Outsourcing considerations: Why India?

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Sourcing StrategiesLeo Kwok40034280Gaargi Sharma51485416XING Sang, Shania 51159740Tsang Wan Ching, Venice 51466936Kwok Siu Chun,Vincent 51442023Agenda2IntroductionProcess outsourced by CitigroupDecision making processOutsourcing considerationsRisk involvedComparison of expected outsourcing strategies & real situationCompetitive Advantage brought by outsourcingRecommendationConclusion

3The practice of contracting out a business function previously performed in-house to an external provider

What is outsourcin ?

Outsourcing4Subset of outsourcingInvolves the contracting of specific business operations/functions to a third partyComprised of two methods of outsourcingNearshoringOutsourcing to nearby foreign countriesOffshoringOutsourcing to distant foreign countriesBusiness Process Off-shoring (BPO)

Business Process Off-shoring (BPO)45Cost advantagesFocus on core competenciesImprove overall efficiencyIncrease customer satisfactionGain competitive advantage

Reasons to outsource

6Outsourcing Lifestyle ModelBuilding block 1InvestigateBuilding block 2TargetBuilding block 3StrategizeBuilding block 4DesignBuilding block 5SelectBuilding block 6NegotiateBuilding block 7TransitionBuilding block 8ManageBuilding block 9Refresh7American multinational financial services company based in New York City.Formed from one of the worlds largest mergers in history by combining Citigroup and Travelers Group together on April 7th, 1998.Over 200 million accounts spanning 116 countries.Primary dealer in US Treasury securities.One of the Big Four BanksCitigroup Inc.

8Tata Consulting Agency acquires Citigroup Global Services for $505 million on Oct. 8th, 2008.$2.5 billion contract providing outsourcing services, application development, and infrastructure support to Citigroup and its affiliates for the next 9.5 years.

Citigroup and Tata Consulting Services

9Processes outsourced by Citigroup

Processes outsourced by Citigroup 10CGSL services five of Citigroups nine product lines in more than 45countries:Processes outsourced by Citigroup (Cont) 1112Decision making process for outsourcing

13If you dont do it, you wont survive.-Daniel Marovitz,2006Why does Citigroup choose to outsource?

Align with business strategy -Citigroup implements a broad cost-cutting strategy to increase their profitability

Improve competitive capabilities Fierce competition among global banks regarding various products offerings at different prices

The decision making process I http://www.banktech.com/business-intelligence/229400115 http://www.businessweek.com/magazine/content/06_05/b3969428.htm

1314Indentify sourcing strategy : Offshore outsourcingChoose which function to be outsourced: BPO Non-core competenciesSelect outsourcing service providers -Country -CompanyThe decision making process II

15Outsourcing considerations - Country selection

The decision making process III Labor Cost - Are the labor rates lower than US rates which brings a cost advantage? Language- Is English an official language there or at least is widely spoken in that country? Talent pool- Is there a well-establish education system which provides a sufficient supply of qualified labor? Cultural compatibility Is the culture open enough and fits American/western culture?Employment-related regulation- Is the regulation strict?Government support- Is there strong government support provided with beneficial policies?

http://www.banktech.com/business-intelligence/229400115 http://www.businessweek.com/magazine/content/06_05/b3969428.htm 1516Service Provider selection & evaluation I Does the SP

Have the ability to fulfill detailed business requirements of CitigroupTangible resources (e.g. robust infrastructure, equipment ) Intangible resources (e.g. talent, human resource)

Have relevant experience in providing the required services The decision making process IV http://www.banktech.com/business-intelligence/229400115 http://www.businessweek.com/magazine/content/06_05/b3969428.htm 1617The decision making process V Service Provider selection & evaluation IIDoes the SP

Have satisfactory performance track record in providing similar services

Have financial strength to take the engagement and compliance to requirements

Have good reputation and social recognition Goodwill18Outsourcing Considerations

19Mature Outsourcing MarketOutsourcing considerations: Why India?

