Managing Outsourcing
Sudhakar Gudala
[Link]
May 11, 2020
© Copyright 2002 TCS Confidential
Managing Outsourcing
Agenda
Outsourcing overview
The Need for outsourcing
What are Customers outsourcing?
Pros and Cons
Key Points to be considered when outsourcing
How to manage outsourcing?
Why some outsourcing relationships fail?
Successful management of vendors
Outsourcing statistics
Guidelines to a Project Manager
© Copyright 2002 TCS Confidential
Overview
WHY Outsource?
Outsourcing is an unparalleled strategy to
meet today’s needs in transforming
important, non-core business processes
and ensuring that maximum value from
resources is focussed on core processes.
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Need
The NEED for Outsourcing
Reduce costs company-wide
Increase Return On Investment (ROI)
Reduce Risks
Resources not available internally
The solution to an Organization that satisfies
technology, quality, budget, and time criteria
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Reasons for Outsourcing
Top Ten Reasons for Outsourcing
Reduce and control operating costs
Improve company focus on core functions
Access to world-class capabilities
Free resources for other purposes
Resources not available internally
Accelerate reengineering benefits
Function difficult to manage or out of control
Share risks
Make capital funds available
Cash Infusion
Source: Outsourcing Institute
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What is outsourced
What Are Customers Outsourcing? US Globally
Network Management 3.3%
2.1%
Business Process 6.0%
6.2%
Help Desk 13.2%
13.8%
Data Center 14.0%
14.8%
Application Maintenance 18.2%
17.9%
Single Application 20.7%
21.0%
Applications Development 25.6%
24.1%
0% 5% 10% 15% 20% 25% 30%
* Source: Metricnet’s survey results in SiliconIndia Magazine, April 2002
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Business Process Outsourcing
Business process outsourcing (BPO) is emerging as a
flexible and powerful approach that business leaders
can use to achieve a wide range of tactical and
strategic aims.
The most common Functional Areas in which BPO is undertaken:
Human Resources
Learning and Training
Customer Relationship Management
Finance and Accounting
Supply chain Management
Procurement
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BPO
The most prominent benefits from BPO
Speed to market
Competitive capabilities
– Acquire world class capabilities through standardization,
centralization and new technology
Cost savings
– BPO can significantly lower the costs
Growth stimulus
– BPO acts as a catalyst to stimulate company growth by
achieving unique expertise and capabilities
Revenue
– Joint venture with BPO providers can leverage company’s
assets and knowledge in exchange for a share of BPO revenues
“Shareholder pressure will be the driver that forces companies to
outsource even more non-core functions” - Mark Hodges, Exult
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BPO Relationship Framework
Four key questions for an effective BPO
BPO Relationship
relationship
compass
How deep should the relationship be? How How
Contractual OR Cooperative OR Committed? Deep? Broad?
- Depends on what is being outsourced and how critical. It is to
the future of the firm
How broad should the relationship be?
– Outsource just a process like Payroll OR an entire function
like HR? Whose Whose
Whose way of working should we follow? Assets? way of
– Your way OR their way? working?
- Depends on the kind of operational benefits an organization
wants from its BPO relationship
Whose assets should be used?
– Individual assets OR share the assets with others to
leverage?
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Human Resources Outsourcing
In HR outsourcing model, organizations no longer need to invest in
recruiting, training, motivating and managing people who staff the
operations.
Range of strategic values that can be outsourced in HR (in descending
order of strategy):
• Policy and strategy
• Organizational development, human performance and change management
• Resource planning
• Professional recruiting and interviewing
• Compensation
• Policy interpretation / grievances
• Non-professional recruiting and interviewing
• Call center, benefits administration and payroll
HR outsourcing expenditure is projected to increase 20% in a year.
- The Outsourcing Institute
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IDM Outsourcing
IDM (infrastructure development & management)
outsourcing allows an organization to enhance
competitiveness by focusing on core competencies
such as R&D, market research, customer service, etc.
Emerging trends in the IT infrastructure domain
– On the technology side, clients are looking to migrate to
new technologies such as Win2K, Voice over IP, VPN
solutions, etc.
