Managing Outsourcing

Sudhakar Gudala
http://www.tcs.com
May 11, 2020

© Copyright 2002 TCS Confidential

 Managing Outsourcing

Agenda
 Outsourcing overview
 The Need for outsourcing
 What are Customers outsourcing?
 Pros and Cons
 Key Points to be considered when outsourcing
 How to manage outsourcing?
 Why some outsourcing relationships fail?
 Successful management of vendors
 Outsourcing statistics
 Guidelines to a Project Manager

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 Overview

WHY Outsource?

 Outsourcing is an unparalleled strategy to

meet today’s needs in transforming
important, non-core business processes
and ensuring that maximum value from
resources is focussed on core processes.

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 Need

The NEED for Outsourcing

 Reduce costs company-wide

 Increase Return On Investment (ROI)

 Reduce Risks

 Resources not available internally

 The solution to an Organization that satisfies

technology, quality, budget, and time criteria

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 Reasons for Outsourcing

Top Ten Reasons for Outsourcing

 Reduce and control operating costs
 Improve company focus on core functions
 Access to world-class capabilities
 Free resources for other purposes
 Resources not available internally
 Accelerate reengineering benefits
 Function difficult to manage or out of control
 Share risks
 Make capital funds available
 Cash Infusion
Source: Outsourcing Institute

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 What is outsourced
What Are Customers Outsourcing? US Globally

Network Management 3.3%

2.1%
Business Process 6.0%
6.2%
Help Desk 13.2%
13.8%
Data Center 14.0%
14.8%
Application Maintenance 18.2%
17.9%
Single Application 20.7%
21.0%
Applications Development 25.6%
24.1%

0% 5% 10% 15% 20% 25% 30%

* Source: Metricnet’s survey results in SiliconIndia Magazine, April 2002

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 Business Process Outsourcing
Business process outsourcing (BPO) is emerging as a
flexible and powerful approach that business leaders
can use to achieve a wide range of tactical and
strategic aims.

The most common Functional Areas in which BPO is undertaken:

 Human Resources
 Learning and Training
 Customer Relationship Management
 Finance and Accounting
 Supply chain Management
 Procurement

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 BPO
The most prominent benefits from BPO
 Speed to market
 Competitive capabilities
– Acquire world class capabilities through standardization,
centralization and new technology
 Cost savings
– BPO can significantly lower the costs
 Growth stimulus
– BPO acts as a catalyst to stimulate company growth by
achieving unique expertise and capabilities
 Revenue
– Joint venture with BPO providers can leverage company’s
assets and knowledge in exchange for a share of BPO revenues
“Shareholder pressure will be the driver that forces companies to
outsource even more non-core functions” - Mark Hodges, Exult

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 BPO Relationship Framework

Four key questions for an effective BPO

BPO Relationship
relationship
compass
How deep should the relationship be? How How
Contractual OR Cooperative OR Committed? Deep? Broad?
- Depends on what is being outsourced and how critical. It is to
the future of the firm
 How broad should the relationship be?
– Outsource just a process like Payroll OR an entire function
like HR? Whose Whose
 Whose way of working should we follow? Assets? way of
– Your way OR their way? working?
- Depends on the kind of operational benefits an organization
wants from its BPO relationship
 Whose assets should be used?
– Individual assets OR share the assets with others to
leverage?

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 Human Resources Outsourcing
 In HR outsourcing model, organizations no longer need to invest in
recruiting, training, motivating and managing people who staff the
operations.
 Range of strategic values that can be outsourced in HR (in descending
order of strategy):
• Policy and strategy
• Organizational development, human performance and change management
• Resource planning
• Professional recruiting and interviewing
• Compensation
• Policy interpretation / grievances
• Non-professional recruiting and interviewing
• Call center, benefits administration and payroll

HR outsourcing expenditure is projected to increase 20% in a year.

- The Outsourcing Institute

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 IDM Outsourcing
IDM (infrastructure development & management)
outsourcing allows an organization to enhance
competitiveness by focusing on core competencies
such as R&D, market research, customer service, etc.

