Outsourcing/offshoring
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Outsourcing/offshoring

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Outsourcing/offshoring Outsourcing/offshoring Presentation Transcript

  • Outsourcing/Offshoring
  • 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,
  • Levels of Outsourcing
    • Individual, Functional, Process
    • Individual moving specific positions out
    • Functional moving functions out
    • Processes particular tasks moved out
    View slide
  • Strategic Outsourcing
    • When outsourcing is aligned with firm’s long-term strategies, benefits may take years, and examines:
      • Future vision
      • Core competencies
      • Structure
      • Costs
      • Performance
      • Competitive advantages
    • ALL outsourcing should be strategic
    View slide
  • 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
  • Outsourcing Trends
    • Handy (London Bus Sch): “less than half workforce in industrialized world will be in full-time jobs in the 21 st 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
  • 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
  • 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)
  • 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
  • Seven Steps to Successful Outsourcing Greaver
  • 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
  • Two
    • Understand Organization’s vision
      • Vision
      • Core competencies
      • Structure
      • Transformation tools
      • Value chain
      • Strategies
    • Determine:
      • Decision rights
      • Contract length
      • Termination date
    • Align Initiative
  • 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
  • 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
  • Five
    • Plan negotiations.
    • Address
      • High-level issues
      • Deal breakers
    • Prepare term sheets
    • Negotiate contract:
      • Scope
      • Performance standards
      • Pricing schedules
      • Terms and conditions
    • Announce relationship
  • 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
  • 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