UNIT-1:COURSE CONTENTS

Current business landscape & changing demands.

Global competitive pressures.Survey findings on international sourcing.Characteristics of future winners.International economists view on importance

of sourcing.

THE NEW MARKETING REALITIES

Network information technology

Globalization

Deregulation

Privatization

Heightened competition

Industry convergence

Consumer resistance

Retail transformation

Network information technology:• The industrial age was characterized by mass

production and mass consumption.• The information age promises to lead more

accurate levels of production, more targeted communication and more relevant pricing.

Globalization:• Technological advances in transportation,

shipping, and communication have made it easier to market to other countries and source products and services from other countries.

Deregulation:• Most of the growth in the various sectors of

the Indian economy is due to the government policy of deregulation and liberalization.

Privatization: • Converting public companies to private

ownership and management to increase efficiencies.

Example: UK• British Airways.• British telecom.

Heightened competition: Resulting in rising promotion costs and shrinking profit margins.

Domestic brands.Foreign brands.Store brands (Private levels).

Industry convergence: New opportunities lie in the intersection of two or more industries.

• Example: Computing and consumer electronics industries are converging as the giants of the computer world such as Dell, Gateway and Hewlett-Packard release a stream of entertainment devices –from MP3 player to Plasma TVs and camcorders.

• The shift to digital technology is fueling this massive convergence.

Consumer resistance: Due to bad or over marketing.

• A 2004 Yankelovich study found record levels of marketing resistance from consumers.

• Negative opinions about marketing and advertizing .

Retail transformation: • Growing power of giant retailers and

“category killers”-home shopping, e-commerce on the internet.

• Entertainment.• Food courts.• Demonstrations.

NEW CONSUMER CAPABILITIES

Substantial increase in buying power

A greater variety of goods and services

A greater amount of information

Greater ease in order placing and

receiving

Ability to compare notes on products

and services

An amplified voice to influence peer

and public opinion

A substantial increase in buying power:• Buyers are only click away from comparing

from competitors prices and product attributes.

A greater varieties of available goods and services:

• Amazon .com: world’s largest bookstore branched into retail sales of music and movies ,clothing and accessories ,consumer electronics, health and beauty aids and home & garden products.

• Buyer can order goods online from anywhere in the world.

• A great amount of information about practically everything:

• Read any newspaper, in any language, from where in the world.

Greater ease in interacting and placing and receiving orders:

• Buyers can place orders from home, office or mobile phone 24 hours a day,7 days a week and quickly receive goods at their home or office.

An ability to compare notes on products and services:

• Social networking sites bring together buyers with common interests.

• Compareindia.com provides competitive information ,mostly based on consumer reviews, price features and user’s experience pertaining to a varieties of products.

An amplified voice to influence peer and public opinion:

• The blogs.

NEW COMPANY CAPABILITIESInternet as a

powerful information and

sales channel

Researchers can collect fuller and

richer information

Managers can speed internal

communication

External communication with

customers online, off-line

Target market and two way

communication through special interest news

groups.

Sending ads, coupons, samples

and information to customers

NEW COMPANY CAPABILITIES

Mobile marketing to reach

consumers

Firms can produce individually

differentiated goods

Managers can improve

purchasing, recruiting,

training and communication

Corporate buyers can achieve substantial

savings by using internet

New recruitments on line and

internet training products

COMPANY ORIENTATION TOWARDS THE MARKET PLACE

The production

concept

The product concept

The selling concept

The marketing

concept

The holistic marketing

concept

THE COMPANY ORIENTATION TOWARDS THE MARKET PLACE

• The production concept: Consumer will prefer products that are widely available and inexpensive. Therefore production-oriented businesses concentrate on achieving high production efficiencies, low costs and mass distribution.

Example: China .• Largest PC manufacturer ,Levono and domestic

appliances giant Haier take advantage of the country’s huge and inexpensive labor pool to dominate the market.

• Product concept: Consumer favor products that offer the most quality ,performance or innovative features.

• Focus is on making superior products and improving them overtime.

• A new or improved product will not necessarily be successful unless it’s priced, distributed ,advertized, and sold properly.

• The selling concept: Consumers and businessman, if left alone, will not buy enough of the organization’s products.

• Therefore focus on aggressive selling and promotion efforts.(Sell what they make ,rather than make what the market want).

• It is practiced most aggressively with unsought goods like insurance and encyclopedias. Or it is used when the firm have overcapacity.

• The marketing concept: Emerged in 1950s.• Focus on “Customer –centered” than “product –

centered”.(A “sense –and respond” philosophy).• The job is not to find the right customers for your

products, but to find the right products for your customers.

• Example: Dell computer –customized features as desired by the customer.

THE COMPANY ORIENTATION TOWARDS THEMARKET PLACE

• Selling focuses on the needs of the seller.• Marketing focuses on the needs of the buyer.

• The holistic marketing concept:• Focus on development, design and

implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies .

• It recognizes that “Everything matters” in marketing and that a broad, integrated perspective is often necessary.

FOUR BRAOD COMPONENTS CHARACTERIZING HOLISTIC MARKETING

Holistic marketing

Internal marketing

Integrated marketing

Relationship

Marketing

Performance marketing

INTERNAL MARKETING

Internal marketing

Marketing department

Senior managementOther

departments

INTEGRATED MARKETING

Integrated Marketing

Communication Products and

servicesChannels

PERFORMANCE MARKETING

Performance Marketing

Environment

Legal Community Sales Revenue

Brand and customer equity

Ethics

RELATIONSHIP MARKETING

Relationship

marketing

CustomerChannelPartners

THE VALUE DELIVERY PROCESS

CHOOSE THE VALUE

• Customer segmentation.• Market selection focus.• Value positioning

PROVIDE THE VALUE

• Product development.• Service development.• Pricing.• Sourcing/making • Distributing/servicing.

