Jun 8, 2009 Outsourcing Management Issues in the Indian Outsourcing Industry Download requests – Please Direct to sarang.bhutada@gmail.com

Agenda Introduction Outsourcing Process Types of Outsourcing Statistics Outsourcing Models Outsourcing Failures 5 Key Management Issues Conclusion Jun 8, 2009 Agenda

Introduction

Outsourcing Process

Types of Outsourcing

Statistics

Outsourcing Models

Outsourcing Failures

5 Key Management Issues

Conclusion

Outsourcing Defined Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company Client hires vendor to perform task(s) for client Eg : GM hires another company (e.g., AT& T) to perform telephone related services for GM GM – Client AT&T - Vendor Outsourcing - Introduction Jun 8, 2009

Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company

Client hires vendor to perform task(s) for client

Eg : GM hires another company (e.g., AT& T) to perform telephone related services for GM

GM – Client

AT&T - Vendor

Decision to outsource Supplier proposals Negotiations Transition Transformation Ongoing Service Delivery Termination or renewal Process of Outsourcing Outsourcing – The Process Jun 8, 2009 Group 11: Outsourcing

Decision to outsource

Supplier proposals

Negotiations

Transition

Transformation

Ongoing Service Delivery

Termination or renewal

Outsourcing - Workflow Jun 8, 2009 Group 11: Outsourcing

Why Outsource? SWOT Analysis ; Indian Markets Outsourcing - Introduction Jun 8, 2009 Quality Risks Benefits Time Cost Why Outsourcing

Outsourcing in other industries Outsourcing Types Jun 8, 2009 S.No. Industry Top Outsourcing Firms 1 Legal Outsourcing Pillsbury Winthrop Shaw Pittman Cooley Godward Kronish 2 Healthcare Outsourcing Perot Systems Cerner ACS 3 Knowledge Process Outsourcing Integreon Copal Partners Genpact 4 Financial & Accounting Services Outsourcing HP Wipro TCS 5 Human Resources Outsourcing ADP Fidelity Ceridian

Statistics - Outsourcing Indian software and services export estimated at Rs 78,230 crore ($17.2 billion) in 2004-05, as compared to Rs 58,240 crore ($12.8 billion) in 2003-04, an increase of 34 percent Offshore outsourcing business growing at a 29 percent annual rate until the credit crisis hit, now forecasts expect growth in 2009 to be about 10 percent Outsourcing - Statistics Jun 8, 2009

Indian software and services export estimated at Rs 78,230 crore ($17.2 billion) in 2004-05, as compared to Rs 58,240 crore ($12.8 billion) in 2003-04, an increase of 34 percent

Offshore outsourcing business growing at a 29 percent annual rate until the credit crisis hit, now forecasts expect growth in 2009 to be about 10 percent

Outsourcing - A strategic business model Reducing costs Sourcing skilled workforce Spreading risk Reducing dependability Competitive contracting Outsourcing Models Jun 8, 2009

Reducing costs

Sourcing skilled workforce

Spreading risk

Reducing dependability

Competitive contracting

Business models in outsourcing Fixed pricing Transactional pricing Activity-based pricing Cost-plus pricing Gain sharing (risk-reward) Outsourcing Models Jun 8, 2009

Fixed pricing

Transactional pricing

Activity-based pricing

Cost-plus pricing

Gain sharing (risk-reward)

Outsourcing Failures - Examples Dell - Corporate Support Call Centers Lehman - Internal Help Desk Support Cogent Road - Mortgage Banking Shop Direct - Call Center Indian Call Centers - 'Do-Not-Call' lists Outsourcing Failures

Dell - Corporate Support Call Centers

Lehman - Internal Help Desk Support

Cogent Road - Mortgage Banking

Shop Direct - Call Center

Indian Call Centers - 'Do-Not-Call' lists

Reasons for Outsourcing Failures Cost-reduction expectations Data security/protection Process discipline (CMM) Lack of business knowledge Vendor failure to deliver Outsourcing Failures Jun 8, 2009 Culture Turnover of key personnel Knowledge transfer Scope creep Government oversight/regulation

