Session 6 Off Shoring & Review

8/7/2019 Session 6 Off Shoring & Review

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Welcome

Off Shoring & Review

Jonathan D. Wareham [email protected]

mailto:[email protected]

http://www.esade.edu/home.php

mailto:[email protected]



“ BPO is the delegation of one or more IT-intensive businessprocesses to an external provider who, in turn, owns,administrates and manages the selected process(es), based

upon defined and measurable performance metrics.”

Gartner Dataquest

Business Process Outsourcing




Industry Trends for ApplicationOutsourcing• IT application

outsourcing – Inevitable

– One step in a broader evolution

– Related to infrastructure

outsourcing and businessprocess outsourcing (BPO),but different

• Who makes the appoutsourcing decisions?

• What gets outsourcedand why?

Look at application outsourcing as another

tool in the taming of IT

Application Outsourcing

is in the cards

SERVICE LVLS

KNOWLEDGE IT DEPT.

GOVERNANCE

CEO

COMPLIANCE

PORTFOLIO

HYPE

CIO

O F F S

H

O R E




Overall Cost Savings (%)

nsurance

anking/ Finance

utomotive

elecom

harmaceuticals

irlines

10.0-15.0

8.0-

12.0

5.0-6.5

5.0-6.5

5.0-6.5

5.0-6.5

EBIDTA increase

(times)

40-60% costsaving

3.5 x

1.5 x

1.3 x

1.1 x

1.1 x

1.2 x

Key opportunityareas

•Back office processin•Call Center operation

•Back office processin•Call Center operation

•Research andDevelopment

•Call Center operation•Billing

•Engineering & desig

•Call Center operation•Frequent flyerprograms

* Estimates based on specific representative companies

** Non interest expenses

Source: McKinsey analysis; Interviews

Significant Growth in BPO




(US $bn) 2001 2005 2008

Total Business ProcessOutsourcing Market 127 234 310

Percentage Offshored to

Countries such as India, Ireland, etc.

5% 15% 20%

Offshored BPO Market 6.4 35.1 62.0

India ITES Exports 1.5 9.5 21

Source: NASSCOM Mckinsey Study 2002 and, Gartner

BPO Forecast ...




artner estimates*artner estimates*

CAGRCAGR

14.7%14.7%

IDC estimates**IDC estimates**

CAGRCAGR

13.1%13.1%

* Excludes logistics and manufacturingoutsourcing to show addressable market

$ Bn $ Bn

109

2000

20042005

20002004

200591

157181 177

202

Source: Gartner; IDC

Rapid growth in global BPO marketto continue

** Includes transaction processing




Simplify, Streamline, Consolidate

1

2

3

4

Moving to an outsourcedenvironment bringsefficiency gains – thruscale, technology &expertise

Moving to lower costenvironments brings

reduced cost of inputs –Labour Arbitrage

Global, centre baseddistributed deliverybrings further economies of scale &process efficiency

Further Technologybest practice leverage

Thecostof

inefficien

cy

ScaleLow costlocation

High costlocation

1

34

20.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

E ur ope E as t E uro pe In di a Ch ina




12%

29%

35%

91%

85%

0% 20% 40% 60% 80% 100%

De-risk the business

Achieve high productivity

Improved Operational Quality

Reduced Costs

Focus on Core Activity

% Respondents

Source Gartner

Top 5 Outsourcing Objectives





•

Drivers for Adoption of BPO

Controlling cost and integrity are top issues

Organisations embark on BPO for cost savings, and then achieve business optimisation &process standardisation

b t i l li ti





best-in-class applicationmanagement services”