– Clients are looking for a single point of contact to address
their IT needs
– SLA and process-driven service providers
– Disaster recovery and business continuity planning
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Data Center Outsourcing
Services Benefits
• Furnishes the flexibility • Allows to adapt computing
needed to environment to changing
– Expand data processing business requirements
capabilities • Companies choose platform,
– Adopt new technologies software, usage level and
– Migrate key applications to degree of support that
new platforms matches business needs
– Quickly develop, test and • Helps to reduce risk of
deploy new applications technological obsolescence
• Provides technical skills and • Helps to minimize the need
support to supplement in- for capital investment
house staff as needed
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Help Desk Outsourcing
Why Help Desk outsourcing?
Supply enhanced computer support on shrinking
budgets
Support increasingly complex customer support
requirements
Maintain the expanding distributed computing model
Support core business initiatives while supporting
customers
Keep ahead of the competition
Staffing, administering, and maintaining the help
desk/call center
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Help Desk Outsourcing..
Benefits
Services
• Reduce customer support costs
• Flexible business hours -
24x7x365 support if needed • Improve customer satisfaction
• • Provide customer support
Hardware support
without the capital expense of
- Installation and configuration
developing, staffing, and
- Operation and trouble shooting
maintaining an internal help desk
• Call screening, routing, logging, • Expand the complexity and
tracking, and ownership breadth of support operations
• Customized activity reporting • Companies can focus on core
• Support via telephone,e-mail, business objectives
fax, and internet esupport • Selectively outsource calls
• Membership/subscription based on business
services requirements,customer needs,
• Equipment repair support capabilities, and budget
• constraints
Customized support web site
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Outsourcing - Pros and Cons
Pros Cons
• Allows organization to focus on its • Vulnerability of strategic
core business
information
• Activity can be performed better
• Possible disruption in service
and/or cost-effectively by outside
specialists and stability
• Reduce organization risk exposure • Dependency
to changing technology and/or
changing customer preferences
• Streamline organization operations
in ways to
– Cut cycle time
“Offshore customers save an average of
– Speed-up decision-making
25% on IT projects sent overseas, where
– Reduce coordination costs qualified, skilled labor is plentiful - and
cheap”
Source: Forrester Research report in SiliconIndia Magazine, April 2002
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Expectations from vendor
What to look for from an Outsourcing
vendor?
A Repeatable process
Demonstrated capabilities
Commitment
Size and stability
Strategic approach to partnership
Related experience and expertise
Business/ Technical
Location
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Key points
Key points when Outsourcing
Rationale
Product Description
Make-or-buy analysis
Service Level Agreement (SLA)
Costs
Ownership & Responsibilities
Scalability
Security
Staffing & Management
Contract duration & termination policy
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Outsourcing options
Source: The McKINSEY Quarterly 2001 Number 2
India, with its high technical capabilities and lower costs, is a major outsourcing centre
for GE.
- Scott Bayman, President and CEO at GE India
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Inputs required
Inputs required for effective Outsourcing
Project Charter & Scope statements
Project Assumptions
Risk events
Project Procurement Management knowledge
Procurement Planning
Solicitation Planning
Solicitation
Source Selection
Contract Administration
Contract Closeout
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Scope
Scope Statements
Understanding the Business Case
“When outsourcing large IT projects, educate
stakeholders, write scope statements that are
complete & clear and know contract management
processes”
A good scope of work will give vendors a strong
sense of what the customer wants and will reduce
the chance for inflated bids.
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Resources
Obtain Procurement Resources
The buyer must acquire sufficient resources to
complete the project.
