.

Need Volunteers

2006-02-24T16:10:00.000+01:00

Hi all,

I need some volunteer writers to write on outsourcing for an online learning site run by a group of volunteers.Please contact me at bhumika_g@yahoo.com.

Thank you
Bhumika

Discussion On Outsourcing Education

2006-01-18T05:09:00.000+01:00

I want to discuss about outsourcing as a field of research and as a course taught in Universities.Anyone having information please join the discussion.Also what do you feel about the outsourcing professional certification program by the International Society of Outsourcing Professionals..?

Looking for new outsourcing destinations

2006-01-02T18:12:00.000+01:00

As we know India and China are the preferred outsourcing destinations at the present. But then the rising costs in India and legal problems in China has forced us to find new dsetinations for outsourcing.Poland is coming up in Eastern European region, then there is Russia and former Yugoslavia.In the Asian region, I believe Nepal, Sri Lanka would be a great destinations because of the lower costs, sizeable English speaking population and availability of trained manpower.Although the talent pool is not comparable to India and China, Nepal and Srilanka can be a good option for small scale projects.

Nepal has problems with infrastructure and stability.Recently the King took over the government and shut down internet access for couple of days, even mobile phones were down.Then there is the Maoist insurgency which has forced many international projects to leave the country.Sri Lanka has the issue of Tamil insurgency.

What I am trying to get here is, to start a discussion on new outsourcing destination, outside the obvious.

BPOs Losing To High Attrition?

2005-12-14T22:07:00.000+01:00

According to a study conducted by Hay Group India, attrition cost in the Business Process Outsourcing companies (low-end voice based process) is 76 per cent of annual salary. The study mainly focussed on the 'impact of attrition on the bottom line of the BPO- ITES World'.

According to the study, total attrition cost is 27 per cent of operating expenses for a voice-based process. Total cost of attrition in high-end process is nine per cent of the operating expense, while in the low-end non-voice process it is 12.5 per cent of operating expense.

The survey says managing attrition in BPOs has become a strategic priority for CEOs as it is affecting the bottomline. "Though the BPO sector is booming, attrition is creating enough headaches for the CEOs. It can be better served if they focus on the cost of attrition, rather than attrition per se and alter the attrition mix to increase planned and desired exits," said, Gaurav Lahiri, operations manager of Hay Group India.

Largest disruption in attrition in India is caused by unplanned, undesired exits. Short duration employment contracts can substitute unplanned attrition with planned attrition. Short duration contract will assist in lowering unplanned attrition, limiting investment in training, cherry picking high performers, etc.

To create short duration contract there should be guidelines, like draw up training calendar, clarify performance expectations, back–end compensation and offer study leave assistance.According to Nitin Aggarwal, head of Technology Practices at Hay Group India, "To control the attrition rate, BPO companies have to create an environment of engagement to employees by offering tangible rewards, quality of work, future growth opportunity, inspiration values and work-life balance."

Newer Areas for offshore outsourcing:2006

2005-12-14T04:22:00.000+01:00

Is 2006 going to unfold newer areas of outsourcing?
Clinical Process Outsourcing probably could be one of the areas that might emerge out with simplification of health care legislations. If carefully handled, the world should witness the dream come true - a more efficient health care delivery system. The most critical part will be the selection of the offshore providers and correctly assessing the expertise level. The criteria for selection would be a tougher process and for performing that correctly the decision makers should thoroughly acquaint themselves with the medical education system prevailing in the target countries.

In fact the standard of medical education in some of the institutions in India, for example, is highly comparable with what is known as best in the world. It will be misleading to comment on the standard of medical education on the basis of the current scenario of health care delivery system as exists in those target countries. These are two different issues, the latter being an intrinsic function of socio-political parameters.

Call centre outsourcing does not work, says Gartner

2005-03-22T09:53:00.000+01:00

"Many customer service call centres that have been outsourced to third-party suppliers are under-performing", according to a new report by analyst firm Gartner.

Of the organisations that outsource their customer service and call centres - including the IT systems - 80% will fail to achieve their targets for costs savings.

In addition, 60% of organisations that outsource parts of their customer-facing processes over the next three years will see customers switch to rivals and find hidden costs that outweigh any potential savings they derive from outsourcing.

According to Gartner, successful outsourcing can achieve cost savings of between 25% to 30%. However, poorly managed outsourcing deals can reduce the quality of the customer experience, dilute the brand values of the company and fail to deliver cost savings.

