Outsourcing/Offshoring

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Outsourcing/Offshoring
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Outsourcing

• Act of transferring some recurring internal
  activities to outside providers, set in a
  contract
• Reasons / Benefits
• Organizational enhance effectiveness, improve
  flexibility, increase product/service value
• Improvement improve performance, obtain
  expertise, improve control, acquire ideas,
  improve credibility
• Financial free up resources, generate cash
• Revenue gain market access, sped expansion,
  expand sales
• Cost Reduce costs
• Employee expand career path,

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Levels of Outsourcing

• Individual, Functional, Process
• Individual moving specific positions out
• Functional moving functions out
• Processes particular tasks moved out

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Strategic Outsourcing

• When outsourcing is aligned with firms long-term
  strategies, benefits may take years, and
  examines
• Future vision
• Core competencies
• Structure
• Costs
• Performance
• Competitive advantages
• ALL outsourcing should be strategic

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History

• Farmers have used migrant workers
• Construction Cos. Subcontract
• Govt. subcontracts military equipment
• Outsourcing transfers internal activities
• Now, functions ex payroll, IS/IT, Acct,
  Facilities management, janitorial, Food
• Processes are not commonly outsourced

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Outsourcing Trends

• Handy (London Bus Sch) less than half workforce
  in industrialized world will be in full-time jobs
  in the 21st century...
• He describes shamrock org, where leaves of
  shamrock are
• Professional core workers
• Nonessential work contracted out (cheaper)
• Flexible labor force (P-T , temp workers)
• Customer doing the work
• Instead of 1-2 firms people work for 5-10 women
  entered workforce firms downsize

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Outsourcing Trends

• Large firms not competitive advantage
• Small, agile niche firms change structure, cost
  overnight
• Global economy creates more competitive pressure
• Product, service cycle times dramatically reduced
• Significant operating, financial performance
  critical to success
• Technical specialists available no need to hire
  them internally
• Cutting edge technology, knowledge now considered
  competitive weapons expensive

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Outsourcing Trends

• Outsourcing used when internal incompetence
  caused failure now used to restructure
  successful orgs
• Larger orgs outsource entire processes
• Processes furthest from the core first, moving
  toward it
• Unlikely that operating processes, management
  positions will be outsourced
• Outsource global functions, processes to firms
  with global presence, expertise
• Smaller firms growing outsourcing individual
  tasks (rent a CFO, CIO)

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Outsourcing Growth

• Double digit growth expected in decade
• In 2000, market was 282 billion (20 growth)
• Outsource providers increased 65 1989-1994
• 1960s, internal audit accepted by acct firms
• Now outsourcing services means seeking audit
  business

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Seven Steps to Successful Outsourcing

• Greaver

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One

• Assess risks
• Announce initiative
• Form project team
• Engage advisers
• Train the team
• Acquire other resources
• Address issues
• Resource management
• Information management
• Project management
• Set objectives

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Two

• Understand Organizations vision
• Vision
• Core competencies
• Structure
• Transformation tools
• Value chain
• Strategies
• Determine
• Decision rights
• Contract length
• Termination date
• Align Initiative

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Three

• Measure activity costs
• Project future costs
• Measure performance
• Existing and future
• Cost of poor performance
• Benchmark costs/ performance
• Determine
• Specific risks
• Asset values
• "Make" total costs
• Pricing models
• Final targets

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Four

• Set qualifications
• Set evaluation criteria
• Identify providers
• Screen providers
• Draft RFP
• Evaluate proposals
• Qualifications
• Costs
• Perform due diligence
• Determine
• "Buy" total costs
• Short-list providers
• Finalist provider
• Review with senior management

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Five

• Plan negotiations.
• Address
• High-level issues
• Deal breakers
• Prepare term sheets
• Negotiate contract
• Scope
• Performance standards
• Pricing schedules
• Terms and conditions
• Announce relationship

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Six

• Adjust team roles
• Compare/merge transition plans
• Address transition issues
• Communication
• Human resources
• Other production factors
• Meet with employees
• Organization
• Provider
• Make offers/termination
• Provide counseling
• Physically move

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Seven

• Adjust management styles
• Set up oversight council
• Communicate
• Define and design
• Meeting agendas
• Meeting schedule
• Performance reports
• Perform oversight role
• Confront poor performance
• Solve problems
• Build the relationship