Cost-reduction expectations

Data security/protection

Process discipline (CMM)

Lack of business knowledge

Vendor failure to deliver

Culture

Turnover of key personnel

Knowledge transfer

Scope creep

Government oversight/regulation

Managing cross-cultural risk factors Culture compatibility a larger issue than operational/managerial compatibility Cultural differences will always exist, between Corporate Nations Competencies Management Issue #1 – Managing Cross-cultural Risk Factors Jun 8, 2009

Culture compatibility a larger issue than operational/managerial compatibility

Cultural differences will always exist, between

Corporate

Nations

Competencies

Differences in Corporate Cultures Every organization has a culture of its own Difference in values, vision and goals Beauraucratic v/s Entrepreneurial Differences in National Cultures Outsourcing is new, culture is forever ! Different attitudes, thought patterns, assumptions, etc Autonomy v/s Group Oriented Differences in Competencies Key people have cross-cultural competencies These need to be managed Knowledge management systems need to be integrated Jun 8, 2009

Differences in Corporate Cultures

Every organization has a culture of its own

Difference in values, vision and goals

Beauraucratic v/s Entrepreneurial

Differences in National Cultures

Outsourcing is new, culture is forever !

Different attitudes, thought patterns, assumptions, etc

Autonomy v/s Group Oriented

Differences in Competencies

Key people have cross-cultural competencies

These need to be managed

Knowledge management systems need to be integrated

Solutions to address this Culturally-neutral expression/documentation Work towards cultural adoption and understanding Cultural Arbitrage! Cross-cultural training Appropriate recruitment Risk Mitigation Strategies Management Issue #1 – Managing Cross-cultural Risk Factors Jun 8, 2009

Culturally-neutral expression/documentation

Work towards cultural adoption and understanding

Cultural Arbitrage!

Cross-cultural training

Appropriate recruitment

Risk Mitigation Strategies

Attrition A reduction in the number of employees through retirement, resignation or death Apparent reasons More money offered Hate current work Hate working conditions Spouse gets a job in some other city Just like that Management Issue # 2 – Attrition Jun 8, 2009 Actual Reasons Gap between demand and supply Poaching Long working hours Lack of continuous training programme

A reduction in the number of employees through retirement, resignation or death

Apparent reasons

More money offered

Hate current work

Hate working conditions

Spouse gets a job in

some other city

Just like that

Actual Reasons

Gap between demand and supply

Poaching

Long working hours

Lack of continuous training programme

Short term solutions Better training + motivational training Imbibing vision and values Livelier environment Open culture Recognizing employee contribution Loyalty awards Better remuneration Showing more concern towards employee needs Management Issue # 2 – Attrition Jun 8, 2009

Better training + motivational training

Imbibing vision and values

Livelier environment

Open culture

Recognizing employee contribution

Loyalty awards

Better remuneration

Showing more concern towards employee needs

Long Term Solution Economics – Gap between demand and supply of skilled professionals needs to be bridged Backward Integration : Investing in Education Quasi-integration strategies Tie-ups with universities Management Issue # 2 – Attrition Jun 8, 2009

Economics – Gap between demand and supply of skilled professionals needs to be bridged

Backward Integration : Investing in Education

Quasi-integration strategies

Tie-ups with universities

Challenges faced by India Challenges faced by India Diminishing Returns Data theft and Privacy Infrastructure Outsider’s Edge Political Protectionism Quality Cultural Management Issue # 3 – India specific challenges Jun 8, 2009

Challenges faced by India

Diminishing Returns

Data theft and Privacy

Infrastructure

Outsider’s Edge

Political

Protectionism

Quality

Cultural

Looking at other countries Companies want to reduce risks.. “ Its better to have your eggs in different baskets rather keeping all of your eggs in one basket” product development in India and professional and customer services in Philippines reduces risks Examples of Sykes and Ambergris Solutions shifting to Philippines Many companies feel India is already too crowded Many companies have its "radar set on Vietnam and China" Management Issue # 3 – India specific challenges Jun 8, 2009

Companies want to reduce risks..