Outsourcing considerations: Why India? 1920Outsourcing considerations: Cost

21Outsourcing considerations: Scale & Quality of the workforce

Outsourcing considerations: Scale and Quality of the Workforce 2122Outsourcing considerations: Infrastructure 23India counts 0.48% ranked 23rd for the vulnerability of security attack while China ranks second at 12%.The penalties for defiance of laws are high. Legal contracts are based on- buyer country, seller country and international legal systems. Everyone tries to minimize uncertainty & reduce transaction costs. Lack of confidence makes it difficult for contract setting up.Outsourcing considerations: Risk Profile & Law and Policies

In the 30 Attack Destination Countries Outsourcing considerations: Risk Profile & Law and Policies2324Outsourcing considerations: Opportunities for banking industries Outsourcing considerations: Opportunities for Banking Industries2425Outsourcing considerations: Why TCS?

26A part of the Tata Group

Indias largest industrial conglomerate, TCS has over 116,000 of the world's best trained IT consultants in 50 countries.

Financial strength to take the engagement and compliance to requirements

The company generated consolidated revenues of US $5.7 billion for fiscal year ended 31 March 2008

Outsourcing considerations TCS: Size, Financial strength Outsourcing considerations TCS: Size, Financial strength2627Involved in Banking and Financial Services BPO for three decades.

Worked with leading banks and financial institutions like Deutche Bank, Royal Scotland Bank, HSBC Bank, etc.

Ability to fulfill detailed business requirements of Citigroup in terms of its physical assets (e.g. robust IT infrastructure ) and human resources (e.g. talents pool)Outsourcing considerations TCS: Relevant experience TCS Banking and Financial Service BPO offerings include the following:Securities ProcessingMortgage ProcessingCredit Card ProcessingFund AccountingPayment ProcessingInvestment Banking Support

TCS provides customized solutions to banks and financial institutions by offering a wide range of products, including the following:SecuritiesMutual FundsFund AccountingCredit CardsConsumer AssetsBankingCashTradeWealth Management

2728Outsourcing considerations TCS:Company FameTCS had much of what Master calls the soft infrastructure in placeEnglish capabilities, a cultural and business affinity with its Western customers, rule of law,

2930Risk involved

Risk involved & risk management I31Loss of controlImplement and execute procedures to: Ensure that all vendors under its control are performing in accordance with contract and performance expectationsInconsistency in controllingAssure that the controls over outsourced information and transaction processing activities are equivalent to those that would be implemented if the activity were conducted internally3132Over-dependence (over-trust) on the vendor Conduct reviews of the service provider Implement multiple checks & balancesIncomprehensivecontractEnsure the contract including Exit Strategy(end-to-end process) Risk involved & risk management II 33Comparison betweenexpectation & real situation

Expected sourcing strategies for Citigroup I34Expected sourcing strategies for Citigroup II3535Real situation between Citigroup & TCS36Expected sourcing strategies for CitigroupReal situation for Citigroup Keep core competencies & outsource support functions Keep strategic systems & outsource support systems Outsourced non-core assets: Process services, application development & infrastructure supportMaintain long-term relationship with outsourcer

Signed a 9.5 years-contract (Long-term) with Tata Consulting Services (TCS) TCS had been providing information technology & back-office services to Citigroup since 1992 (Reliable)Rely on single vendor Single vendor: Tata Consulting ServicesFind an outsourcer who: will provide better service with a lower cost Offered Citigroup stronger growth potential & superior continued services to its clients around the world Helped reduce operating expenses related to business processing & allowed Citigroup to focus on core financial services competencies

Real situation between Citigroup & TCS37Citigroup was Able to keep its core competencies & strategic systemsAble to maintain long-term relationship with its outsourcerAble to rely on a single vendor: TCSAble to find TCS to offer better service with a lower cost38Competitive Advantages

Competitive Edge brought39Summary of Citis outsourcing strategy40Citigroups vendor management4142Recommendation

Recommendation43 Cost is not the only factor to be considered when outsourcing Contract should include the ability to shift the focus towards enhancement and innovation Buyer organizations should use a structured, strategic approach to calculate the true costs of outsourcingThey should include favorable transition clauses in the contractShould have vendor management measures

44ConclusionConclusion45There are internal and external reasons in outsourcingA few factors are needed to be considered while considering outsourceA risk is always involved in outsourcing so a control mechanism is neededWhen doing outsourcing right, it could bring business values to the company46