Date post: | 23-Dec-2015 |
Category: |
Documents |
Upload: | naomi-cross |
View: | 227 times |
Download: | 0 times |
2
Strategic Rationale
Focus on core competencies
Activities that are not core competencies are often not cost effective to perform
Why do something yourself if someone else can do it better and cheaper?
If starting over, would you do the activity yourself?
Would someone else pay you to do the activity for them?
3
Strategic Rationale
Outsourcing frees resources to be used in more profitable ways
Resources are allocated to the areas where the company has a competitive advantage
Reduces complexity
Number of activities performed is reduced
4
Strategic Rationale
Eliminates the need for expensive capital investment
Facilities are owned by the supplier
Increased flexibility
Can focus on the internal activities
External activities are shifted to the supplier
5
Types of Outsourcing
Business Process Outsourcing (BPO)
Strategic decision
Customer/vendor (make or buy)
Tactical decision
6
Business Process Outsourcing
Characteristics
Internal resources and responsibility for services are transferred to a third party and managed through contracts instead of ownership
Shift from owning capital and human assets to managing strategic alliances
Replaces the ownership model with a rental model
Long-term shift in how operations are conducted
7
Business Process Outsourcing
How do we make money?
Most support functions are cost SBUs
Do not contribute revenue
Focus should be on revenue generating activities while reducing the cost of the support functions
Support functions are usually the targets for outsourcing
8
Business Process Outsourcing
Accounting
Advertising
Customer service
Document management
Finance
Facilities management
Human resources
Information technology
Internal audit
Legal
Logistics
Manufacturing
Marketing
Product service
Research and development
Etc.
Opportunities for BPO
9
Business Process Outsourcing
Potential advantages of BPO Allows organization to focus on core competencies
Revenue generation
Improved operational efficiency
Increased flexibility
Change becomes easier and less expensive as the organization becomes more lean
Creates a focused culture within the organization
Company specializes in what it does best
10
Business Process Outsourcing
Cost savings
Facilities costs
Ownership and/or financing of assets
Overcapacity, duplication, overlap
Insurance, taxes, security
Maintenance, repairs, upgrades
Obsolescence
11
Business Process Outsourcing
Employment costs
Salaries, benefits, retirement plans, etc.
Recruitment, training
Can “rent” the expertise, services, etc. only when you need them, and in the amounts you need
Technology costs
Costs of upgrading hardware and software, scalability, installation, training, etc. are the supplier’s responsibility
Often less expensive than converting legacy systems to a common platform
12
Business Process Outsourcing
Use of an expert supplier
Your cost SBU is their profit SBU
Gain the benefits of the supplier’s expertise
New applications
Advanced, cutting edge processes
Economies of scale
Better, more focused and timely service since the supplier has a single focus
13
Business Process Outsourcing
Increased reliability and consistency
Use of common platforms, processes
Timeliness
May take advantage of different time zones
Accountability
Disaster recovery
Insurance
Recourse
14
Business Process Outsourcing
Expanded opportunities for individuals transferred to the supplier
Can increase job skills across industries
Can focus on areas of interest or expertise
Increased job satisfaction
15
Managing the BPO Process
What areas to outsource?
Ask “How do we make money?”
Free yourself from nonproductive activities
Peripheral areas are candidates for outsourcing
What are the costs of not outsourcing?
Lost opportunities to use resources more efficiently
Including management time and expertise
16
Managing the BPO Process
Where is change difficult to keep up with?
Technology
Laws and regulations
Where are we not competent or efficient?
Areas where the need does not justify the investment in capacity
Would someone pay us to do the activity for them?
If not, why are we doing the activity ourselves?
17
Managing the BPO Process
Identifying the supplier
Search for the “best in class” supplier Supplier must have the activity as a strategic part of their
business
Core competency
Not just an “add-on” to increase market share, revenue
One supplier may not have all of the expertise needed
May need multiple suppliers depending on the functions being outsourced
18
Managing the BPO Process
Supplier should treat the relationship as a partnership, not a sale
Must be willing to work with you to understand your situation, problems, expectations, etc.