3.89

3.493.43

3.40

3.26

3.26

3.25

3.21

3.18

3.14

3.10

3.09

3.082.97

2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1

IBM Global Services

EDSHewlett Packard

Oracle

PeopleSoft

Accenture

SAP

CSC

Perot Systems

JD Edwards

Keane

Deloitte Consulting

BearingPoint (was KPMG)CGI

Similarly to leadership perceptions, Top-tier

Outsourcers face App. Vendors as principal com petitors

Source: 2003 META Group Application Management Multiclient Study





• Delivering step change

in performance

• Enabling

transformation &re-transformation

capability

• Deep, broad and

enduring partnership

• Targeting cost reduction

in smooth running areas

• Accessing best practice

and economies of scale

• Shedding non-core

services

Decide Scope

Traditional as-is

Outsourcing

Problem-solving

Outsourcing

Transformational Outsourcing

•Targeting operational fixes

in problem areas

• Delivering cost reduction

and operational

performance improvement

“Sweating assets”

Operational performanceimprovement

Changing themodel




BPO What??

• Commodities: IT Enterprise applications and infrastructure,

IT support

• Mature Markets: HR – payroll, benefits, admin. HR

training, finance services and analysis, call center,customer service

• Growth markets: Accounting, Corp. finance, check

processing, claims processing, Legal & Medical Records

management & transcription, telemarketing• Early Adoption: tax planning, budgeting & reporting, risk

management, operations planning, scheduling




Making the App OutsourcingDecisions

Involve the right management – bothbusiness and IT – to select the best

application outsourcing candidate s

Involved Final decision maker

42%26%

58%

18%

21%

17%

32%34%

58%

29%

8%

4%

9%

40%

0%

1%

0%

5%2%

4%

3%

0%

31%

5%

27%

4%

0% 10% 20% 30% 40% 50% 60% 70%

CEO

CFOCTO

CIO

Sales VP/Director/Manager

Service VP/Director/Manager

Marketing VP/Director/Manager

LOB VP/Director/Manager Other non-IT management

Other IT professionals

Application strategy team (internal)

3rd party assessment service (external)

Other (specify)

Source: 2003 META Group Application Management Multiclient Study





India 38%

China 6%

Mexico 5%

Ireland 5%

Canada 5%

Malaysia 4%

Philippines 4%

Russia 4%

Singapore 4%

Survey respondents shows the following outsourcing destination:

India has transformed into the globaloutsourcing center of choice.

It employs world class technology and

efficient delivery mechanisms to ensurethat clients get cost effective solutionsfor all their BPO needs.

And more ………Source: Computer world and InterUnity Group Inc., Concord

BPO Leaders




India's dominance




Top Drivers for Outsourcing to India

Two million graduates each year (Existing Pool: over 25 million) 120,000 Engineers every year vs. 63000 in US English speaking and IT savvy workforce Cost reduction up to 50%

Government support for IT and BPO industry Improving telecom infrastructure Lower infrastructure costs Favorable time lag: 12 hours with US & 5 hours with Europe Overnight turnarounds possible

Resources with experience of financial and legal systemssimilar to the west Strong domestic IT services industry to support IT led BPO




Political backlash




Indian Outsourcing AmericanBacklash

• Highly visible issue due to steadyAmerican unemployment levels

• Campaign issue for Presidential

Candidates

• Rise in anti-Outsourcing websites

– http://nojobsforindia.com

– http://yourjobisgoingtoindia.com

– http://www.nomoreh1b.com• Consultants predict large numbers of

varied Professional jobs to be

outsourced as well as Information

Technology jobs

http://nojobsforindia.com/

http://yourjobisgoingtoindia.com/

http://www.nomoreh1b.com/


http://www.nomoreh1b.com/

http://yourjobisgoingtoindia.com/

http://nojobsforindia.com/



Managing Indian Resources

• Cross-Cultural Difficulties – Indians use the word “Yes” to

acknowledge understanding

– Indian employees rarely

disagree

• Knowledge Transfer

– Most difficult aspect of

offshoring – Western employees often

reluctant to participate fully

I di O i




Indian OutsourcingWorldspan Experience

• Pilot project involved two IndianQuality Assurance Engineers

• Communication is largest problem

• Two hours of overlapping schedules

between Indian employee andAtlanta headquarters

• Tendency to not ask questions even

when there is incomplete

understanding






Rationales and Risks

• Reduce costs: Are we just outsourcing a brokenprocess?

