Origination It originated from the theory of core competence suggested by C. K Prahalad. A Business Enterprise identifying the areas of specialisation and focus on them only; and get non-core functions performed by outside agencies.
Meaning The contracting out of a company’s non-core in-house function to a preferred vendor with high quality level In a particular task area. Examples- A manufacturing company outsourcing its accounting work to an outside accounting firm, or A telecommunications firm using an outside company to handle customer service
Outsourcing Checker• What to Outsource?• Whom to Outsource?• SLAs (Service Level Agreements)
Outsourcing Guide• What is a good starting point for an outsourcing programme?• Are there enough external service providers?• Are you convinced by the quality?• Are you getting benefits of scales of economies?• Is your corporate culture ready for it?• Is it a long term relationship?
Outsourcing PyramidLevel III Require high level of skills Eg- R&D and ManagementLevel II For Strategic Initiatives + Skills get higher Eg- Payroll and HR adminLevel I Cost reduction phase Basic skills required Eg- Catering, fleet management
BPO Vs Franchising BPO Franchising Non- Core Processes are Core product is given as outsourced Franchise Outsourced- Outsourcer Franchiser-FranchiseeObjective is to focus on core Objective is to expand business function and enter new market
Benefits Focus on key function Reduction in cost Less investment Specialisation Freedom of choice Economic Progress
Limitations• Lack of secrecy• Potential competition• Sweat shopping• Resentment• Loss of control
Types of Services Financial Services Advertising Services Courier Services Customer Support Services Human Resource Services
Key Success Indicators Analyze process, cost and determine savings; Define roles and responsibilities; Have measurable performance indicators – (Speed of transactions, time period to close books, etc.) Develop a detailed transition plan- smooth hand off; Develop a clear Dispute resolution process; Monitor results for continuous improvements.
SWOT- Indian Scenario Strengths Abundant manpower, Operational excellence; Conducive BE. Weaknesses Skilled manpower shortage; Local infrastructure; Political oppositionOpportunities $ 69 billion ITES business by 2010; $ 97.5 billion IT market Competition from other low cost Threats destinations; slowdown of demand.