Includes Budgets for the
• proposal phase
• vendor payment
• management of the project on the buyer’s side
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Vendor selection
Select a Vendor
Creating procurement documents
• Request for Proposal (RFP)
• Invitation for Bid (IFB)
• Request for Quotation (RFQ)
Evaluation criteria
Independent Cost & Schedule estimates
Distributing procurement documents to potential
vendors
Obtaining proposals/bids
Contract negotiation
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Contract
Write the Contract
Is a legal relationship subject to remedy
in the courts
should contain
the management & technical requirements
price and payment terms
warranties
patents and other intellectual property issues
contract termination clause
requirements for formal acceptance & closure
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Contract Management
Contract Administration
to ensure that the seller’s performance meets
contractual requirements
• Project plan execution - to authorize contractor’s work at the
appropriate time
• Performance reporting - to monitor contractor’s cost, schedule,
and technical performance
• Quality control - to inspect and verify the adequacy of
contractor’s product
• Change control - to ensure that the changes are properly
approved and communicated to the stakeholders
• Financial management for payments
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Contract Management...
Contract Closeout
Product verification (was all work completed
correctly and satisfactorily?)
Administrative closeout (updating contract
documentation)
Buyer provides the seller (vendor) with formal
written notice that contract has been completed as
per the requirements for formal acceptance and
closure
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Why Relationships fail
WHY some Outsourcing relationships fail?
Not capturing client requirements adequately
Inability to meet SLAs
Inadequate provisions for contract amendments
Lack of provisions for hand-over of personnel,
technology and knowledge gained at the
completion of an agreement
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Vendors Management
Successful Management of Vendors
Sharing risks and benefits
Fee discounting
Gain sharing
Benefits delivery
Venturing
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What CIOs say?
7.50% Companies already
Outsourcing
9%
Will outsource in next 6
2% months
4% Will outsource in next 12
months
8.50% Will outsource after 12
months
69% Considered outsourcing
but not decided
Not considering
outsourcing
Source: CIO Magazine (April 2002)
Outsourcing satisfaction on the raise
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Outsourcing
Reasons for Outsourcing Lack of staff/consultants
internally
Lower ongoing costs
7%
6%
32% Improve quality
9.00%
Faster time to market
11%
Lower or transfer capital
expenditures
19% Strengthen business
29% continuity
Improve security
20%
Other
Source: CIO Magazine (April 2002)
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Outsourcing
Improve quality
Benefits experienced todate
7% Lower ongoing costs
9%
29%
Faster time to market
12%
Lack of staff/consultants
internally
Strengthen business
14% continuity
Improve security
25%
Lower or transfer capital
15% expenditures
Other
21%
Source: CIO Magazine (April 2002)
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Outsourcing Projects & PM
Types of projects
– Lower corporate taxes and operational costs
– Reduce internal IT operational costs
• Retain business requirements capability locally and
outsource non-critical services such as IT development,
customer call and support center services, etc.
– Provide consulting in another country, etc.
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Project Manager Guidelines
Rules to remember while managing
international projects
– Be respectful of the time zone differences
– Watch for different accents in English language, esp.. In
conference call meetings
– Not everyone understands ‘slang’ words or phrases
– Be respectful to people / governments / religions / countries
• Differences in cultural norms needs to be understood
– Effective time management
PMs with cross-cultural expertise in demand
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Managing Outsourcing
Managing an outsourcing relationship is harder than the
actual evaluation and negotiation of the deal
Outsourcing is a tool, the benefits of which are
dependent on the skill of the people managing the tool
Successful sourcing executives require a unique blend of
skills to manage an outsourcing project effectively
Leadership / Analytical / Negotiation
IT / Financial / Procurement
Project/Program Management
Benchmarking
Interpersonal and related business skills
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Example
GE - A Leader in Outsourcing
GE has outsourced in a range of sectors including
IT services - Application Development & Maintenance
Call Centers
Engineering Design services
Financial services
Data Centers
Software sourced from GE global development centers in
India is likely to rise to over $1 billion in 2004.
- Scott Bayman, President and CEO at GE India
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Summary
For Outsourcing
Look for an organization, which sponsors and
operates a client-oriented program to share best
practices and help clients meet this need.
“Outsourcing will be the process of choice, but not on price alone.
The outsourcer’s value-add as a full partner to the outsourcee will
be the most critical element now and in the years to come.”
- Sam Albert, Management
Consultant
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Thank You
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