COMMUNICATE THE VALUE

• Sales force.• Sales Promotion.• Advertisement.

THE HOLISTIC MARKETING ORIENTATION AND CUSTOMER VALUE

Cognitive space

Customer benefits

Customer relationship

management

Internal resource management

Business domain

Competency space

Resource space

Business partners

Businesspartners

management

Value exploration

Value creation

Value delivery

Customer focus

Core competencies

Collaborative network

Difficulties in reaching success in twenty-first century

DIFFICULTIES IN REACHING SUCCESS IN TWENTY –FIRST CENTURY

In consumer packaged goods, distribution concentration has increased greatly:

• Much distribution is in the hands of giant corporations and multinationals.

• Power has been transferred from manufacturers to distributors.

• Slotting fees-exit fees, promotion fees etc.

• Hypermarket and super market chain control (in the food sector) more than 80 percent of final consumer purchases.

• Major franchises –McDonald’s ,KFC, Subway, Domino’s Piza-accounts for another major shares.

• There is similar situation across all industries.

The number of competitors has been reduced, but the number of brands has strongly increased:

• Many producers were not able to survive the strong pressure of the giant retailers and either disappeared or were acquired by the “big fishes’.

Product life cycle have been dramatically shortened:

• New products last for a shorter time.• For companies ,it is easier to launch new brands due

to available resources and consumer is increasingly are ready to try the new brands that they see advertized.

• In the hyper markets the desperate war for shelf space intensifies.

It is cheaper to replace than to repair:• Hard goods do not last as long as formerly.• Example: • Laser printer.• Electric razor.• Laptop.

Digital technology has provoked a revolution in many markets:

• It has led to a whole range of products: Computer, interactive TVs, Digital phones, Smart dishwashers, Microwaves, Toasters.

The number of varieties of a given product has increased radically:

• Go to a super market and write down the names of all the yogurts you can buy, by flavor and sizes.

• You can probably list over 50 different yogurts: Plain, with sugar, with vanilla, with pieces of different fruits, various flavors, low fat, or nonfat, etc.

Markets are hyper fragmented:• Companies ,in their search for differentiation,

have identified and created more segments and niches, resulting in highly fragmented markets.

• Ultimately this will lead to one-to-one customized products and marketing.

Advertising saturation is reaching its highest levels and fragmentation of media is complicating the launch of new products:

A normal citizen of a large urban area is daily exposed to an average of 2,000 advertising or communication stimuli.

More than 100 television stations, 200 radio stations, 1,000 magazines.

Audiences are so diverse in their media habits that companies have to invest in many media to reach them.

Markets are much more competitive:• Now the challenge is to fight against

fragmentation, saturation, and the storm of novelties that appear daily in the markets where we compete.

GRANT THORNTON –SURVEY ON SOURCING TRENDS

• In order to continue providing up-to-the moment authoritative coverage of the global supply chain, World Trade has partnered with the well respected consulting firm Grant Thornton to survey sourcing trends within leading U.S. manufacturing companies.

FINDING -1

• In the following excerpt on sourcing practices and trends, Grant Thornton reports that a substantial number of the three-quarters of major U.S. companies currently sourcing internationally have made changes or are planning to make changes to alter supply chains to source closer to home.

CLOSER TO HOME

WHY CLOSER TO HOME ?

• These changes are being driven by considerations other than price, such as supply chain resiliency (flexibility) and responsiveness, suggesting the many more—and more complex—variables entering into supply chain decisions.

FLEXIBILITY AND RESPONSIVENESS

FINDING -2

Most source internationally

The vast majority of survey respondents are sourcing internationally.

• 2008: More than three in four companies (77%) report spending at least some of their 2008 supply chain budgets on international sourcing.

• 2007: Essentially the same percentage as in 2007 (76%).

77% SUPPLY CHAIN BUDGET SPENT ON INTERNATIONAL SOURCING

FINDING-3

Among those sourcing internationally:• China is the most frequent supplier country

(22%),• Other Asian countries (16%).• Western Europe (14%).• Canada (12%). • Mexico (9%).

38% SOURCING IN ASIAN

COUNTRIES

FINDING-4% Budget spent 2008

% respondents2007% respondents

Supply chain budget spent

internationally

1 to 25% 44% 47%

26 to 49% 14% 14%

51 to 100% 19% 15%

Who do dot source internationally

Nil 23% 24%

77% RESPONDENTS SOURCED INTERNATIONALLY

SUPPLY CHAIN BUDGET SPEND ABROAD

A growing proportion of supply chain budgets spent abroad

According to survey findings:2008: More than four in 10 respondents (44%)

spend between 1 and 25 percent of their supply chain budget on international sourcing,

2007: Down slightly from 47 percent in 2007.

2008: Nearly two in 10 survey respondents (19%) spend between 51 and 100 percent of their supply chain budgets internationally.

2007: This represents an increase from 2007, when 15 percent spent between 51 and 100 percent of their supply chain budgets internationally.

The percentage of respondents who do not source internationally:

2008: (23%) is nearly the same as last year2007: (24%).

FINDING-5

Off shoring: The good and bad

The vast majority of respondents (79%) report that they benefit from lower costs, calling this the primary benefit of international sourcing.

