Outsourcing - Key management issues


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Outsourcing - Key Management Challenges, An India-specific analysis of the outsourcing industry and the key challenges that it faces. Part of a report that was submitted as a part of a credit course at IIT Madras.

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Outsourcing - Key management issues

  1. 1. Jun 8, 2009 Outsourcing Management Issues in the Indian Outsourcing Industry Download requests – Please Direct to sarang.bhutada@gmail.com
  2. 2. Agenda <ul><li>Introduction </li></ul><ul><li>Outsourcing Process </li></ul><ul><li>Types of Outsourcing </li></ul><ul><li>Statistics </li></ul><ul><li>Outsourcing Models </li></ul><ul><li>Outsourcing Failures </li></ul><ul><li>5 Key Management Issues </li></ul><ul><li>Conclusion </li></ul>Jun 8, 2009 Agenda
  3. 3. Outsourcing Defined <ul><li>Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company </li></ul><ul><li>Client hires vendor to perform task(s) for client </li></ul><ul><ul><li>Eg : GM hires another company (e.g., AT& T) to perform telephone related services for GM </li></ul></ul><ul><ul><li>GM – Client </li></ul></ul><ul><ul><li>AT&T - Vendor </li></ul></ul>Outsourcing - Introduction Jun 8, 2009
  4. 4. <ul><li>Decision to outsource </li></ul><ul><li>Supplier proposals </li></ul><ul><li>Negotiations </li></ul><ul><li>Transition </li></ul><ul><li>Transformation </li></ul><ul><li>Ongoing Service Delivery </li></ul><ul><li>Termination or renewal </li></ul>Process of Outsourcing Outsourcing – The Process Jun 8, 2009 Group 11: Outsourcing
  5. 5. Outsourcing - Workflow Jun 8, 2009 Group 11: Outsourcing
  6. 6. Why Outsource? SWOT Analysis ; Indian Markets Outsourcing - Introduction Jun 8, 2009 Quality Risks Benefits Time Cost Why Outsourcing
  7. 7. 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      
  8. 8. Statistics - Outsourcing <ul><li>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 </li></ul><ul><li>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 </li></ul>Outsourcing - Statistics Jun 8, 2009
  9. 9. Outsourcing - A strategic business model <ul><li>Reducing costs </li></ul><ul><li>Sourcing skilled workforce </li></ul><ul><li>Spreading risk </li></ul><ul><li>Reducing dependability </li></ul><ul><li>Competitive contracting </li></ul>Outsourcing Models Jun 8, 2009
  10. 10. Business models in outsourcing <ul><li>Fixed pricing </li></ul><ul><li>Transactional pricing </li></ul><ul><li>Activity-based pricing </li></ul><ul><li>Cost-plus pricing </li></ul><ul><li>Gain sharing (risk-reward) </li></ul>Outsourcing Models Jun 8, 2009
  11. 11. Outsourcing Failures - Examples <ul><li>Dell - Corporate Support Call Centers </li></ul><ul><li>Lehman - Internal Help Desk Support </li></ul><ul><li>Cogent Road - Mortgage Banking </li></ul><ul><li>Shop Direct - Call Center </li></ul><ul><li>Indian Call Centers - 'Do-Not-Call' lists </li></ul>Outsourcing Failures
  12. 12. Reasons for Outsourcing Failures <ul><ul><li>Cost-reduction expectations </li></ul></ul><ul><ul><li>Data security/protection </li></ul></ul><ul><ul><li>Process discipline (CMM) </li></ul></ul><ul><ul><li>Lack of business knowledge </li></ul></ul><ul><ul><li>Vendor failure to deliver </li></ul></ul>Outsourcing Failures Jun 8, 2009 <ul><li>Culture </li></ul><ul><li>Turnover of key personnel </li></ul><ul><li>Knowledge transfer </li></ul><ul><li>Scope creep </li></ul><ul><li>Government oversight/regulation </li></ul>
  13. 13. Managing cross-cultural risk factors <ul><li>Culture compatibility a larger issue than operational/managerial compatibility </li></ul><ul><li>Cultural differences will always exist, between </li></ul><ul><ul><li>Corporate </li></ul></ul><ul><ul><li>Nations </li></ul></ul><ul><ul><li>Competencies </li></ul></ul>Management Issue #1 – Managing Cross-cultural Risk Factors Jun 8, 2009
  14. 14. <ul><li>Differences in Corporate Cultures </li></ul><ul><li>Every organization has a culture of its own </li></ul><ul><li>Difference in values, vision and goals </li></ul><ul><li>Beauraucratic v/s Entrepreneurial </li></ul><ul><li>Differences in National Cultures </li></ul><ul><li>Outsourcing is new, culture is forever ! </li></ul><ul><li>Different attitudes, thought patterns, assumptions, etc </li></ul><ul><li>Autonomy v/s Group Oriented </li></ul><ul><li>Differences in Competencies </li></ul><ul><li>Key people have cross-cultural competencies </li></ul><ul><li>These need to be managed </li></ul><ul><li>Knowledge management systems need to be integrated </li></ul>Jun 8, 2009
  15. 15. Solutions to address this <ul><li>Culturally-neutral expression/documentation </li></ul><ul><li>Work towards cultural adoption and understanding </li></ul><ul><li>Cultural Arbitrage! </li></ul><ul><li>Cross-cultural training </li></ul><ul><li>Appropriate recruitment </li></ul><ul><li>Risk Mitigation Strategies </li></ul>Management Issue #1 – Managing Cross-cultural Risk Factors Jun 8, 2009
