Rationale for Outsourcing


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UPES does not own the content in this presentation. These are presentations presented in 2002 during the 2nd HR Round Table.

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Rationale for Outsourcing

  1. 1. Rationale for Outsourcing “ Do what you do best and outsource the rest.” Tom Peters Tom Peters Presented at HR Round Table organized by ISPe & UPES, Dehradun
  2. 2. Defining Outsourcing “ Do what you do best and outsource the rest.” Tom Peters <ul><li>Term coined by Eastman Kodak Co. in 1989 when it handed over its information technology department to three providers. </li></ul><ul><li>Rationale for outsourcing : why manage in house what can be done better, cheaper, outside ? </li></ul>Outsourcing is defined as having an external vendor provide, on a recurring basis, a service that would normally be performed within the organization. The vendor is also accountable for providing predefined levels of service to the organization .
  3. 3. PwC Perspective <ul><li>‘ Outsourcing’ captures a broader range of strategic partnerships. It represents a continuum straddling : </li></ul><ul><ul><li>discrete relationships with business consultants and tax advisers on one end </li></ul></ul><ul><ul><li>partnership s with outsourcing vendors for a particular service or function in the middle </li></ul></ul><ul><ul><li>broader arrangements such as ‘employee leasing,’ ‘virtual organizations,’ and ‘webs of inclusion’ on the other end </li></ul></ul>
  4. 4. Benefits Of Outsourcing <ul><li>Performance & Best Practices </li></ul><ul><li>Access to Best Practices </li></ul><ul><li>Enhanced Performance </li></ul><ul><li>Greater Experience Base </li></ul><ul><li>Off-load Turnover Impact </li></ul><ul><li>Access to Cyclical Needs </li></ul><ul><li>Reduce Off-the-shelf Resource Retention Requirement </li></ul><ul><li>Cost Management </li></ul><ul><li>Capital Investment Avoidance </li></ul><ul><li>Benefits of Leverage </li></ul><ul><li>Variable Cost Opportunity </li></ul><ul><li>Access to Resources </li></ul><ul><li>Access to Management Expertise </li></ul><ul><li>Depth and Breadth of Resources </li></ul><ul><li>Access to Tools, Templates & Repeatable Processes </li></ul>
  5. 5. Benefits Of Outsourcing <ul><li>Partnering with a world-class vendor can offer some advantages like: </li></ul><ul><ul><li>Access to new technology, tools, and techniques, industry knowledge and expertise </li></ul></ul><ul><ul><li>A voidance of the cost of chasing technology and associated training costs </li></ul></ul><ul><ul><li>Better career opportunities for personnel who transition to the outsource vendor </li></ul></ul><ul><ul><li>Enable staff to concentrate on building new and improved capabilities that meet business requirements rather than managing current operations </li></ul></ul><ul><ul><li>Fewer operational problems due to more structured methodologies, procedures and documentation and more experienced staff </li></ul></ul><ul><ul><li>Competitive advantage through expanding skills </li></ul></ul><ul><ul><li>A better price/value mix on investments; </li></ul></ul><ul><ul><li>Project management/ on-site personnel to support the client organisation’s needs </li></ul></ul>
  6. 6. Is Outsourcing Really Happening? <ul><li>A CEO wants the senior HR executive to be a business strategist who effectively uses the workforce, and not a Master of morbid detail .” … Dave Ulrich, University of Michigan </li></ul><ul><ul><li>The average number of functions outsourced by organizations has risen 225% over the past 5 years and will go on growing. (PA Consulting group (U.K) ) </li></ul></ul><ul><ul><li>Outsourcing is moving from the peripheral activities towards more central ones. </li></ul></ul><ul><ul><li>National US Survey of HR Executives has found that: </li></ul></ul><ul><ul><ul><li>Most HR Departments are outsourcing at least one service or function </li></ul></ul></ul><ul><ul><ul><li>Every HR service or function is being outsourced </li></ul></ul></ul><ul><ul><ul><li>HR leaders are outsourcing services and functions for many different reasons </li></ul></ul></ul><ul><ul><li>Approximately 35% Fortune 1000 companies are outsourcing strategically </li></ul></ul>