“ Its better to have your eggs in different baskets rather keeping all of your eggs in one basket”

product development in India and professional and customer services in Philippines reduces risks

Examples of Sykes and Ambergris Solutions shifting to Philippines

Many companies feel India is already too crowded

Many companies have its "radar set on Vietnam and China"

Impact of Outsourcing on Corporate Knowledge Transaction Cost Theory Core Competency Theory Boundary Spanning Theory Management Issue # 4 – Knowledge Management Jun 8, 2009 Explicit VS Tacit Knowledge Context-Based VS General Knowledge Technical VS Business Knowledge Risk of Knowledge Loss

Transaction Cost Theory

Core Competency Theory

Boundary Spanning Theory

Explicit VS Tacit Knowledge

Context-Based VS General Knowledge

Technical VS Business Knowledge

Possible Solutions for Successful KM The “8Cs” Framework Connectivity Content Community (Siemens Medical Solutions- KnowledgeSharing@Med) Culture (Buckman Labs- Bulab Learning Centre) Cooperation Capacity (NASA, Lisbon) Commerce (Siemens – Share and Succeed Initiative) Capital (Tata Steel) Peer-to-Peer Knowledge Management(P2PKM) Work Models Management Issue # 4 – Knowledge Management Jun 8, 2009 The Ideal Solution No one-size-fits-all Focus on building critical capabilities Flexibility in implementation of solution

The “8Cs” Framework

Connectivity

Content

Community (Siemens Medical Solutions- KnowledgeSharing@Med)

Culture (Buckman Labs- Bulab Learning Centre)

Cooperation

Capacity (NASA, Lisbon)

Commerce (Siemens – Share and Succeed Initiative)

Capital (Tata Steel)

Peer-to-Peer Knowledge Management(P2PKM)

Work Models

No one-size-fits-all

Focus on building critical capabilities

Flexibility in implementation of solution

Expectation Management Stages Setting expectations Capturing and monitoring expectations Handling expectations Management Issue # 5 – Expectation Management Jun 8, 2009

Stages

Setting expectations

Capturing and monitoring expectations

Handling expectations

Expectation Management Know your stakeholders Communication is the key for expectation management Be approachable Use both formal and informal communication to understand expectations and to manage them Management Issue # 5 – Expectation Management Jun 8, 2009

Know your stakeholders

Communication is the key for expectation management

Be approachable

Use both formal and informal communication to understand expectations and to manage them

Expectation Management Ideal Solution It is not enough to understand stakeholder expectations. These expectations/changes must be actively managed by IT through careful two-way communication with stakeholders where IT listens to needs, discusses what can be done and sets direction Management Issue # 5 – Expectation Management Jun 8, 2009

Ideal Solution

It is not enough to understand stakeholder expectations. These expectations/changes must be actively managed by IT through careful two-way communication with stakeholders where IT listens to needs, discusses what can be done and sets direction

Conclusion Few management issues industries Vendor management Quality-of-Service risks Managing information security Changing technological scenario Indian outsourcing industry has shown remarkable strength and robustness in handling and managing the challenges Need to be actively addressed to ensure there are little roadblocks in this path to growth Outsourcing - Conclusion Jun 8, 2009

Few management issues industries

Vendor management

Quality-of-Service risks

Managing information security

Changing technological scenario

Indian outsourcing industry has shown remarkable strength and robustness in handling and managing the challenges

Need to be actively addressed to ensure there are little roadblocks in this path to growth

Thank You! Questions, feedback and suggestions to [email_address] Jun 8, 2009

Thank You!

Questions, feedback and suggestions to [email_address]