WHAT IS OUTSOURCING

Outsourcing is contracting with another company or person to do a particular function. Almost every
organization outsources in some way. Typically, the function being outsourced is considered non-
core to the business. The outside firms that are providing the outsourcing services are third-party
providers, or as they are more commonly called, service providers.
Although outsourcing has been around as long as work specialization has existed, in recent history,
companies began employing the outsourcing model to carry out narrow functions, such as payroll,
billing and data entry. Those processes could be done more efficiently and therefore more cost-
effectively, by other companies with specialized tools and facilities and specially trained personnel.
Currently, outsourcing takes many forms. Organizations still hire service providers to handle distinct
business processes, such as benefits management. But some organizations outsource whole
operations. The most common forms are information technology outsourcing (ITO) and business
process outsourcing (BPO).
Business process outsourcing encompasses call center outsourcing, human resources outsourcing
(HRO), finance and accounting outsourcing, and claims processing outsourcing. These outsourcing
deals involve multi-year contracts that can run into hundreds of millions of dollars. Frequently, the
people performing the work internally for the client firm are transferred and become employees for
the service provider.
The process of outsourcing generally encompasses four stages: 1) strategic thinking, to develop the
organization's philosophy about the role of outsourcing in its activities; 2) evaluation and selection, to
decide on the appropriate outsourcing projects and potential locations for the work to be done and
service providers to do it; 3) contract development, to work out the legal, pricing and service level
agreement (SLA) terms; and 4) outsourcing management or governance, to refine the ongoing
working relationship between the client and outsourcing service providers.
In all cases, outsourcing success depends on three factors: executive-level support in the client
organization for the outsourcing mission; ample communication to affected employees; and the
client's ability to manage its service providers. The outsourcing professionals in charge of the work
on both the client and provider sides need a combination of skills in such areas as negotiation,
communication, project management, the ability to understand the terms and conditions of the
contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as
business needs change

The challenges of outsourcing become especially acute when the work is being done in a different
country (offshored), since that involves language, cultural and time zone differences.

THE 5 W’s OF OUTSOURCING

Who should outsource?
Every company can reap big benefits throughoutsourcing. Outsourcing can change the way
companies do business - through people, processes and technology. Whether B2B or B2C, whether
SMEs or large diversified companies or small home offices, every company can leverage the power
of outsourcing for business transformation.
Technology is the key to the competitive edge in the marketplace, and
outsourcing helps companies to leverage the latest and most sophisticated workflow technologies -
without capital investment - to optimize their business processes and get "more bang for the buck."
Outsourcing opens the door to a global talent pool of human resources with the qualifications and
skillsets to harness this technology effectively. The internet along with workflow technology has
streamlined the processing, transfer and delivery of data so that large volumes of work can be
quickly and efficiently completed and delivered. Process maturity in the outsourcing arena has
revolutionized the way the world conducts business, and radically improved business processes to
make them faster, cheaper and better.
Outsourcing has been proven to reduce capital costs, increase efficiency, speed up time-to-market,
reduce labor costs, and enable core business focus. Outsourcing has actually helped companies
find newer and better ways to do things, thus adding value to their products and services.
Why should a company Outsource?
Outsourcing gives:

 The competitive edge - through sophisticated technology and people

 Support to do tasks faster, better and cheaper

 Operational efficiencies without capital investment

Leading-edge e-business infrastructural support and facilities

 Management

 Better performance

Lower cost

 Security

 Process maturity
What should a company Outsource?
Outsourcing is a technology-driven, process-centric service business. Business process outsourcing
(BPO) refers to definable, repeatable business processes that involve scale and volume. Research
and Analysis outsourcing is the higher end of the BPO spectrum, involving advanced analytical
skills, domain knowledge, expertise and judgment.
When should a company Outsource?
 When you want to focus on your core business and leave tasks that are
not mission-critical to those expert in doing them
 When you want it fast, you want it now, you want it cheaper and better
- and you don't have the time, money and people to do it all yourself
 When you need specialized skills which are which aren't readily
available in your market - or cost the earth
 When you want to gain the competitive edge
Where should a company outsource?
Firms are considering outsourcing more than ever before -- and their choices are growing by the
minute The company should outsource keeping in mind costs, geographical locations, cheap labor,
high quality service and price competitiveness