• Focus on Core Competencies: Do we outsourcesomething that is critical if controls breakdown?

• Introduce market discipline: do bad practicesbecome right if we just move them outside thecompany?

• Improve Flexibility: Are we really eliminating fixed

costs?• Improve Technology: Will the applications and

processes need fixing anyway?




BPO Failure: Bargain Shopping

• Find highest quality provider- go after lowest cost

from them

• More difficult: highest quality from cheapest

provider

• Due Diligence: references, employee churn,

financial health, security procedures, Int Prop

protection,




BPO Failure: Security

• Political and economic stability:

– Canada and Ireland, high

– Russia, China, India, Brazil, Philippines, low

• Stability of government, asset nationalization,

threat of war, strikes, terrorism, medical outbreaks

• Disaster recovery procedures, reliability of

infrastructure, security procedures




BPO Failure: Poor planning

• Outsource processes, not strategy

• Management of expectations

• SLAs:

– Start and end date for service

– Schedule for reviewing performance

– Documentation & metrics to be used for measuring

performance – Penalties and procedure for underperformance

– Procedures for conflict resolution

BPO F il I t l




BPO Failure: InternalCommunication

• Focus on your own employees!!

• Unhappy employees can wreck BPO transition

process

• Outsourcing treated like a dark secret: fear and

distrust

• Tell them what, why and how

• Consider extra compensation for employees thattrain offshore counterparts.

BPO F il P t iti




BPO Failure: Poor transitionManagement

• Most difficult stage, taking 3 months to 1 year.

• Detailed, knowledge transfer and

documentation of all tasks, technologies,

workflows and functions

• Motivating current employees to share

knowledge

• May include legal obligations, licenses,infrastructure and assets







Off-Shoring & Outsourcing

1. 9/11/89 –Berlin Wall2. 9/8/95 Netscape IPO & telecom

deregulation3. Computer-Computer

connectivity XML, WS4. Open Source5. Out-sourcing

6. Off-shoring7. Supply Chaining8. In-sourcing9. Search engine & Internet10. Ubiquitous computing, digital convergence

10 forces flattening the world…




DataBase

• Databases are the heart of almost everyIT application

• They are everywhere

• The ubiquity of databases will onlyincrease

• Familiarize students with relationaldatabases, data normalization, andsimple query operations. The exercise

will be distributed in session 1 and is duesession 4.

• Open Source…




Value Chain Coordination

RawMateria

Tier-IISuppl

iers

Tier-ISuppliers

Manufacturers Distrib

utionCenter

s

Retail

ers Customer

VC





Supply Chain Systems

-100%

-50%

0%

50%

100%

1 9 6 1

1 9 6 3

1 9 6 5

1 9 6 7

1 9 6 9

1 9 7 1

1 9 7 3

1 9 7 5

1 9 7 7

1 9 7 9

1 9 8 1

1 9 8 3

1 9 8 5

1 9 8 7

1 9 8 9

1 9 9 1

Data from United States, 1961-1991 (GDP, vehicle production, and machine tool orders

% C

h a n g e , y e a r t o y e a r

% change GDP

% change vehicle production index

% change net new orders machine tool industry




Other Web Services

Partner Web Service

Partner Web Service

Data Access and Storage Tier

Application Business Logic Tier

YourCompany.com

Internet + XML

XML & Web Services

Other Applications

End Users




Systems Integration

• Getting the old and the new towork together

• Doing it in a

manner that ispractical andeconomicallyfeasible




Telecom & Wireless

•Telecom Policy & Regulation•Industry Structure•Technology protocols and trends

•Convergence…




Reengineering and Control

• Historical origin of employee organization and control

• Philosophy of reengineering

• Employee motivation and control

B E F O

R E

DecisionInformationCosts

AgencyCosts

Centralized

Decentralized

Local information

Bird’s eye coordination




B2C eCommerce

http://www.amazon.com/exec/obidos/subst/home/redirect.html/ref=nh_gateway/103-4249595-5563822




B2B eCommerce


Documents

Session 6 Off Shoring & Review