MAJOR PRIMARY BENEFITS OF INTERNATIONAL SOURCING IS REPORTED

“LOWER COSTS” .79% RESPONDENTS

FINDING-5

Other reasons include:• Increased production capacity (24%).• Improved logistics for accessing international markets (22%);• Access to technology or equipment (18%). Access to intellectual property

and ideas (11%);• improved quality (11%).

OTHER BENEFITS:1. INCREASED PRODUCTION CAPACITY.2. IMPROVED LOGISTICS .3. ACCESS TO TECHNOLOGY.4. ACCESS TO INTELLECTUAL PROPERTY.5. IMPROVED QUALITY.

FINDING -6 : ISSUES REPORTED

The issues respondents cite as problematic are varied.• Although more than six in 10 respondents (61%)

indicate the prevailing problem with international sourcing is late product delivery.

LATE PRODUCT DELIVERY- 61%

FINDING-6: ISSUES REPORTED

Other frequently cited concerns are:• Poor quality products (43%).• Customs delays (38%).• Products not built to specifications (28%).• Nearly one-quarter (24%) complain of higher

overall costs. • More than one in 10 (11%) note problems with the

loss of intellectual property.

FINDING-7

Is it profitable? Mixed feelings Most respondents report that the return on investment (ROI) from offshoring has been positive.

• More than half (54%) indicate that international sourcing has increased their ROI.

IMPACT ON ROI - MIXED FEELING54% POSITIVE IMPACT

FINDING-7

• At the same time, nearly four in 10 (38%) say that there has been no impact on ROI due to international sourcing.

• An additional 9 percent say that international sourcing has worsened their ROI.

38% NO IMPACT 9% NEGATIVE IMPACT

FINDING-7

• Considered together, the finding is striking: Nearly half of respondents (47%) see offshoring as neutral or detrimental to their ROI.

IMPACT ON ROI 47% NEUTRAL OR DETRIMENTAL

FINDING-8 PLANS FOR FUTURE SOURCING

• Plans for the future: Moving sourcing closer to home? While the largest percentage of survey respondents that source internationally relies on China (22%), this trend may be changing.

TRENDS MAY BE CHANGING AS THE COMPANIES PREFER TO SOURCING

CLOSER TO HOME

FINDING-8: PLANS FOR FUTURE SOURCING

• In the coming year, many respondents are considering or actively planning to bring their operations closer to home, relocating sourcing to Mexico, Canada and, in some instances, the U.S.

CLOSER TO HOME

FINDING-8:PLANS FOR FUTURE SOURCING

• Nearly three in 10 respondents (28%) report that they brought sourcing closer to the U.S. during the past 12 months.

28% ALREADY BROUGHT SOURCES CLOSER TO US

IN THE PAST 12 MONTHS

FINDING-8:PLANS FOR FUTURE SOURCING

• More than four in 10 (45%) say they plan to bring sourcing closer to home during the next 12 months.

45% CLOSER TO HOME IN THE NEXT 12 MONTHS

VIEWS OF MR.JOHN MAYNARD KEYNES

• John Maynard Keynes, the great British economist, is suddenly back in vogue.

• During the current global economic downturn, you hear his name invoked in discussions regarding stimulus packages in the United States, China, Europe, and elsewhere aimed at preventing a 21st century Great Depression.

• In writing The Economic Consequences of the Peace in 1919, he considered the state of globalization on the eve of the First World War.

So Keynes reminds us of three basic lessons. 1. Globalization is not new. 2. The fabric of globalization is woven equally

from the warp of politics within and among countries and the weft of individual business decisions.

3. Globalization’s progress is not inevitable..

• As Keynes and members of his generation who survived the First World War knew well, globalization can be fragile indeed

Economist’s views

• A misguided sense of security and predictability began to permeate sourcing decisions during the past two decades.

Economist’s views

• International trade exploded, driven in part by the opening of previously closed markets in both Asia and Eastern Europe.

Economist’s views

• Sourcing from so-called low-cost countries blossomed.

• China emerged as an economic powerhouse and supplier of choice in many sectors.

Economist’s views

• Many at the start of the 21st century “regarded this state of affairs as normal, certain, and permanent,” and bet their sourcing strategies on it.

Economist’s views

The new uncertainties can bewilder. • Then came, in short order, financial contagion,

the bust of the commodity boom,• The collapse of international trade,• The worst global economic downturn since

the Great Depression.

Economist’s views

• in the summer of 2008 The Wall Street Journal and The New York Times both suggested high transportation costs might soon make Asian sourcing prohibitively expensive in many industries,

Economist’s views

• In January 2009 the Journal noted without irony that containers are moving virtually free of charge in a sea of shipping overcapacity.

Economist’s views

• Tracking the headlines leads to confusion, not clarity, in thinking about an enduring strategy

UNIT-II

OUTSOURCING

BASIC OBJECTIVES OF OUTSOURCING

• Outsourcing is a powerful way for companies to:

Reduce costs.Improve quality of service.Time-to-market.Extend the scope of customer services .Be better capable to focus on the core

competencies of the organization.

BASIC OBJECTIVES OF OUTSOURCING

• For European and specially German companies outsourcing and near/off-shoring can also create new source of flexibility that helps them meet fluctuations in demand ,thus bypassing the hindering thicket of labor laws back home.

• Europe’s rapidly aging population and means that offshore labor will be low birth rate increasingly needed in coming years to make up for a fast dwindling workforce.

HOW OUTSOURCING STARTED

• It used to be decision made by financially troubled businesses that wanted to cut costs or offload unprofitable, cost –ineffective or money –sapping assets.

