Outsoucing- General approach [Bharti Airtel]
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  • 1. Outsourcing & Specialization Presented By: Ms. Nawar Priyadarshini (Roll No- 08) Ms. Moundekar Kamini (Roll No- 06) Mr. Chavan Amey (Roll No- 02) 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 1
  • 2. OUTSOURCING WHAT IS OUTSOURCING? • Outsourcing involves the transfer of the management recurring internal activities, decision rights, non core but critical function and/or day-to-day execution of an entire business function, access to more expert employees and more up-to-date technologies to an external service provider OR independent contractor who determines how best to do the task or activity. Examples of outsourced firms • UPS and FedEx • HP • Dell 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 2
  • 3. PROCEDURE FOR OUTSOURCING • The client organization and the supplier enter into a binding agreement that defines the transferred services and terms. • Under the agreement the supplier acquires the means of production in the form of a transfer of people, assets and other resources from the client. • The client agrees to procure the services from the supplier for the term of the contract. • Business segments typically outsourced include information technology, human resources, facilities and real estate management, and accounting, customer support and call center functions like Tele Marketing, Customer Services, Market Research & manufacturing and engineering. 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 3
  • 4. WHEN DOES A COMPANY OUTSOURCE? • When the predictability of the process/service is not important ? • When there is a limited opportunity for the firm to distinguish itself competitively through a particular process or service ? • When the firms existing capabilities are limited, ineffective, or technically inferior? 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 4
  • 5. WHAT CAN BE OUTSOURCED? • System • Data network • Mainframe data center • Voice network, Internet/Intranet • Maintenance/Repair • Applications development • E-Commerce 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 5
  • 6. TYPICAL COSTS ASSOCIATED WITH OUTSOURCING Direct costs • Price (Invoice) • Freight Costs • Tariff if any Indirect costs • Purchasing • Receiving • Inspection • Stocking 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 6
  • 7. SOURCING DECISIONS • Single sourcing: Choosing a single supplier • Multiple sourcing: Choosing several qualified suppliers • Cross sourcing: A sourcing strategy in which the company uses a single supplier for a certain part or service in one area of business, and another supplier with the same capabilities for the similar part or service in another area of business. 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 7
  • 8. REASONS FOR OUTSOURCING 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 8
  • 9. REASONS FOR OUTSOURCING CONTD…. • Contract: Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services. • Operational expertise: Access to operational best practice that would be too difficult or time consuming to develop in-house. • Capacity management: An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier. 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 9
  • 10. CONTD…. • Operational expertise: Access to operational best practice that would be too difficult or time consuming to develop inhouse. • Staffing issues: Access to a larger talent pool and a sustainable source of skills. • Capacity management: An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier. • Reduced time to market: The acceleration of the development or production of a product through the additional capability brought byMMS- SEM III (OUTSOURCING AND SPECIALIZATION) the supplier. 10/16/2013 10
  • 11. TOP REASONS FOR OUTSOURCING 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 11
  • 12. PROS AND CONS OF OUTSOURCING PROS: • Lower labor costs • Reduce and control operating costs • Low investment risk • On - demand talent: product development and management skills available if not found in-house • Time-to-market improvement: Products can be launched closer to the point of consumption • Introduction of new and legacy products in new markets is more efficient, because of local familiarity with the market • Improve companies focus • Allows company to focus on their core competencies • Increased efficiency • Secure resource not available internally • Gain access to world class capabilities • Outsourcing certain activities and employees that do not fit with company culture may be used to preserve a strong culture or employee morale. 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 12
  • 13. CONS: • Potential security problems • Identifying qualified and reliable suppliers • Disruption of supplies • Low product quality and slow time to market • Difficulty in protecting confidentiality 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 13
  • 14. AREAS OF OUTSOURCING 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 14
  • 15. ANALYSIS 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 15
  • 16. TOP 15 OUTSOURCED COMPANIES IN INDIA • • • • • • • • • • • Genpact Wns Wipro BPO HCL BPO Services ICICI One Source IBM Daksh Progeon (Infosys BPO) Ageis BPO Services EXL Holdings 24/7 Customer Mphasis BPO 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 16
  • 17. BHARTI AIRTEL– EXAMPLE OF OUTSOURCING • World’s third largest single country operator and fifth largest telecom operator in the world. • First Indian telecom operator to achieve the Cisco Gold certification for good competency, service, support and customer satisfaction standards. • First mobile telephony company to outsource everything except marketing, sales and finance. • Airtel outsourced their IT processes to IBM, entire network operations to Ericsson and Siemens along with Alcatel Lucent recently and the transmission towers to another company. 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 17
  • 18. SO WHAT DID THIS INITIATIVE BRING FOR THEM? • It reduced has their costs considerably and they were able to acquire more customers and were able to pass on these savings to the customers instead of the shareholders and this increased their customer base even more and they again followed this pattern. • Airtel was also able to differentiate themselves easily from the rest in the market who were and have been in the RED for a long period of time. 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 18