Must provide the service level required
Should not offer a “one size fits all” solution
Supplier’s organizational culture should match yours
Supplier must be open to periodic on-site reviews, contract changes, etc.
19
Managing the BPO Process
Supplier resources Quality of personnel
Will your personnel be transferred?
Quality of technology
Cutting edge
Scalable
Knowledge, access to several systems, processes, ASPs, etc.
Want unbiased recommendation of the best application for your work, not a sale of a “universal” application
20
Managing the BPO Process
Supplier reputation Quality
Reliability
Supplier practices Operating procedures
Internal controls
Disaster recovery
Backups for key systems, people, etc.
Contingency plans
21
Managing the BPO Process
Structuring the contract
Should focus on exactly what outcomes are wanted Not what is easy to contract – inputs
Should not focus on the process to accomplish the outcomes
Should not tell the supplier how to do the work
They are the experts
Should be flexible while being rigorous in defining performance
22
Managing the BPO Process
Should address
Responsibilities assumed by each party
Performance criteria
What, how and when the outcomes will be delivered
Cost
Performance evaluation metrics and targets
Necessary changes in volume
Increase or decrease
23
Managing the BPO Process
Confidentiality issues
Who owns the data, databases, work in process, work product, etc.?
Protection of proprietary designs, processes, etc.
Whether the supplier has the right to use the information in ways unrelated to your company
Sharing of information with other companies including your competitors
Return or destruction of records
24
Managing the BPO Process
Personnel matters Supplier personnel
Can you select them or have the right to reject them?
Your employees
Will the supplier use them? How many? Which ones?
Will the supplier provide the same pay, benefits, etc.?
Can you prevent the supplier from recruiting them?
Do you have the right to rehire them?
25
Managing the BPO Process
Reviews
Do you have the right to audit supplier practices?
Do you have the right to inspect supplier’s facilities?
Do you have the right to review supplier records related to costs and billings for your contract?
26
Managing the BPO Process
Extenuating circumstances
Remedies for unacceptable outcomes
Dispute resolution
Insurance requirements, indemnity, limits of liability
“Exit strategy” if the arrangement does not work
Rights to cancel the contract
Transition plans
27
Managing the BPO Process
Follow-up
The work is still important, even critical, to your company even if it is being outsourced
Your oversight should be as close as possible to what it would be if you were doing the work in-house
Monitor the work on an on-going basis
Review performance against established targets
Review costs, including supplier’s internal cost, benefits, etc.
28
Business Process Outsourcing
Disadvantages of BPO
Partnership with supplier may cause major changes to the client organization
Potential for overdependence on the supplier
Bad publicity
Can strip your company of key employees and skills
Morale problems with remaining employees
29
Customer/Vendor Outsourcing
Smaller in scale than BPO
Characteristics
Use of outside supplier to provide products or services currently made or performed in-house
Supplements in-house workforce or capacity
Frequently a short-term relationship
May be “one-shot” or rotating relationship
30
Customer/Vendor Outsourcing
Advantages
Supplier may be more competent
Cost efficiencies in R&D, manufacturing, distribution, etc.
Better quality
Reliability of delivery
Size of project may not justify the required investment in personnel or capacity
31
Customer/Vendor Outsourcing
Frees resources to be used on more profitable activities
Can help overcome in-house disruptions
Short-term nature of the relationship allows for flexibility
Bring the operation in-house
Switch to alternate supplier
Elimination of the need for the product or service
32
Customer/Vendor Outsourcing
Considerations
Financial Relevant costs
Material
Labor (?)
Variable overhead (?)
Fixed overhead (?)
Purchase price from supplier
Opportunity costs
33
Customer/Vendor Outsourcing
Non-financial Supplier characteristics
Quality
Reliability
Potential interruptions
Ability to meet delivery schedules
Scalability
Willingness to terminate, extend or alter contract if necessary
34
Customer/Vendor Outsourcing
Impact on employees
Layoffs or transfers to other assignments
Morale issues with employees not involved in the outsourced activity
Impact on company reputation
Sending jobs elsewhere