Most companies fail to manage the customer service experience sufficiently and often lock the organisation into long-term outsourcing contracts without conducting appropriate pilot testing.

To ensure successful customer service outsourcing, Gartner recommends that companies create customer-facing processes. It said businesses should judge the supplier based on customer satisfaction or other quality metrics to measure and motivate outsourcers, rather than "operational metrics" such as the number of calls handled by the supplier.

Users should also not underestimate the management time required to make an outsourcing relationship or contract work. The analyst firm has predicted that the worldwide market for customer service outsourcing is set to grow from £4.4bn in 2004 to £6.4bn in 2007.

Multi-process HR outsourcing growing quickly

2005-03-16T14:38:00.000+01:00

The outsourcing of three or more HR functions, commonly referred to as Human Resources Outsourcing (HRO), grew by 37 percent in 2004, according to an in-depth study issued today by the Everest Research Institute. The report, Human Resources Outsourcing (HRO) Annual Report 2005, also found cost savings accelerating for buyers, both large and small, and the scale of HRO engagements increasing, as global deals become increasingly common.

Key findings of the report are:

-- Buyers - Prices across all segments have fallen over the last 4 to 5 years by more than 20 percent as the market has matured, with prices for larger buyers (in excess of 25,000 active employees) falling faster than those for small buyers (with fewer than 25,000 active employees). However, the number of small buyer transactions has recently crossed that of large buyers, and this segment will see further price reductions as the market continues to scale and the delivery model matures. While the offshore component has not been much of a driver in HR outsourcing, its impact could accelerate in the future.

-- Suppliers - Major revenue opportunities for suppliers still abound. These include the small buyer segment, less mature markets such as Europe and Asia, and larger global transactions. Effectively penetrating each of these markets, however, will require a different set of skills and technologies. Meeting the needs of the small buyer segment, for example, will require that suppliers effectively leverage a single technology platform to work for a number of smaller customers.

-- Investors - Increased merger and acquisition activity is likely as suppliers seek partners with complementary capabilities and large suppliers without capabilities buy into the market. The European and Asian HR outsourcing markets are far less developed than North America, and new VC-funded initiatives could arise in these locations if established suppliers do not make investments. At the same time, the window for organic new supplier entry is rapidly closing, and established suppliers will have an advantage going forward. Visit Everest website.

Bestselling Outsourcing Books

2004-12-29T14:12:00.000+01:00

Five Stages of Global Restructuring

2004-12-07T16:10:00.000+01:00

O. is 'in' and in the past few years, companies have started to slash costs by offshoring: moving jobs to lower-wage locations. But according to McKinsey Global Institute in (HBR Dec04) this practice is just the tip of the iceberg in terms of how globalization can transform industries.

McKinsey has conducted a study that suggests that by streamlining their production processes and supply chains globally, rather than just nationally or regionally, companies can lower their costs by as much as 70% of their total costs:
- 50% from offshoring,
- 5% from training and business-task redesign, and
- 15% from process improvements.

McKinsey has defined five stages of global restructuring:

Enter New Markets (Market Entry)
Move Production Abroad (Product Specialization)
Disaggregate the Value Chain (Manufacture individual components in different locations)
Reengineer the Value Chain (Redesign production processes taking local factors into account)
Create New Markets (Leverage outsourcing to offer new products at lower prices in new market segments or geographies)

Some best practices of McKinsey are to abandon incremental thinking, use global assets effectively and efficiently, tailor your best practices to local conditions and to aim for higher quality when moving your company through the five stages of global restructuring.

Why is white-collar O. so hot

2004-09-06T14:44:00.000+02:00

I was discussing during a lunch the other day why so many "knowledge" workers jobs are being outsourced at the moment? By the end of the meal we found there are at least 7 factors contributing to B. process O.(offsourcing) becoming so popular.
1. Education levels in countries in Eastern Europe and Asia have grown quickly, so that traditional knowledge advantages of western countries have deminished.
2. Major differences in salaries, wages, and related cost of labor between the western world and these developing countries are however (still) remaining.
3. Transportation costs have gone down. Data communication and internet progress decrease the costs of transport for many non-physical services and products, and Supply Chain Management and Demand Chain Planning technology also decrease transportation and total Supply Chain costs for physical products.
4. Technology also facilitates to deal with a traditional disadvantage of offshoring: adopting to changing customer demands. Good Market Responsiveness can be achieved even when a product is not manufactured or assembled at a location near the customer.
5. With economies in the developing companies stabilizing, the risks of offshore O. have deminished.
6. The Capital Intensity of many industries is decreasing. This capital intensity to create or move a factory was traditionally a discouraging factor to changing production locations.
7. In some cases "the market" of the future is actually the Asian countries so it's advisable to be there.