  16. 16. Attrition <ul><li>A reduction in the number of employees through retirement, resignation or death </li></ul><ul><li>Apparent reasons </li></ul><ul><ul><li>More money offered </li></ul></ul><ul><ul><li>Hate current work </li></ul></ul><ul><ul><li>Hate working conditions </li></ul></ul><ul><ul><li>Spouse gets a job in </li></ul></ul><ul><ul><li>some other city </li></ul></ul><ul><ul><li>Just like that </li></ul></ul>Management Issue # 2 – Attrition Jun 8, 2009 <ul><li>Actual Reasons </li></ul><ul><li>Gap between demand and supply </li></ul><ul><li>Poaching </li></ul><ul><li>Long working hours </li></ul><ul><li>Lack of continuous training programme </li></ul>
  17. 17. Short term solutions <ul><li>Better training + motivational training </li></ul><ul><li>Imbibing vision and values </li></ul><ul><li>Livelier environment </li></ul><ul><li>Open culture </li></ul><ul><li>Recognizing employee contribution </li></ul><ul><li>Loyalty awards </li></ul><ul><li>Better remuneration </li></ul><ul><li>Showing more concern towards employee needs </li></ul>Management Issue # 2 – Attrition Jun 8, 2009
  18. 18. Long Term Solution <ul><li>Economics – Gap between demand and supply of skilled professionals needs to be bridged </li></ul><ul><li>Backward Integration : Investing in Education </li></ul><ul><li>Quasi-integration strategies </li></ul><ul><li>Tie-ups with universities </li></ul>Management Issue # 2 – Attrition Jun 8, 2009
  19. 19. Challenges faced by India <ul><li>Challenges faced by India </li></ul><ul><ul><li>Diminishing Returns </li></ul></ul><ul><ul><li>Data theft and Privacy </li></ul></ul><ul><ul><li>Infrastructure </li></ul></ul><ul><ul><li>Outsider’s Edge </li></ul></ul><ul><ul><li>Political </li></ul></ul><ul><ul><li>Protectionism </li></ul></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Cultural </li></ul></ul>Management Issue # 3 – India specific challenges Jun 8, 2009
  20. 20. Looking at other countries <ul><li>Companies want to reduce risks.. </li></ul><ul><li>“ Its better to have your eggs in different baskets rather keeping all of your eggs in one basket” </li></ul><ul><li>product development in India and professional and customer services in Philippines reduces risks </li></ul><ul><li>Examples of Sykes and Ambergris Solutions shifting to Philippines </li></ul><ul><li>Many companies feel India is already too crowded </li></ul><ul><li>Many companies have its &quot;radar set on Vietnam and China&quot; </li></ul>Management Issue # 3 – India specific challenges Jun 8, 2009
  21. 21. Impact of Outsourcing on Corporate Knowledge <ul><li>Transaction Cost Theory </li></ul><ul><li>Core Competency Theory </li></ul><ul><li>Boundary Spanning Theory </li></ul>Management Issue # 4 – Knowledge Management Jun 8, 2009 <ul><li>Explicit VS Tacit Knowledge </li></ul><ul><li>Context-Based VS General Knowledge </li></ul><ul><li>Technical VS Business Knowledge </li></ul>Risk of Knowledge Loss
  22. 22. Possible Solutions for Successful KM <ul><li>The “8Cs” Framework </li></ul><ul><ul><ul><li>Connectivity </li></ul></ul></ul><ul><ul><ul><li>Content </li></ul></ul></ul><ul><ul><ul><li>Community (Siemens Medical Solutions- KnowledgeSharing@Med) </li></ul></ul></ul><ul><ul><ul><li>Culture (Buckman Labs- Bulab Learning Centre) </li></ul></ul></ul><ul><ul><ul><li>Cooperation </li></ul></ul></ul><ul><ul><ul><li>Capacity (NASA, Lisbon) </li></ul></ul></ul><ul><ul><ul><li>Commerce (Siemens – Share and Succeed Initiative) </li></ul></ul></ul><ul><ul><ul><li>Capital (Tata Steel) </li></ul></ul></ul><ul><li>Peer-to-Peer Knowledge Management(P2PKM) </li></ul><ul><li>Work Models </li></ul>Management Issue # 4 – Knowledge Management Jun 8, 2009 The Ideal Solution <ul><li>No one-size-fits-all </li></ul><ul><li>Focus on building critical capabilities </li></ul><ul><li>Flexibility in implementation of solution </li></ul>
  23. 23. Expectation Management <ul><li>Stages </li></ul><ul><li>Setting expectations </li></ul><ul><li>Capturing and monitoring expectations </li></ul><ul><li>Handling expectations </li></ul>Management Issue # 5 – Expectation Management Jun 8, 2009
  24. 24. Expectation Management <ul><li>Know your stakeholders </li></ul><ul><li>Communication is the key for expectation management </li></ul><ul><li>Be approachable </li></ul><ul><li>Use both formal and informal communication to understand expectations and to manage them </li></ul>Management Issue # 5 – Expectation Management Jun 8, 2009
  25. 25. Expectation Management <ul><li>Ideal Solution </li></ul><ul><li>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 </li></ul>Management Issue # 5 – Expectation Management Jun 8, 2009
  26. 26. Conclusion <ul><li>Few management issues industries </li></ul><ul><li>Vendor management </li></ul><ul><li>Quality-of-Service risks </li></ul><ul><li>Managing information security </li></ul><ul><li>Changing technological scenario </li></ul><ul><li>Indian outsourcing industry has shown remarkable strength and robustness in handling and managing the challenges </li></ul><ul><li>Need to be actively addressed to ensure there are little roadblocks in this path to growth </li></ul>Outsourcing - Conclusion Jun 8, 2009
  27. 27. <ul><li>Thank You! </li></ul><ul><li>Questions, feedback and suggestions to [email_address] </li></ul>Jun 8, 2009