• Initially led by American and then followed by British companies ,a new global sourcing trend has set in.

• Now a days, virtually every industry views outsourcing as a smart business practice, and one that’s simply unavoidable.

• Outsourcing & off shoring have now become mainstream.

• Outsourcing is a business practice that is now on the boardroom agenda of most European blue chip companies and public sector organizations.

WHAT IS BEING OUTSOURCED & OFFSHORED?

Companies have outsourced & off-shore significant business infrastructure such as: • IT.• Telecoms.• Business Processes.• HR.• Back-office.• Marketing.• Call centers.• Sales.• Accounting.• Design.• Development.• Testing.

• Outsourcing:• Global sourcing or Off shoring.(Multi-shoring

outsourcing)• .

• Offshore vendors and service suppliers.• Legal, recruitment.• Off shoring/global sourcing consultancy

service companies.• Any other service providers which support the

industry

OVERVIEW

Outsourcing involves the transfer of the management and/or day-to-day execution of an entire business function to an external service provider.

OVERVIEW

• The client organization and the supplier enter into a contractual agreement that defines the transferred services.

OVERVIEW

• Under the agreement the supplier acquires the means of production in the form of a transfer of people, assets and other resources from the client.

• The client agrees to procure the services from the supplier for the term of the contract.

OVERVIEW

Business segments typically outsourced include:

Information technology. Human resources, Facilities, Real estate management Accounting.

OVERVIEW

Many companies also outsource:• Customer support and call centre functions like telemarketing, CAD

drafting, • Customer service,• Market research,• Manufacturing• Designing,• Web development• Print-to mail,• Content writing,• Ghost writing ,• Engineering.

FEW OTHER SIMILAR TERMS

• Offshoring is the type of outsourcing in which the buyer organization belongs to another country.

• Outsourcing and offshoring are used interchangeably in public discourse despite important technical differences.

OUTSOURCING AND OFFSHORING

• Outsourcing involves contracting with a supplier, which may or may not involve some degree of offshoring.

• Offshoring is the transfer of an organizational function to another country, regardless of whether the work is outsourced or stays within the same corporation/company.

• With increasing globalization of outsourcing companies, the distinction between outsourcing and offshoring will become less clear over time.

• This is evident in the increasing presence of Indian outsourcing companies in the United State and United Kingdom.

• The globalization of outsourcing operating models has resulted in new terms such as nearshoring, noshoring, and rightshoring that reflect the changing mix of locations.

• This is seen in the opening of offices and operations centres by Indian companies in the U.S. and UK.

• A major job that is being outsourced is accounting. They are able to complete tax returns across seas for people in America.

• Multisourcing refers to large outsourcing agreements (predominantly IT).

• Multisourcing is a framework to enable different parts of the client business to be sourced from different suppliers.

• This requires a governance model that communicates strategy, clearly defines responsibility and has end-to-end integration.

• Strategic outsourcing is the organizing arrangement that emerges when firms rely on intermediate markets to provide specialized capabilities that supplement existing capabilities deployed along a firm’s value chain (see Holcomb & Hitt, 2007).

• Such an arrangement produces value within firms’ supply chains beyond those benefits achieved through cost economies.

• Intermediate markets that provide specialized capabilities emerge as different industry conditions intensify the partitioning of production.

• As a result of greater information standardization and simplified coordination, clear administrative demarcations emerge along a value chain.

• Partitioning of intermediate markets occurs as the coordination of production across a value chain is simplified and as information becomes standardized, making it easier to transfer activities across boundaries.

• Due to the complexity of work definition, codifying requirements, pricing, and legal terms and conditions, clients often utilize the advisory services of outsourcing consultants (see sourcing advisory) or outsourcing intermediaries to assist in scoping, decision making, and vendor evaluation.

UNIT-II

Reasons and benefits of outsourcing

REASONS FOR OUTSOURCING

• Reasons for outsourcing• Organizations that outsource are seeking to

realize benefits or address the following issues:[11][12][13]

• 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. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.[14]

• Focus on Core Business. Resources (for example investment, people, infrastructure) are focused on developing the core business. For example often organizations outsource their IT support to specilaised IT services companies.

• Cost restructuring. Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.

• 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.[15]

• Contract. Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.[16]

• Operational expertise. Access to operational best practice that would be too difficult or time consuming to develop in-house.

• Access to talent. Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering.[4][17]

• Capacity management. An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.

• Catalyst for change. An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The outsourcer becomes a Change agent in the process.

• Enhance capacity for innovation. Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation.[18][19]

• Reduce time to market. The acceleration of the development or production of a product through the additional capability brought by the supplier.

• Commodification. The trend of standardizing business processes, IT Services and application services enabling businesses to intelligently buy at the right price. Allows a wide range of businesses access to services previously only available to large corporations.

• Risk management. An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation.[20]

• Venture Capital. Some countries match government funds venture capital with private venture capital for startups that start businesses in their country.[1]

• Tax Benefit. Countries offer tax incentives to move manufacturing operations to counter high corporate taxes within another country.

WHY DO LEADING COMPANIES OUTSOURCE & OFFSHORE?

• In order to enable your company to save money , It is important to realize that a long-term strategy and vision are necessary, as it may not be that you see great savings immediately.

• Dramatically reduce time to market of your products.

• Improve company focus-better focus (your own team) upon your core vs. context.

• Accessing a better and much increased talent pool- Access skilled resources by tapping into global talent pools with world-class capabilities, specially if resources not available internally or locally.

• Higher flexibility in expanding/reducing your personnel. Partners can easily resize according to the cyclical market needs you have.