BENEFITS OF OUTSOURCING
 Cost savings: The lowering of the overall cost of the service to the
business. This will involve reducing the scope, defining quality levels,
re-pricing, re-negotiation, cost re-structuring.
 Improve quality: Achieve a step change in quality through
contracting out the service with a new Service Level Agreement.
 Knowledge: Access to intellectual property and wider experience and
knowledge.
 Contract: Services will be provided to a legally binding contract with
financial penalties and legal redress.
 Operational expertise: Access to operational best practice that would
be too difficult or time consuming to develop in-house.
 Staffing issues: Access to a larger talent pool and a sustainable source
of skills.
 Time zone: A sequential task can be done during normal day shift in
different time zones - to make it seamlessly available 24x7. Same/similar can be done on a longer
term between earth's hemispheres of summer/winter.
 Increase in business: Benefit of outsourcing is seeing a big increase
in your profits, productivity, level of quality, business value, business
performance and much more.
 Concentrate more on your core business: One of the benefits of
outsourcing is that your organization will be free to concentrate on your core business. By
outsourcing all your non-core functions, your employees can be put to better use and you will be
able to see a huge growth in your core business.
 Make faster deliveries to customers: Another benefit of outsourcing
is that you can make quicker deliveries to customers. Your outsourcing partner will be able to
provide faster deliverables and you in turn will be able to make quick deliveries to your customer.
Faster deliveries can also help you save on time.
 Improved customer satisfaction: With timely deliveries and high-
quality services you can impress your customers. Outsourcing can help you benefit from increased
customer satisfaction and your customers will remain loyal to your organization
DISADVANTAGES OF OUTSOURCING

 Lose of control

 Quality problems

 Slow response time

 Can't understand foreign accents

 Slow resolution times

 Can't produce desired results

 Reduced sales

 Irritated customers

 Irritated employees, unions, people within community

TYPES OF OUTSOURCING
NEARSHORING
Nearshoring is one of the forms of outsourcing, where an organization outsourcers its business
processes to an outsourcing partner who provides cheaper services. The main differentiator
between offshore outsourcing and nearshore outsourcing is that the outsourcing partner in
nearshore outsourcing is located geographically closer than the outsourcing partner in offshore
outsourcing. The term "Nearshore" has been taken from the fishing industry and now it is used
widely in the world of outsourcing.
Advantages of Nearshore Outsourcing

 Closer proximity

 Both the outsourcer and the vendor are in the same time zone

 Better coordination and communication

 Similar culture, mindset and language

 Frequent visits to the outsourcing partner is possible

 Greater efficiency
OFFSHORING
Offshoring simply means having the outsourced business functions done in
another country. Frequently, work is offshored in order to reduce labor

expenses. Other times, the reasons for offshoring are strategic - to enter new markets, to tap talent
currently unavailable domestically or to overcome regulations that prevent specific activities
domestically.
ONSHORING
Onshore outsourcing (also called domestic outsourcing) is the obtaining of services from someone
outside a company but within the same country. The process of engaging another company within
your own country for BPO or ITO services .

ADVANTAGES OF OFFSHORING AND ONSHORING:

 Reduce and control operating costs
 Improve company focus on its core competencies and strategic
imperatives

 Access to world-class capabilities and best of breed technology

 Re-allocate internal resources to higher-value purposes

 Address the issue of limited internal resources

 Accelerate re-engineering/transformation efforts

 Manage more effectively a difficult or problematic function

INFORMATION TECHNOLOGY OUTSOURCING

IT outsourcing occurs when an organization contracts a service provider to perform an IT function
instead of performing the function itself. The service provider could be a third party or another
division or subsidiary of a single corporate entity. Increasingly, organizations are looking offshore for
the means to minimize IT service costs and related taxes. Many times, the outsourcing decision
results in a transfer or sale of the information processing assets and the people who performed the
in-house function to the service provider. Outsourcing is also a common option for start-up
operations and for organizations entering new business lines. Rather than devoting time, energy and
capital to the creation of IT processing services, organizations feel they can minimize the start-up
time required to enter new markets by contracting a third party to provide those services
immediately.
IT outsourcing is an attractive option for many organizations. IT outsourcing should be an integral
part of an organization’s overall business strategy, involving senior executives and key IT staff. The
rationale for pursuing outsourcing options involves the strategic, financial and technological benefits
to be gained.
KNOWLEDGE PROCESS OUTSOURCING
Knowledge process can be defined as high added value processes chain where the achievement of
objectives is highly dependent on the skills, domain knowledge and experience of the people
carrying out the activity. And when this activity gets outsourced a new business activity emerges,
which is generally known as Knowledge Process Outsourcing. Knowledge Processing Outsourcing
(popularly known as a KPO), calls for the application of specialized domain pertinent knowledge of a
high level

In fact, it is the evolution and maturity of the Indian BPO sector that has given rise to yet another

wave in the global outsourcing scenario: KPO or Knowledge Process Outsourcing. The success

achieved by many overseas companies in outsourcing business process operations to India has

encouraged many of the said companies to start outsourcing their high-end knowledge work as well.

