BUSINESS PROCESS OUTSOURCING 101 – MODULE 2

Fundamentals of Outsourcing

Overview

Purpose This module shows the participants what businesses are involved and what kind
of work there is in the IT-BPM industry.

Participants Participants of this course are students in the collegiate level.

Module Objectives
By the end of this course, students should be able to:
 Name and define the two (2) types of Outsourcing
 Enumerate the different outsourcing strategies
 State the common types of activities, tasks, and/ or processes that get
outsourced
 Identify what are the key technologies and trends in outsourcing

Duration 510 minutes

Two types of outsourcing

• Third-Party

- Owned by a service provider, a local entity or part of a global group

• Shared Service Center (SSC)

- Wholly-owned by the mother company

- Providing services entirely to affiliates subsidiaries, or more rarely to clients of the

mother company

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 BUSINESS PROCESS OUTSOURCING 101 – MODULE 2

This shows us some of the companies that use a certain type of outsourcing.

Strategies for outsourcing

• Multisourcing

- Multisourcing simply means contracting or using multiple vendors for fulfillment of a

client’s outsourced project.
• Crowdsourcing

- Company puts out a call for a project; best solution/submission is accepted and
contracted

- Crowdsourcing: “….. Outsourcing to an undefined, generally large group of potential

offers in the form of an open call.” (Jeff Howe)

 Onshoring or Onshore Outsourcing

- Vendors in the same home country as client

Advantages:

- Allows immediate response: product designers in same country respond to market

feedback quickly

- Local contractors have same knowledge, culture, language, communication style;

minimizes culture issues

Disadvantages:

- Risk of inadequately selected, trained, supervised staff (i.e., less skilled because
contractor staff are lower paid)
- Risk on higher attrition (lower business acumen/process knowledge) that internal staff;
less motivation to deliver quality

Example: New York bank contracting start-up security service firm in New York

• Nearshoring: the transfer of business to a nearby country, often sharing the same border.

Advantages:

- Fee for service variability rather than fixed compensation costs

- Significant labor cost arbitrage

- Disadvantages:

- Additional coordination costs, sourcing management, communications

- Transfer pricing/tax margin requirements

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 BUSINESS PROCESS OUTSOURCING 101 – MODULE 2

Example: Hong Kong retail offshoring garments manufacturing in Manila

• Offshoring – vendor and client in different countries.

Advantages:

- Allows company to focus on core business

- Fast ramp-up/down at reasonable cost

- Opportunity to expand into new areas cost effectively

Disadvantages:

- Data privacy/confidentiality issues

- Lack of right business acumen/right market knowledge in offshore location

- Cultural differences leading to delays and miscues

- Risks of high attrition in service provider, weak staff selection/training

What to outsource – 2 types

• Core activities-Tasks-Processes:

- Primary process or product of the business

- Tasks that deliver the primary product, the unique value proposition of the company

- “essential, defining activities of an organization,” what it needs to keep enhancing to

improve competitive advantage

• Non-Core Activities-Tasks-Processes:

- support activities, processes and functions

What not to outsource

• Design

• Product Development

• Process

• “Recipe”

What to outsource

• Well-defined/document tasks, standard outputs

Example:

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 BUSINESS PROCESS OUTSOURCING 101 – MODULE 2

- IT Development: programming, documentation, unit and integration testing,

implementation of new systems, conversion to new platforms

- IT Maintenance: application maintenance, helpdesk, network support

Typically outsourced activities-tasks-processes

• Business Process Outsourcing (BPO)

• IT Outsourcing

• Support Function/s

• Routine activities or activities that can be automated at larger centers

• Seasonal Requirements

• Part-based Activities

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 BUSINESS PROCESS OUTSOURCING 101 – MODULE 2

• Support function/services

- cafeterias

- copy centers

- security

- janitorial services

-trucking/shipping

- building maintenance

• Seasonal Requirement/s:

- one day 50 employees needed; next day only 10 are needed

- Christmas hires to handle additional volume of transactions

- temporary extension operating hours to accommodate foot traffic.

• All Part-based Activities:

- these are activities that are: routine, scheduled, with little uncertainty

- Automobile assembly

- Electronics assembly

- Packaging solutions

- Handicrafts or garments for mass production

Readiness Assessment

• evaluates the institution’s overall readiness to begin a project

• identifies areas needing more attention

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 BUSINESS PROCESS OUTSOURCING 101 – MODULE 2

• makes recommendations that increase project success such as:

• The institution’s goals and objectives for the project

• expectations and concerns of the affected functional areas

• leadership alignment to support this project

• the institution’s adaptability to change

• strategies for minimizing potential project risks

• project governance and decision-making structures

Value of a Readiness Assessment

• sets up the project for success by identifying key areas of potential failure.:

• Identifies gaps in readiness and recommended actions to close them.

• Solidifies project goals and expectations.

• Prepares the institution for the selection process.

• Identifies and engages campus stakeholders early.

• Prepares leaders for managing the complexity and challenges of this project.

Key technologies that support outsourcing

• Video conferencing:

- HP –Halo (8.5 min. video)

- CISCO – Telepresence

- SUN – MPK20: Project Wonderland

• Web-based conferencing and workflow tools:

 WebEx

 MS Windows Meeting Space

 MS SharePoint

 Google Applications

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 BUSINESS PROCESS OUTSOURCING 101 – MODULE 2

Fundamentals of outsourcing

The diagram shows the Business cycle for an IT-BPM company. The cycle starts by the time parties come
up with an agreement and sign a contract which will be discussed in the next module.

References:

http://www.businessdictionary.com/definition/client.html#ixzz2daCV7fEN
http://www.businessdictionary.com/definition/multisourcing.html#ixzz2daCyWqsG
http://www.hongkiat.com/blog/what-is-crowdsourcing/ http://www.merriam-
webster.com/dictionary/crowdsourcing http://www.investopedia.com/terms/v/vendor.asp
http://office.microsoft.com/en-001/sharepoint-foundation-help/what-is-sharepointHA010378184.aspx
http://classes.bus.oregonstate.edu/BA302/Cabak/outsourcing.html
http://fashiongear.fibre2fashion.com/brand-story/reebok/vision.asp - Reebok
http://www.oxforddictionaries.com/us/definition/american_english/telepresence
http://encyclopedia2.thefreedictionary.com/WebEx
http://www.urbandictionary.com/define.php?term=onshoring

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