• Better ability to react fast to new situation.

• Improved controlling and reporting of output-improving organizational performance.

• Gaining higher predictability (Cost/speed/quality).

• Reducing R&D spend without sacrificing quality and productivity.

• Creating and sustaining a combative advantage.

• Harness leading technology.

• Expand service.

• Enrich customer and supplier relations.

• Reduces and control operating cost-you may even be able to lower your costs & grow your margins.

• Focusing resources on core competencies while obtaining resources to improve important, on-core business processes-make capital funds available, cash infusion, asset transfer.

• Increase efficiency.• Share risk models-get the best return on your

IT investments by sharing risks with outsourcing vendor.

HIERARCHAIL LEVELS OF OUTSOURCING

THE GLOBAL SOURCING ORGANIZATION MATURITY MODEL

Manage tasks and processes

•Initial sourcing model.

Manage processes and results

•Emerging Eco-system.

Manage results

•Partnership model eco –system.Span of direct control

by the organization is very large

The organization now gives operational control of specific projects to the vendor while

controlling the business outcome.

As organization begin to realize significant benefits from outsourcing

they shift away from project outsourcing and begin to leverage vendor as strategic partners in a

managed services approach.

Generation-1

Generation-2

Generation-3

GENERATION-1 (Sourcing organization)

• The organization typically leverages vendors in a staff augmentation (Add to, boost, enhance) approach.

• In a staff augmentation approach the way in which technology is delivered does not significantly change from that of a completely in -sourced model.

Therefore ,the following remain the same:A. Job roles/responsibilities.

B. Staff competencies/skills *.C. The organization structure

GENERATION-1

• Organization’s span of direct control (the work that is directly managed and done by the organization’s employee) is very large.

• The organization retains complete control of day-do-day operations and business outcomes as well as directly supervising the vendor’s work.

The vendor primarily provides specific skills to augment (add to, boost, enhance ) the organization’s

staff.

GENERATION-1

• Since the vendor takes on little risks or accountability beyond skill delivery, the organization usually does not expect the vendor to be involved in additional roles such as:

a. Strategic or business leadership.b. Optimization.c. Innovation.

As an individual contributor , the vendor is focused on specific jobs or tasks required primarily functional and

task related competencies.

GENERATION-1

Therefore ,the following remain the same:

1. Job roles/responsibilities.

2. Staff competencies/skills *.

3. The organization structure

The vendor primarily

provides specific skills to augment (add to, boost, enhance ) the organization’s

staff.

• Vendors not only provide skills , but they also manage projects and delivery processes improvement.

Organization’s span of direct control decreases.The organization now gives operational control of

specific projects to the vendor while retaining control of business outcome.

GENERATION-2

• The vendor is held accountable for completion and success of projects usually involving non-critical applications and/or business processes.

These changes in the way IT and business processes are delivered result in changing in roles

and responsibilities.

GENERATION-2

• At the project level, both organization staff and vendor usually are responsible for optimization and innovation.

The organization’s staff manages the completion of specific projects through vendor rather than doing

the project work themselves.

GENERATION-2

• Vendor will be expected to be more involved in strategic process and business leadership of assigned project.

Organization staff will need to build skills in managing work indirectly through the

vendor.(Changes in competencies and skills)

GENERATION-2

• Example: Vendor may now work both on-site and off-site. The organization’s structure may need to be updated to reflect these changes in reporting relationships, specially for long term projects.

Changes in the way work is accomplished will have implications for the organization, too.

GENERATION-2

Changes in roles and responsibilities

Changes in competencies and

skills

Implications for the organization

Organization’s span of direct

control decreases.The organization

now gives operational control of specific projects

to the vendor while retaining

control of business outcome.

GENERATION-3

• Organization’s span of direct control diminishes greatly.

• The organization gives the vendor a significant portion of an IT function and/or business process to operate as a managed service.

As organization begin to realize significant benefits from outsourcing they shift away from project outsourcing and begin leverage vendors as strategic partners in a

managed service approach.

• The organization now leverage their sourcing partner to manage a significant portfolio, often including critical applications and/or business process.

This major change in the way technology and business process are delivered results in a further

evolution of roles and responsibilities.

GENERATION-3

• As the roles and responsibilities continue to evolve, there are also additional changes in needed competencies and skills.

The partner is accountable for the delivery of day-to-day technology and business process.

GENERATION-3

• Managing and achieving results indirectly through the sourcing partner are essential skills for the organization staff.

Strategic and business leadership skills are now required of both the organization’s staff and the

sourcing partner.

GENERATION-3

• These unique global sourcing work requirements translate to an increasing emphasis on:

A. Relationship management.B. Cross culture sensitivity .

C. Communication skills.

GENERATION-3

To realize the cost reduction objectives for global sourcing, the sourcing partner will use global delivery model with a combination of :

• On-site• Off-site.• Nearshore.• Offshore locations.

The managed services approach to global sourcing has significant implications for the organization

GENERATION-3

• Innovation and optimization often are enabled through the formation of shared services and centers of excellence (CoE) organization structure.

The need for teamwork expands with multiple locations, different time zones and cross –

cultural requirements.

GENERATION-3

• Finally, performance of both the vendor and the organization’s staff are measured on results achieved.(process centric SLA to additional business centric SLA)

As a result of these changes, the organization will need to be re-designate to reflect the complex reporting

relationships between :A. The retained organization.B. Joint governance body.C. on/off –site.D. Offshore delivery units.E. Other strategic shared services.F. Center of excellence structures.

GENERATION-3

Further evolution of roles and

responsibilitiesAdditional changes

in needed competencies and

skillsSignificant

implications for the organization.