Emerging trends in the IT infrastructure domain

– On the technology side, clients are looking to migrate to
new technologies such as Win2K, Voice over IP, VPN
solutions, etc.
– Clients are looking for a single point of contact to address
their IT needs
– SLA and process-driven service providers
– Disaster recovery and business continuity planning

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 Data Center Outsourcing
Services
• Furnishes the flexibility
needed to
– Expand data processing
capabilities
– Adopt new technologies
– Migrate key applications to
new platforms
– Quickly develop, test and
deploy new applications
• Provides technical skills and
support to supplement in-
house staff as needed
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Benefits
• Allows to adapt computing
environment to changing
business requirements
• Companies choose platform,
software, usage level and
degree of support that
matches business needs
• Helps to reduce risk of
technological obsolescence
• Helps to minimize the need
for capital investment
 Help Desk Outsourcing

Why Help Desk outsourcing?

Supply enhanced computer support on shrinking
budgets
Support increasingly complex customer support
requirements
Maintain the expanding distributed computing model
Support core business initiatives while supporting
customers
Keep ahead of the competition
Staffing, administering, and maintaining the help
desk/call center

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 Help Desk Outsourcing..
Benefits
Services
• Reduce customer support costs
• Flexible business hours -
24x7x365 support if needed • Improve customer satisfaction
• • Provide customer support
Hardware support
without the capital expense of
- Installation and configuration
developing, staffing, and
- Operation and trouble shooting
maintaining an internal help desk
• Call screening, routing, logging, • Expand the complexity and
tracking, and ownership breadth of support operations
• Customized activity reporting • Companies can focus on core
• Support via telephone,e-mail, business objectives
fax, and internet esupport • Selectively outsource calls
• Membership/subscription based on business
services requirements,customer needs,
• Equipment repair support capabilities, and budget
• constraints
Customized support web site

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 Outsourcing - Pros and Cons
Pros Cons
• Allows organization to focus on its • Vulnerability of strategic
core business
information
• Activity can be performed better
• Possible disruption in service
and/or cost-effectively by outside
specialists and stability
• Reduce organization risk exposure • Dependency
to changing technology and/or
changing customer preferences
• Streamline organization operations
in ways to
– Cut cycle time
“Offshore customers save an average of
– Speed-up decision-making
25% on IT projects sent overseas, where
– Reduce coordination costs qualified, skilled labor is plentiful - and
cheap”
Source: Forrester Research report in SiliconIndia Magazine, April 2002

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 Expectations from vendor

What to look for from an Outsourcing

vendor?
 A Repeatable process
 Demonstrated capabilities
 Commitment
 Size and stability
 Strategic approach to partnership
 Related experience and expertise
 Business/ Technical
 Location

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 Key points

Key points when Outsourcing

 Rationale
 Product Description
 Make-or-buy analysis
 Service Level Agreement (SLA)
 Costs
 Ownership & Responsibilities
 Scalability
 Security
 Staffing & Management
 Contract duration & termination policy

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 Outsourcing options

Source: The McKINSEY Quarterly 2001 Number 2

India, with its high technical capabilities and lower costs, is a major outsourcing centre
for GE.
- Scott Bayman, President and CEO at GE India

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 Inputs required
Inputs required for effective Outsourcing

 Project Charter & Scope statements

 Project Assumptions
 Risk events
 Project Procurement Management knowledge
 Procurement Planning
 Solicitation Planning
 Solicitation
 Source Selection
 Contract Administration
 Contract Closeout

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 Scope

 Scope Statements

 Understanding the Business Case

“When outsourcing large IT projects, educate

stakeholders, write scope statements that are
complete & clear and know contract management
processes”

 A good scope of work will give vendors a strong

sense of what the customer wants and will reduce
the chance for inflated bids.

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 Resources

 Obtain Procurement Resources

 The buyer must acquire sufficient resources to
complete the project.

