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Outsourcing/Offshoring
Outsourcing <ul><li>Act of transferring some  recurring  internal activities to outside providers, set in a  contract </li...
Levels of Outsourcing <ul><li>Individual, Functional, Process </li></ul><ul><li>Individual  moving specific positions out ...
Strategic Outsourcing <ul><li>When outsourcing is aligned with firm’s long-term strategies, benefits may take years, and e...
History <ul><li>Farmers have used migrant workers </li></ul><ul><li>Construction Cos. Subcontract </li></ul><ul><li>Govt. ...
Outsourcing Trends <ul><li>Handy (London Bus Sch): “less than half workforce in industrialized world will be in full-time ...
Outsourcing Trends <ul><li>Large firms not competitive advantage </li></ul><ul><li>Small, agile niche firms change structu...
Outsourcing Trends <ul><li>Outsourcing used when internal incompetence caused failure; now used to restructure successful ...
Outsourcing Growth <ul><li>Double digit growth expected in decade </li></ul><ul><li>In 2000, market was $282 billion (20% ...
Seven Steps to Successful Outsourcing Greaver
One <ul><li>Assess risks  </li></ul><ul><li>Announce initiative </li></ul><ul><li>Form project team </li></ul><ul><li>Enga...
Two <ul><li>Understand Organization’s vision </li></ul><ul><ul><li>Vision </li></ul></ul><ul><ul><li>Core competencies </l...
Three <ul><li>Measure activity costs </li></ul><ul><li>Project future costs </li></ul><ul><li>Measure performance:  </li><...
Four <ul><li>Set qualifications </li></ul><ul><li>Set evaluation criteria  </li></ul><ul><li>Identify providers </li></ul>...
Five <ul><li>Plan negotiations.  </li></ul><ul><li>Address  </li></ul><ul><ul><li>High-level issues  </li></ul></ul><ul><u...
Six <ul><li>Adjust team roles  </li></ul><ul><li>Compare/merge transition plans </li></ul><ul><li>Address transition issue...
Seven <ul><li>Adjust management styles  </li></ul><ul><li>Set up oversight council  </li></ul><ul><li>Communicate  </li></...
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Outsourcing/offshoring

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Transcript of "Outsourcing/offshoring"

  1. 1. Outsourcing/Offshoring
  2. 2. Outsourcing <ul><li>Act of transferring some recurring internal activities to outside providers, set in a contract </li></ul><ul><li>Reasons / Benefits: </li></ul><ul><ul><li>Organizational: enhance effectiveness, improve flexibility, increase product/service value </li></ul></ul><ul><ul><li>Improvement: improve performance, obtain expertise, improve control, acquire ideas, improve credibility </li></ul></ul><ul><ul><li>Financial: free up resources, generate cash </li></ul></ul><ul><ul><li>Revenue: gain market access, sped expansion, expand sales </li></ul></ul><ul><ul><li>Cost: Reduce costs </li></ul></ul><ul><ul><li>Employee: expand career path, </li></ul></ul>
  3. 3. Levels of Outsourcing <ul><li>Individual, Functional, Process </li></ul><ul><li>Individual moving specific positions out </li></ul><ul><li>Functional moving functions out </li></ul><ul><li>Processes particular tasks moved out </li></ul>
  4. 4. Strategic Outsourcing <ul><li>When outsourcing is aligned with firm’s long-term strategies, benefits may take years, and examines: </li></ul><ul><ul><li>Future vision </li></ul></ul><ul><ul><li>Core competencies </li></ul></ul><ul><ul><li>Structure </li></ul></ul><ul><ul><li>Costs </li></ul></ul><ul><ul><li>Performance </li></ul></ul><ul><ul><li>Competitive advantages </li></ul></ul><ul><li>ALL outsourcing should be strategic </li></ul>
  5. 5. History <ul><li>Farmers have used migrant workers </li></ul><ul><li>Construction Cos. Subcontract </li></ul><ul><li>Govt. subcontracts military equipment </li></ul><ul><li>Outsourcing transfers “internal” activities </li></ul><ul><li>Now, functions ex: payroll, IS/IT, Acct, Facilities management, janitorial, Food </li></ul><ul><li>Processes are not commonly outsourced </li></ul>
  6. 6. Outsourcing Trends <ul><li>Handy (London Bus Sch): “less than half workforce in industrialized world will be in full-time jobs in the 21 st century...” </li></ul><ul><li>He describes ‘shamrock org’, where leaves of shamrock are: </li></ul><ul><ul><li>Professional core workers </li></ul></ul><ul><ul><li>Nonessential work contracted out (cheaper) </li></ul></ul><ul><ul><li>Flexible labor force (P-T , temp workers) </li></ul></ul><ul><ul><li>Customer doing the work </li></ul></ul><ul><li>Instead of 1-2 firms people work for 5-10; women entered workforce; firms downsize </li></ul>