As organization begin to realize

significant benefits from outsourcing

they shift away from project outsourcing and begin leverage vendors as strategic

partners in a managed service

approach.

POTENTIAL DRIVERS

WHAT SHOULD A GLOBAL SOURCING STRATEGY ADDRESS?

Currency

Lead timeLanguage & culture

Transportation

Payment methods

• Costs – A global sourcing strategy is often used to benefit from lower labor costs abroad.

• But there are also other additional costs for a buying organization to bear that aren’t part of domestic transactions. They include:

Multi-modal freight charges, Broker fees, Bank fees,

Taxes called duties, Insurance.

• Laws – Global sourcing forces buyers and suppliers to choose one of three bodies of law to apply to their contract:

1. The law of the buyer’s country, 2. The law of the supplier’s country, 3. One applicable under a treaty

accepted by both countries.

CURRENCY

• Currency – The buyer and the seller must agree on a currency to use.

• While some buyers insist on their own currency for simplicity’s sake, prudent decisions consider use of the supplier’s currency when the buyer’s currency might strengthen relative to the supplier’s currency between the agreement and payment dates.

Fluctuation of currency

LEAD TIME

• Lead Time – Lead time for global purchases is usually significantly longer than for domestic ones. This is due to:

A. Ocean travel being slower than air travel.B. Customs clearance adding time not

involved in domestic sourcing.

LANGUAGE & CULTURE

• Language & Culture – If you’re unfamiliar with the supplier’s language and culture, you increase:

A. The risk of communication challenges,

B. Misunderstandings, C. Offensive or uncomfortable

encounters.

TRANSPORTATION

• Transportation – While domestic sourcing usually involves one shipping mode, global sourcing involves multi-modal transportation – a strategy for combining air, water, and ground transportation to get goods from the supplier to the port of the supplier’s country to your country’s port to your dock.

Global sourcing involves multi-modal transportation – a strategy for combining air, water,

and ground transportation

PAYMENT METHODS

• Payment Methods – Global sourcing often involves payment using a letter of credit which requires the involvement of both the buyer’s and supplier’s banks.

Letter of Credit (LC)

•UNIT 3

TOP 10 CITIES FOR OUTSOURCING 2008 (based on GDI weight and deal- clinching factors)

2007 20081. Bangalore Bangalore2. Manila New Delhi3. New Delhi Manila 4. Mumbai Beijing 5. Dalian Auckland 6. Shanghai7. Beijing Mumbai 8. Sydney9. Brisbane10. Auckland

India still top outsourcing countries but will loose to China by 2012

Two other Indian cities also made it to the top 10 list.

• New Delhi edged out Manila for the number two spot.

• Mumbai dropped three places from last year’s list to seven.

INDIA STILL TO….

• Bangalore and New Delhi were attractive due to:

A. Existing infrastructure,B. Large quantity of skilled workers.C. Competitive pricing.• However, that the appreciating rupee was

eroding the cost arbitrage.

• Auckland and Beijing made significant progress over last year, moving up five and three notches, respectively.

India still top……

• Auckland’s ranking was influenced by factors such as:

A. Greater government support.B. An increased emphasis toward a digital

economy.C. Currency depreciation.

• The investment has sharpened Beijing’s competitive edge:

A. Beijing’s infrastructure.B. The environment for the Olympic Games.

• With prices on the rise in India, locations like Beijing with established infrastructure and lower costs will be in demand.

INDIA STILL TOPS …………

• IDC has developed a new Global Delivery Index (GDI), which compares 35 cities in the Asia/Pacific as potential offshore delivery centers, based on a comprehensive set of criteria such as:

A. Cost of labor,B. Cost of rent,C. Language skills.D. Turnover rate.

• In its inaugural findings, Indian cities are highly ranked, while Chinese cities are on the rise and closely nipping at India’s heels.

• Examples of cities covered include Adelaide, Bangalore, Dalian, Hanoi, and Kuala Lumpur among many others.

• “There are different risk factors to consider when evaluating outsourcing, offshoring, onshoring, and nearshoring.

• Some factors are obviously more critical than others and the GDI takes that into consideration”

• Comments Conrad Chang, Research Manager for IDC’s Asia/ Pacific BPO Research.

• “Often times, what differentiates leading cities from the rest is their focus more heavily on:

A. Deal-clinching factors,B. The GDI weights.

TOP 10 CITIES FOR OURSOURCING

1. 8.72. 8.23. 6.54. 6.25. 6.16. 6.07. 5.98. 5.79. 5.610. 5.4

Score by deal clinching factor.

DEAL CLINCHING FACTORS

• Indian cities are highly ranked, while Chinese cities are on the rise and closely nipping at India’s heels, according to IDC’s new Global Delivery Index (GDI), which compares 35 cities in Asia/Pacific as potential offshore delivery centers.

• IDC forecasts that Chinese cities will overtake Indian cities by 2012 due to massive investments: Example:

A. Infrastructure, B. English language, C. Internet connections, D. Technical skills,) which are favorable

toward offshoring.

• The GDI is based on 30 criteria, such as:

A. Cost of labor,B. Cost of rent, C. Language skills D. Turnover rate.

• The top 10 cities in 2007 for global delivery focused more on deal-clinching factors, such as:

A. Agent skills, B. Political risk, C. Cost of labor, D. Language skills,

Overall weighted scores take into account 30 criteria used in the evaluation.

Deal-clinching factors focus only on selected criteria that are deemed the most important when evaluating a city and also have a correspondingly higher weighting attached to them.