Do you know of more factors that contribute to strategic B. cases in favor of process O. of "knowledge workers" jobs?

10 O. Traps to Avoid

2004-08-26T15:43:00.000+02:00

Businesses are struggling to reduce costs and grow revenues. B. Process O. initiatives are under way in many large, medium and small global companies. However, many organizations are a bit naive about the commitment and discipline O. takes to reap the benefits of O. Organizations fail to realize the impact on their people, processes, methods and tools as they proceed down the O. path. According to Mark Power, Carlo Bonifazi and Kevin Desousa in the Journal of B. Strategy (2004, Vol 25, Number 2) there are ten major O. traps to avoid:

Lack of management commitment
Lack of an O. communications plan
Minimal knowledge of O. methodologies
Failure to recognize O. business risks
Failure to obtain outside O. professionals
Not dedicating the best and brightest internal resources
Rushing through the initiative
Not recognizing the impact of cultural differences
Minimizing what it will take to make the vendor productive
No formal O. governance program

O. is indeed a complex strategic process that can result in a competetive advantage, provided its done well and not in a haphazard fashion. Do we know of any more O. traps to avoid or can we go along with the 10 from Power, Bonifazi and Desousa?

The Risks of O.

2004-08-06T11:45:00.000+02:00

B. process O. is expected to grow from $38.9 billion in 2003 to $1.2 trillion by 2006, according to data from the Gartner Group and IDC Consulting, Inc.
O. began transcending IT and payroll to include software applications through the "application service provider" model and a "managed service provider" system whereby vendors host and maintain a company's software on the vendor's off-site system or manage company networks of hardware and software at the company's site. By the late 1990s, the rise of the Internet had enabled companies to outsource entire B. processes and professional staff that traditionally were internal. Internal auditors and financial reporting and tax professionals, for example, are now candidates for out-sourcing. Now also ripe for O. are more critical B. processes, such as customer support, cash management, tax preparation, accounts receivable, and accounts payable.

In a comprehensive article on the risks of O. in Strategic Finance (July 2004, www.imanet.org), Mark Beasly CPA, Marianne Bradford and Don Pagach CPA argue that O. can also cause significant risks if it isn't managed effectively and should be analysed beforehand from the perspective of enterprise risk management (ERM). O. can involve the following risks to an enterprise:

Strategic/Market Risks
Operational Risks
Financial Risks
Human Capital Risks
IT Risks
Legal/Regulatory Risks
Reputation Risks

Not only should these risk exposures be evaluated and monitored across the enterprise, but their interactive or cumulative effect must also be managed on a portfolio basis. Failure to evaluate and manage O. risks from an enterprise risk management perspective can lead to an accumulation of risks far greater than the risk savings offered by the O. arrangement, thereby exposing key stakeholders to greater amounts of risk than they desire.

The article also contains an explanation of each of these risk categories in relation to O. plus the effects of some proposed federal O. legislation on enterprise risks.

Outsource your own job...

2004-07-17T15:04:00.000+02:00

Read on Slashdot.org, the "news for nerds" Web site (by an anonymous programmer): "About a year ago I hired a developer in India to do my job. I pay him $12,000 to do the job I get paid $67,000 for. He's happy to have the work. I'm happy that I only have to work 90 minutes a day, talking code. My employer thinks I'm telecommuting. Now I'm considering getting a second job and doing the same thing."

Services Industry Revolution

2004-06-22T11:25:00.000+02:00

According to Uday Karmarkar in the HBR of June 2004, the industrialization of services is here, and outsourcing and offshoring are only part of this revolution. Automation, customer self-service, and global competition have been added to the mix, presenting a threat and a significant opportunity for all service companies. The churn, restructuring, and transformation of services will continue—and even accelerate—for the foreseeable future. This will mean a different landscape for companies, managers, and workers. In the end, the survivors of the service revolution will be those who understand the opportunities and rework their strategies and reorganize their processes, and people for the challenge ahead. The alternative could be disaster. It looks like banks and insurance companies have quite a major strategy and change challenge ahead...