  7. 7. Outsourcing Trends <ul><li>Large firms not competitive advantage </li></ul><ul><li>Small, agile niche firms change structure, cost overnight </li></ul><ul><li>Global economy creates more competitive pressure </li></ul><ul><li>Product, service cycle times dramatically reduced </li></ul><ul><li>Significant operating, financial performance critical to success </li></ul><ul><li>Technical specialists available; no need to hire them internally </li></ul><ul><li>Cutting edge technology, knowledge now considered competitive weapons; expensive </li></ul>
  8. 8. Outsourcing Trends <ul><li>Outsourcing used when internal incompetence caused failure; now used to restructure successful orgs </li></ul><ul><li>Larger orgs outsource entire processes </li></ul><ul><ul><li>Processes furthest from the core first, moving toward it </li></ul></ul><ul><ul><li>Unlikely that operating processes, management positions will be outsourced </li></ul></ul><ul><ul><li>Outsource global functions, processes to firms with global presence, expertise </li></ul></ul><ul><ul><li>Smaller firms growing outsourcing individual tasks (rent a CFO, CIO) </li></ul></ul>
  9. 9. Outsourcing Growth <ul><li>Double digit growth expected in decade </li></ul><ul><li>In 2000, market was $282 billion (20% growth) </li></ul><ul><li>Outsource providers increased 65% 1989-1994 </li></ul><ul><li>1960s, internal audit accepted by acct firms </li></ul><ul><li>Now outsourcing services means seeking audit business </li></ul>
  10. 10. Seven Steps to Successful Outsourcing Greaver
  11. 11. One <ul><li>Assess risks </li></ul><ul><li>Announce initiative </li></ul><ul><li>Form project team </li></ul><ul><li>Engage advisers </li></ul><ul><li>Train the team </li></ul><ul><li>Acquire other resources </li></ul><ul><li>Address issues: </li></ul><ul><ul><li>Resource management </li></ul></ul><ul><ul><li>Information management </li></ul></ul><ul><ul><li>Project management </li></ul></ul><ul><li>Set objectives </li></ul>
  12. 12. Two <ul><li>Understand Organization’s vision </li></ul><ul><ul><li>Vision </li></ul></ul><ul><ul><li>Core competencies </li></ul></ul><ul><ul><li>Structure </li></ul></ul><ul><ul><li>Transformation tools </li></ul></ul><ul><ul><li>Value chain </li></ul></ul><ul><ul><li>Strategies </li></ul></ul><ul><li>Determine: </li></ul><ul><ul><li>Decision rights </li></ul></ul><ul><ul><li>Contract length </li></ul></ul><ul><ul><li>Termination date </li></ul></ul><ul><li>Align Initiative </li></ul>
  13. 13. Three <ul><li>Measure activity costs </li></ul><ul><li>Project future costs </li></ul><ul><li>Measure performance: </li></ul><ul><ul><li>Existing and future </li></ul></ul><ul><ul><li>Cost of poor performance </li></ul></ul><ul><li>Benchmark costs/ performance </li></ul><ul><li>Determine: </li></ul><ul><ul><li>Specific risks </li></ul></ul><ul><ul><li>Asset values </li></ul></ul><ul><ul><li>&quot;Make&quot; total costs </li></ul></ul><ul><ul><li>Pricing models </li></ul></ul><ul><ul><li>Final targets </li></ul></ul>
  14. 14. Four <ul><li>Set qualifications </li></ul><ul><li>Set evaluation criteria </li></ul><ul><li>Identify providers </li></ul><ul><li>Screen providers </li></ul><ul><li>Draft RFP </li></ul><ul><li>Evaluate proposals: </li></ul><ul><ul><li>Qualifications </li></ul></ul><ul><ul><li>Costs </li></ul></ul><ul><li>Perform due diligence </li></ul><ul><li>Determine: </li></ul><ul><ul><li>&quot;Buy&quot; total costs </li></ul></ul><ul><ul><li>Short-list providers </li></ul></ul><ul><ul><li>Finalist provider </li></ul></ul><ul><ul><li>Review with senior management </li></ul></ul>
  15. 15. Five <ul><li>Plan negotiations. </li></ul><ul><li>Address </li></ul><ul><ul><li>High-level issues </li></ul></ul><ul><ul><li>Deal breakers </li></ul></ul><ul><li>Prepare term sheets </li></ul><ul><li>Negotiate contract: </li></ul><ul><ul><li>Scope </li></ul></ul><ul><ul><li>Performance standards </li></ul></ul><ul><ul><li>Pricing schedules </li></ul></ul><ul><ul><li>Terms and conditions </li></ul></ul><ul><li>Announce relationship </li></ul>
  16. 16. Six <ul><li>Adjust team roles </li></ul><ul><li>Compare/merge transition plans </li></ul><ul><li>Address transition issues: </li></ul><ul><ul><li>Communication </li></ul></ul><ul><ul><li>Human resources </li></ul></ul><ul><ul><li>Other production factors </li></ul></ul><ul><li>Meet with employees: </li></ul><ul><ul><li>Organization </li></ul></ul><ul><ul><li>Provider </li></ul></ul><ul><li>Make offers/termination </li></ul><ul><li>Provide counseling </li></ul><ul><li>Physically move </li></ul>
  17. 17. Seven <ul><li>Adjust management styles </li></ul><ul><li>Set up oversight council </li></ul><ul><li>Communicate </li></ul><ul><li>Define and design: </li></ul><ul><ul><li>Meeting agendas </li></ul></ul><ul><ul><li>Meeting schedule </li></ul></ul><ul><ul><li>Performance reports </li></ul></ul><ul><li>Perform oversight role </li></ul><ul><li>Confront poor performance </li></ul><ul><li>Solve problems </li></ul><ul><li>Build the relationship </li></ul>
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