• When evaluating outsourcing, offshoring, onshoring, and nearshoring, some factors are obviously more critical than others.

“Often times, what differentiates leading cities from the rest is their focus on deal-clinching factors, and the GDI weighs that more heavily than other factors

Clarity on terms used for sourcing

OUTSIDE ENTITY

• Outside entityFully owned subsidiary of parent company: In this case the outsourcing company owns the outside entity.

LOCATION

Location: Geographically located inside the client’s

home country.Located in abroad but geographically close to the client’s home country, often lies in the same or nearby time zone.Located for away from the client’s country.

SOURCING

• SourcingSourcing referred as the procurement process.

• If the work is performed by the client company’s subsidiary it is called insourcing (inside), sourcing is happening inside.If the work is performed by a third party vendor it is called outsourcing, sourcing is happening outside.

The Country of Origin Effect

• Many factors influence the perception of customers about the quality of a brand.

A. Brand image.B. Brand personality.C. Brand associations.D. Communication messages.

• The very reason a company indulges in branding is to assist customers in making purchase decisions by providing cues on:

A. Quality.B. Credibility.C. Value about a product.

• One such factor that influences perceptions towards brands is:

‘The place where it is made’.• Such effect is referred to as country of origin

effects.

The country of origin effect

• Research in international marketing has proven that country associations do lead to customer bias.

• Such bias is based on the image of the country in customer’s minds.

• This leads to the next obvious question:What constitutes an image of a country?.

A. What makes French the best country for wines.

B. What makes Germany the best in engineering.

C. What makes Switzerland the best to produce watches?

• Many factors have been suggested as contributing to the country image.

• Many factors cumulatively impact the country’s image

Economy Technology

Wealth Index

Regulatory mechanism

Government

Business history

Economy:• One of the main factors that influence customers’

perceptions towards a country is the level of the country’s economy.

• Level of economic growth acts as a main proxy for the country’s other activities.

• Most of the countries with a positive COO are highly industrialized, developed countries.

Technology:• Given the extent to which technology and

technological innovations impact consumers’ lives in today’s world, it is not surprising that the extent of technological advancement of a country bears heavily on consumers’ perception of the country.

• This factor is usually related to the level of economic development of the country.

• Higher the technological capability of a country, more positive is the COO effect.

• Wealth index – This refers to the perceived/actual overall wealth of a country as measured through:

A. Levels of consumption,B. Number of millionaires,C. Number of billionaires,D. The size of the luxury goods industry,E. The sophistication of leisure industry,F. The proportion of individual income spent of

leisure.G. Self enhancing activities and so on.

• Wealth index offers customers a cue to infer the:

A. Level of product quality,B. Variety,C. Perceived credibility of the

products/brands.

Regulatory mechanisms:• With heightened globalization, the existence

and effectiveness of regulatory mechanisms have become a major factor in creating country images.

• Regulatory mechanisms create a sense of perceived security in the minds of businesses and customers about a specific country.

A. Intellectual Property Rights law (IPR), B. Online piracy laws, C. Anti-fraud regulations .

MARKETING RESEARCHPROCESS

FIVE PHASES TO DEVELOPING GLOBAL SOURCING METHODOLOGY

Feasibility

Vendor selection

PlanningTransition

Operations

FIVE PHASES TO DEVELOPING GLOBAL SOURCING METHODOLOGY

• Five Phases • Although there are a variety of sensible approaches to

developing a global sourcing methodology, the following five phases must be addressed at some point in the process:

A. Feasibility.(Readiness & evaluating business & technical processes)

B. Vendor Selection.C. Planning.D. Transition.E. Operations.

FEASIBILITY• During the feasibility phase, a project team should assess the

organization’s “readiness” for global sourcing.• In this phase, a wide spectrum of business and technical

processes are evaluated with the intent of determining candidates for off-shore sourcing.

A. Assess the organization’s “readiness” .B. Evaluate business and technical processes.C. Determine candidates for offshore sourcing.

FEASIBILITY

• The feasibility phase is often conducted with strategic vendors who can lend their expertise in assessing global sourcing readiness. Feasibility should be analyzed on both an annual and as-needed basis.

A. Feasibility phase is often conducted with strategic vendors.

B. Analyses both short & long term needs.

FEASIBILITY• A sound approach is to develop a scorecard where the

processes, resources and applications can be rated across important criteria such as technical complexity, business risk, financial impact and strategic importance of the potential engagement.

Processes, resources and applications are rated across important criteria:

A. Technical complexity, B. Business risk, C. Financial impact.D. Strategic importance of the potential

engagement

FEASIBILITY

• The global sourcing PMO should develop tools and templates to analyze these factors and execute decisions on which activities are suitable for global sourcing and the timeframes for migration.

Prioritize activities that are suitable for global sourcing.

VENDOR SELECTION

• Vendor Selection • Once it has been determined that a specific

business or technical process is suitable for the offshore model, the next step is to select a vendor.

VENDOR SELECTION

• The global sourcing PMO and the project team should work together to find a vendor that has strengths in the particular process or processes that are candidates for outsourcing.

Joint responsibility of Global sourcing PMO and the project team to find a

vendor.

VENDOR SELECTION• Both a single vendor bidding process and a competitive

bidding process should be in place.• The global sourcing PMO should develop the necessary tools

to enable the project team to determine whether a single or multi-vendor bid is appropriate.

Decide what is more appropriate- single vendor or multi-vendor

VENDOR SELECTION

• The PMO also should provide the tools for soliciting bids, and an approach to making final vendor decisions.