  • 19. CONTD….. • Being in a position where they reduced their costs considerably, they had the opportunity to control the market and introduce various initiatives without being majorly affected in terms of revenues / profits. • It has outsourced its IT to IBM for 10 years and is looking for prospective vendors to outsource its network operations. • But the biggest challenge facing it currently is the different cultures, demographics and habits of people in the 15 different nations. 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 19
  • 20. SPECIALIZATION • A business that concentrates on the production of a particular good or service (or a small range of similar products). • Specialization tends to increase employee efficiency because they become more proficient in their specialized tasks. 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 20
  • 21. SPECIALISATION IN SERVICES Services Other Services Wholesale & Retail Trade Business Services Other Business Services IT-computer Services Financial activities Transport & Communication Management Consultancy Software consultancy Hotel & Restaurants Research & Development Data processing & database activities Public Administration Legal activities Hardware consultancy Health Accountancy Maintenance & repair of equipment Education Advertising Other related activities Other Services Market research Architectural activities & technical consultancy Other business services: Labour recruitment & provision of personnel Security Industrial cleaning Credit Collection Secretarial services Etc. 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 21
  • 22. DIFFERENT LEVELS OF SPECIALIZATION 1. Specialization By Individual: • specialization by individual worker is known as division of labor where production is broken down into a number of simpler /specialized tasks. • Eg: sewing, specialist, developer etc. DISADVANTAGES ADVANTAGES • increase in efficiency • increase in productivity • increase in wages 10/16/2013 • • • • boredom monotony fall in morale immobile difficult to switch jobs MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 22
  • 23. 2. Specialization By firms: • means the firm only produces one range of product only. • Eg: Ashok Leyland is specialized in heavy load transport vehicle and defence vehicle. ADVANTAGES • • • • DISADVANTAGES increase efficiency increase production/output reduce average cost economies of scale (benefits/advantages from growing bigger) • risks of “putting all eggs in one basket “ • Should demand for its good decline, may suffer reduced profits /loss 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 23
  • 24. 3. SPECIALISATION BY A NATION: • means the nation is not a subsistence economy • it does not produce all G& S it consumes • it produces some products and trade • the products it does not produce will have to be imported. DISADVANTAGES ADVANTAGES • increase efficiency, output GDP • increase in living standards • necessitates international trade – more Goods & Services enjoyed 10/16/2013 • dependent on others • if in demand for its goods unemployment • GDP MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 24
  • 25. ADVANTAGES OF SPECIALIZATION • Increased Productivity: – Better use of scarce resources resulting in a decrease in costs – Specialized machinery or more proficient staff • Increased Efficiency • Standardization: – Product specifications are constantly met • Higher Profit Margins: – Customers may pay more for more specialized goods or services (laser eye surgeon; interior designers; professional athletes) 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 25
  • 26. DISADVANTAGES OF SPECIALIZATION • Boredom: – Repetitive tasks can have a negative effect on employee motivation • Inflexibility: – Over-specialization may deny workers the opportunity of taking on different roles and responsibilities • A Lack of Autonomy: – Results in interdependence in the production process; a breakdown may grind the gears of business to a halt • Capital Costs: – Purchasing specialized equipment may be too costly and drain the businesses finances 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 26
  • 27. EXAMPLE OF SPECIALIZATION • Specialization – the idea of countries only making those products that they produce the most efficiently • Absolute Advantage – a country’s ability to produce more of a given product than can another country • Comparative Advantage – a country’s ability to produce a given product relatively more efficiently than another country or production at a lower opportunity cost 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 27
  • 28. ENRICHMENT ACTIVITY REVIEW • Country A has the absolute advantage in producing DVD players because it can produce one in less time. • Country A also has the absolute advantage in producing TV’s because it takes less time than Country B. 10/16/2013 Product Country Country A B One DVD Player 3 hrs. 16 hrs. One TV 6 hrs. 8 hrs. MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 28
  • 29. • Even though Country A has the absolute advantage in producing both DVD players and TV’s, it is still beneficial for both countries to specialize and trade if they consider comparative advantage. • Country A has the comparative advantage in producing DVD players because it only gives up ½ of a TV when it makes a DVD player compared to Country B who gives up 2 TV’s when it makes 1 DVD player. • Country B, however, has the comparative advantage when producing TVs because it only gives up ½ of a DVD player when it makes a TV compared to 2 DVD players that Country A gives up. • Suppose the two countries only produce the products in which they have a comparative advantage and then decide to trade for the other product. 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 29
  • 30. ENRICHMENT ACTIVITY REVIEW Product Country Country A B DVD Players 6 hrs. (2x3hr) 0 hrs. TV’s 0 hrs. 16 hrs. (2x8hr) Total Time 6 hrs. 16 hrs. Time Saved 10/16/2013 9 - 6= 3 24-16= 8 hrs. hrs. • YES, both countries would benefit by specializing and trading. • Both countries would now have one of each if they traded one TV for one DVD player. • Both would save enough time to make one more of their respective product. MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 30
  • 31. THANK YOU 10/16/2013 MMS- SEM III (OUTSOURCING AND SPECIALIZATION) 31