Cost savings, operational efficiencies, availability of and access to a highly skilled and talented

workforce and improved quality are all underlying expectations in outsourcing high-end processes to

India

BUSINESS PROCESS OUTSOURCING

Business process outsourcing (BPO) is the contracting of a specific business task, such as payroll,
to a third-party service provider. Usually, BPO is implemented as a cost-saving measure for tasks
that a company requires but does not depend upon to maintain its position in the marketplace. BPO
is the process of hiring another company to handle business activities for you.
Business process outsourcing is the latest thing to affect all the industries in a positive way. (BPO)
Business Process Outsourcing has a common thing for every business. It helps the businesses take
care of certain tasks, which, if done in house, will prove to be nothing but a waste of time, and both
financial and human resources.
Every business has various tasks to be taken care of, both internal and external. These tasks also
involve some, not worthy of the time, money, and manpower, which could be spent on something
better and more productive. But still, these tasks have to be finished. This is where BPO business
process outsourcing comes in handy.
A company can acquire business process outsourcing service for many types of work. But, the
services provided are broadly divided into two groups. The first one is for the internal operations or
tasks, and is called the back office outsourcing. It tackles various operations within the organization.
For instance, a company may hire a business process outsourcing company for the purpose of hiring
or payroll.
The other type of business process outsourcing services deal with the external operations of a
company. These could be anything such as providing customer services, providing technical support
to the customers, or anything similar. Such services are called front office outsourcing.
Benefits derived from BPO can be summarized as follows:

 Productivity Improvements

 Access to expertise

 Operational cost control

 Cost savings

 Improved accountability

 Improved HR

Opportunity to focus on core business

EFFECT OF BPO ON EMPLOYMENT

The continuously growing BPO sector in India is the new call for young
generations of the country who are on the verge of make their careers. The
BPO industry boom in India is bringing along with numerous of job
opportunities for young as well as old from various different backgrounds.
Business Process Outsourcing (BPO) in India gives tremendous
opportunities for professionals pertaining to different backgrounds. BPO undertakes tasks of various
natures. There are opportunities in operations, quality maintenance and control, client servicing etc.
People with clear voice modulation can account for call center facilities thriving in India. All the major
Product and Service providing companies longs to have a strong customer based program to
enhance their customer base. As such they implement call center facility that deals with customer
through telephones. The inbound and outbound calling ensures that there is a constant touch with
the customers.
Staff employed in ITES-BPO: 2002/03: 171,100

2003/04: 245,100

(ITES-BPO: IT enabled Services - Business Process Outsourcing)

Staff employed in outsourced customer service: 2002/03: 65,000

2003/04: 95,000
Standard salary for call centre worker in India: around Rs.1.2 lakh or
Rs.10,000 per month
GROWTH OF BPO SECTOR IN INDIA
During the first half of 2007 was showing a moderate trend of growth which is registered at 14%.
Five years ago, the growth in this sector was quite low due to less contracts but the situation is
worse now. However, the growth of the BPO sector is expected to improve.
Indian BPO sector is facing competition from countries like Philippines,
Mexico, Malaysia, China, and Canada.
India has an edge over other countries as we consider the following:
 Tech savvy professionals

 Cost effectiveness
 Superior competency
 24 hour service
 Economy of scale

SOCIO-CULTURAL ENVIRONMENT
Though many qualified Indians continue to migrate, there are enough qualified people in India, which
leads to a high level of entrepreneurship and availability of managerial talent. Industry and service
sectors show high growth rates, benefiting the outsourcing industry, serving both domestic and
international demand. High value-adding, intellectual work starts to come to India. Indian outsourcing
companies dominate the global competitive scenario as access to capital becomes easier. Many
qualified Indians continue to migrate, but there's enough quality manpower in India, leading to a high
level of entrepreneurship, as well as the availability of managerial talent for the outsourcing industry.
If we talk about Indian society, then definitely one can notice and observe the change brought by the
outsourcing services and institutions. Being world’s second most populated country, human
resources are a boon by itself, in India.
Outsourcing can be both beneficial as well as harmful to the society. This industry, which booms in
metro cities, has caught hold of what can be called as the jugular vein. Its role is somewhat
restricted to the developed cities only and can be least found in the villages and remote areas of
India.
Outsourcing industry has improved Indian economy primarily by employing a large number of people
and building and maintenance of infrastructure. It is because of the outsourced projects that people
at large in India get opportunities to know and work in multi national corporations.
BPO companies also provide ample opportunities for women and as such help them in their
liberation and liberalization. There is a good percentage of women workforce employed in the
outsourcing companies in the cities. The role of women has consistently changed and they can
better take care of their

finances and their career.

Meanwhile we are also losing on several cultural and traditional benefits. The outsourcing
companies and projects emphasize on the foreign cultural values, the place from which the original
project has been outsourced. The holidays, the work culture, day-to-day dealings and more tend to
lay greater importance on the social norms that are not part of our system, our community. We are
slowly adapting to the change, accepting the dominant culture and yielding to such values, which
neither we have assigned, nor have they come from our own social domain
Outsourcing based on call centers comes with a package of cultural and value
systems associated with western culture.
As Indian BPO s serve mainly customers from western countries, their employees are provided with
opportunities and training in understanding the culture, accent, and customs existing in the
outsourcing receiving countries