 Includes Budgets for the

• proposal phase
• vendor payment
• management of the project on the buyer’s side

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 Vendor selection

 Select a Vendor
 Creating procurement documents
• Request for Proposal (RFP)
• Invitation for Bid (IFB)
• Request for Quotation (RFQ)
 Evaluation criteria
 Independent Cost & Schedule estimates
 Distributing procurement documents to potential
vendors
 Obtaining proposals/bids
 Contract negotiation

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 Contract

 Write the Contract

 Is a legal relationship subject to remedy

in the courts

 should contain
 the management & technical requirements
 price and payment terms
 warranties
 patents and other intellectual property issues
 contract termination clause
 requirements for formal acceptance & closure

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 Contract Management
 Contract Administration
 to ensure that the seller’s performance meets
contractual requirements
• Project plan execution - to authorize contractor’s work at the
appropriate time
• Performance reporting - to monitor contractor’s cost, schedule,
and technical performance
• Quality control - to inspect and verify the adequacy of
contractor’s product
• Change control - to ensure that the changes are properly
approved and communicated to the stakeholders
• Financial management for payments

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 Contract Management...
 Contract Closeout

 Product verification (was all work completed

correctly and satisfactorily?)

 Administrative closeout (updating contract

documentation)

 Buyer provides the seller (vendor) with formal

written notice that contract has been completed as
per the requirements for formal acceptance and
closure

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 Why Relationships fail

WHY some Outsourcing relationships fail?

 Not capturing client requirements adequately

 Inability to meet SLAs

 Inadequate provisions for contract amendments

 Lack of provisions for hand-over of personnel,

technology and knowledge gained at the
completion of an agreement

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 Vendors Management

Successful Management of Vendors

 Sharing risks and benefits

 Fee discounting
 Gain sharing
 Benefits delivery
 Venturing

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 What CIOs say?

7.50% Companies already

Outsourcing
9%
Will outsource in next 6
2% months
4% Will outsource in next 12
months
8.50% Will outsource after 12
months
69% Considered outsourcing
but not decided
Not considering
outsourcing

Source: CIO Magazine (April 2002)

Outsourcing satisfaction on the raise

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 Outsourcing
Reasons for Outsourcing Lack of staff/consultants
internally
Lower ongoing costs
7%
6%
32% Improve quality
9.00%

Faster time to market

11%
Lower or transfer capital
expenditures

19% Strengthen business

29% continuity
Improve security
20%
Other

Source: CIO Magazine (April 2002)

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 Outsourcing
Improve quality
Benefits experienced todate
7% Lower ongoing costs
9%
29%
Faster time to market
12%
Lack of staff/consultants
internally
Strengthen business
14% continuity
Improve security
25%
Lower or transfer capital
15% expenditures
Other
21%

Source: CIO Magazine (April 2002)

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 Outsourcing Projects & PM

Types of projects
– Lower corporate taxes and operational costs
– Reduce internal IT operational costs
• Retain business requirements capability locally and
outsource non-critical services such as IT development,
customer call and support center services, etc.
– Provide consulting in another country, etc.

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 Project Manager Guidelines

Rules to remember while managing

international projects
– Be respectful of the time zone differences
– Watch for different accents in English language, esp.. In
conference call meetings
– Not everyone understands ‘slang’ words or phrases
– Be respectful to people / governments / religions / countries
• Differences in cultural norms needs to be understood
– Effective time management

PMs with cross-cultural expertise in demand

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 Managing Outsourcing

Managing an outsourcing relationship is harder than the

actual evaluation and negotiation of the deal

Outsourcing is a tool, the benefits of which are

dependent on the skill of the people managing the tool

Successful sourcing executives require a unique blend of

skills to manage an outsourcing project effectively
Leadership / Analytical / Negotiation
IT / Financial / Procurement
Project/Program Management
Benchmarking
Interpersonal and related business skills

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 Example
GE - A Leader in Outsourcing
GE has outsourced in a range of sectors including
IT services - Application Development & Maintenance
Call Centers
Engineering Design services
Financial services
Data Centers

Software sourced from GE global development centers in

India is likely to rise to over $1 billion in 2004.
- Scott Bayman, President and CEO at GE India

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 Summary

For Outsourcing
Look for an organization, which sponsors and
operates a client-oriented program to share best
practices and help clients meet this need.

“Outsourcing will be the process of choice, but not on price alone.

The outsourcer’s value-add as a full partner to the outsourcee will
be the most critical element now and in the years to come.”
- Sam Albert, Management
Consultant

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 Thank You

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