  7. 7. Managing Risks In Outsourcing <ul><li>Loss of Control </li></ul><ul><li>Loss of Intellectual Property </li></ul><ul><li>Loss of Security </li></ul><ul><li>Service Quality Degradation </li></ul><ul><li>Cost Escalation </li></ul><ul><li>Change Issues </li></ul><ul><li>HR Issues </li></ul><ul><li>Transition Issues </li></ul><ul><li>Exit Strategy </li></ul><ul><li>Strategic Partnering/SLA Terms </li></ul><ul><li>SLA - License, Usage and Rights </li></ul><ul><li>Standard Operating Procedures </li></ul><ul><li>SLA Service Levels - Incentivization </li></ul><ul><li>Process Improvements, Shared Risks and Rewards </li></ul><ul><li>Flexible SLAs, Formal Change Mgmt. Proceses </li></ul><ul><li>Targeted Commn. Strategies, Processes & Culture </li></ul><ul><li>Methodology, Joint Risk Management </li></ul><ul><li>SLA Exit & Transition Mechanisms </li></ul>The Perceived Risks Suggested Mitigation Measures There are a few risks perceived in an outsourcing arrangement. However, there are effective ways of managing these risks and ensuring the success of an outsourcing relationship.
  8. 8. Opportunities In Outsourcing Procurement Perform marketing Production Customer service Perform sales Manage logistics Develop products <ul><li>Supplier network </li></ul><ul><li>Customer network </li></ul>Outsourcing to flexible value added organisations Human Resources
  9. 9. Opportunities In Outsourcing <ul><li>Developing vision-mission and core values </li></ul><ul><li>Organisation design of new business units </li></ul><ul><li>HR Strategy development </li></ul><ul><li>Design/ review of new processes/systems supporting the restructuring and vision </li></ul><ul><li>Manpower planning and staff redeployment /Resource Pool Studies </li></ul><ul><li>Recruitment of additional staff in skill shortage areas </li></ul><ul><li>Assessment and selection of key staff </li></ul><ul><li>Cost forecasts/budgets for staffing levels </li></ul><ul><li>Training needs analysis and training delivery advice </li></ul><ul><li>Competency mapping </li></ul><ul><li>Change management. </li></ul><ul><li>Recruitment administration </li></ul><ul><li>Training administration and record keeping </li></ul><ul><li>Compensation and Benefits: payroll, taxation </li></ul><ul><li>Leave management </li></ul><ul><li>Relocation / expatriate services </li></ul><ul><li>Health and Welfare management </li></ul><ul><li>Employee Communication eg newsletters </li></ul><ul><li>Grievance handling </li></ul><ul><li>Managing HR data, management information and the employee work/life interface eg </li></ul><ul><ul><li>Continuous Content Development for the intranet/B2E portal : policy updates </li></ul></ul><ul><ul><li>Records and documentation eg : legal and compliance Management </li></ul></ul><ul><ul><li>HRIS reporting eg tracking head count, absence, overtime records </li></ul></ul><ul><ul><li>Updating personal records </li></ul></ul><ul><ul><li>HR Help desks </li></ul></ul><ul><li>  Mail Room management </li></ul><ul><li>Termination / Exit administration </li></ul>Design Consulting Operations Consulting
  10. 10. The HR Agenda 2005 Change Makers 1.Define Org Structure 2.Strategic resource planning 3.Build Learning Culture 4.Recommend Action to Board STRATEGIC OPERATIONAL Interventionist Non - Interventionist M&A Regulators 1Policy Setting 2.Contract Development 3.Compliance Advisors 1.Internal Comms 2.Flexi-Training 3.Market Company 4. Understand global cultures& local Flavours Service Providers 1.Recruitment Admin 2.Pay - Benefits Admin 3Legal Data Capture 4. Contract Admin 5.Disciplinarians Advise on packages