Outsourcing - Business strategy of the century Presentation by Vinod V Menon, ACA, DCFA
50 % Savings*Both direct and hidden cost, based on the survey conducted by Morison Menon covering 100 Companies across Asia and US to find out their experience of availing back office accounting, payroll and vendor management services. 50 - 60% savings in cost was reported by Companies with more than 1000 employees and 20 - 30% reduction in cost by companies with less than 500 employees
Did Outsource help Companies?The survey was conducted by Morison Menon covering 100 Companies across Asia and US to find out their experience of availing back office accounting, payroll and vendor management services.
Risk Long term SpaceManagement Cost Saving management Scalability Why? Focus on core business Cost Access to Improverestructuring talent quality
Advantages• Long Term cost savings• Skilled work force• Reliable information• Effective utilization of resources• Focus on core business• Cost restructuring• Increase in quality• Capacity Management• Scalability• Risk Management
What can be outsourced?• Accounting and Book keeping services• HR - Recruitment, Payroll, Performance management and appraisal services• MIS and Reporting functions• Medical Transcription• IT Development and support functions• Distribution outsourcing (Logistics)• Insurance settlement• Other functions that meet the criteria for outsource
Criteria for outsourcing• Require high volume of processing• involve large head counts• are rules-based processes• have consistent requirements• demand measurable performance• are efficiency focused• require improvement
Insource vs Outsource Like asking which one is good.... Apple or Orange?Each has its own advantages and disadvantages
Outsource Models• Staff Augmentation• Out-tasking• Project Based Outsourcing• Managed Services• Build Operate and Transfer
Staff Augmentation• is the process of hiring a dedicated team of additional staff at the third party location to bring better efficiency and effectiveness in the work process.• Used when corporates face shortage in work space and difficulty in personnel recruitment.• Advantages: • plug’n’play employees • No recruitment headaches • Easy exit plans • No medical leave, no leave salary, 12 months working
Out-tasking• is the process where specific tasks/ departments are handed over to a third party• This is an option when Company wants to concentrate on core activities and disintegrate itself from doing and spending resources on non core activities.• Advantages: • Specific departments are fully outsourced which relieves management from micromanaging. • Volume increase during peak time is managed • Fixed monthly expense
Project based Outsourcing• Specific projects are outsourced.
Managed Services• is the process where day to day management responsibility is outsourced to a third party - this is primarily based on the mutual trust between client and vendor.• For example, a law firm will outsource its administrative functions to a third party and focus only on legal and core issues.
Build, Operate, Transfer!• under this option, a third party builds the facility as per our requirement and specification.• this will be based on careful analysis and study of our requirement.• third party will continue to operate it as a profit centre for sometime (as specified in the contract)• at the right time we take ownership of the centre based on a predetermined amount.• the buy out can be optional. If we feel the need to extend the buy out (or decides not to buy), that option can also exercised.
Hiring an external organization Disadvantages! 1. Loss of Managerial control 2. Hidden Costs 3. Threat to Security and Confidentiality 4. Quality problems 5. Tied to Financial well being of another company 6. Expansion Issues
Cost effectiveness of outsourcing depends on how bigis your current team that does the work, their cost and do they meet your objectives.If current cost is not a concern and in-house team can meet your present and future business needs then outsourcing is not suggested for your business.
Cost benefits of outsourcing are realized after couple of years and one has to be patient to see the benefits like any other initiativeFor any Company to benefit from outsourcing, it needsto believe in outsourcing, work closely with the service provider for couple of years to make it a success andthen decide if it is suitable or not. Outsourcing is worth trying and it is least risky to try it out.
Easiest areas to outsource are accounting,internal audit, payroll processing, recruitment besides the usual suspects of IT and Admin support. Company planing to outsource should not adopt a big bang approach, but should go for a well thought out conservative approach.
Risk free path?• Sit with each Department Head• Understand what they are doing• plot the work profile and the current cost of doing it.• mark those areas that can be outsourced• plot the work that can be outsourced and the cost of outsourcing separately.• Compare both and find out the savings.