PLANNING

• Planning • The planning phase lays the ground work for a

successful transition from the onshore to the offshore model, or operating environment.

PLANNING

• During planning the organization and the vendor team collaborate to ensure that the many facets of the transition to operations are well prepared for and executed.

Organization and the vendor team collaborate to ensure transition to

operations are well prepared for execution of project.

PLANNING

• This is a key area that is often overlooked by companies that rush into an outsourcing engagement.

• Failure to clearly define the scope, roles, responsibilities and timeframes of the transition inevitably leads to friction.

Clearly define the scope, roles, responsibilities and timeframes of the

transition

PLANNING

• The PMO should manage the planning phase with significant contributions from the vendor and internal resources.

PLANNING• For particularly complex or mission critical engagements, you

may want to consider engaging a third-party consulting group with experience in global sourcing readiness.

• These organizations can support by offering sample project plans and checklists based on their experience.

For complex engagements ,engage third party consulting group with competencies in

global sourcingA. Preparation of Project plans.

B. Preparation of Check list

TRANSITION

• Transition • The transition phase executes much of what was defined in

the planning phase.• The organization and the vendor should prepare for the

offshore transition and make adjustments to processes and procedures to enable optimal performance in the new environment.

The Global sourcing PMO and the vendor prepare for offshore transition .

TRANSITION• The global sourcing PMO should oversee these activities to

ensure best practices are being adhered to. Concurrently, onshore and offshore team members must work together to execute the plan established in the prior phase.

A. Best practices are being adhered to.B. Project team –onshore and offshore team

members work together to execute the plan.

TRANSITION

• The success of this phase is heavily dependent on tools and templates that ensure the project management structure is sound enough to enable clear monitoring of progress as well as issue identification and resolution.

Project management structure is sound enough to:A. Enable clear monitoring of progress.B. Issue identification and resolution.

OPERATIONS

• Operations • Assuming a smooth transition, the operations phase

should simply be “business as usual.” A core team from the organization should still play a role in the day-to-day operations of the outsourced operations.

• But, this team should give the outsourcer enough space to do its job, and should primarily be playing a management role.

Core team from organization to play a role in day-to-day operations and

management role.

OPERATIONS

• Operation processes defined during the planning phase should inform each party of status and problem resolution issues.

They should jointly know the Status and resolve problem/ issues.

OPERATIONS

• Specifically, project status indicators such as service level agreements (SLAs) should be monitored on a month-to-month basis.

• The satisfaction of the organization’s affected business units should also be carefully gauged during this phase.

Project status (SLAs) should be monitored on a month-to month basis.

OPERATIONS

• Ultimately, the success of the operations phase is dependent on the communications structure and management framework that was established in the previous phases.

The success of the operations phase is dependent on the communications structure

and management framework that was established in the previous phases.

• The five-pronged approach for global sourcing engagements is the result of the Wipro Product Strategy and Architecture (PSA) practice’s experience in supporting clients who are exploring potential global sourcing engagements.

Challenges & issues involved in outsourcing

OUTSOURCING OFFSHORE ISSUES & CONCERNS

Losing multiple vendor accountability.Loosing control over budget, resources, vendor

selection, and technology utilization.Business and IT needs are constantly changing –

what should I outsource?Adding one more vendor to the mix-won’t it just

be an additional strain on IT budget?Will off shoring work for the company and reduce

OUTSOURCING & OFFSHORING MAJOR CHALLENGES AND ROAD BLOCKS

• The uncertainty and fear of turning over operations to an outside provider.

The mega-deals are usually very vendor-complex, often requiring a collaborative multi-sourcing solution where either one or both of the parties can end up wanting out of the engagement.

I. Obtaining deep cross-culture understanding.II. Maintaining close communication ,even when time-

difference makes this bothersome.III. Frequent travel for you and your employees in order

to optimize communication with your outsourcing partners on all levels.

• The sales process is still very long and involves high level decision makers from across the client’s business.

• Managing the impact of outsourcing /off shoring on your current employees.

• Lack of time for all this change-process.

• Budget restrains-and what’s real cost or gain of outsourcing?.

• Access to service providers-limited or too confusing.

WHAT IS GLOBAL COMPACT?

• The Global Compact is a voluntary international corporate citizenship network initiated to support the participation of both the private sector and other social actors to advance responsible corporate citizenship and universal social and environmental principles to meet the challenges of globalization.

10 principles under 4 headings

Human right

Environment

Anti-Corruption

GLOBAL COMPACT -10 PRINCIPLES

Human rights• 1: Businesses should support and respect the

protection of internationally proclaimed human rights;

• 2: and make sure that they are not complicit in human rights abuses.

Labour• 3: Businesses should uphold the freedom of

association and the effective recognition of the right to collective bargaining;

• 4: the elimination of all forms of forced and compulsory labour;

• 5: the effective abolition of child labour;• 6: and the elimination of discrimination in

respect of employment and occupation.

Environment• 7: Businesses are asked to support a

precautionary approach to environmental challenges;

• 8: undertake initiatives to promote greater environmental responsibility;

• 9: and encourage the development and diffusion of environmentally friendly technologies.

Anti-corrupt ion• 10: Businesses should work against corruption

in all its forms, including extortion and bribery.

Wrong & right ways-terms to be covered in the negotiation to avoid pitfall.

TERMS• A well-drafted outsourcing contract can create a strong and lasting

relationship with the supplier.• However, a weak outsourcing contract can cause a project's failure.• The contract terms and conditions should always be clearly

understood by both parties, before the agreement is signed.

• The typical outsourcing engagement lasts for several years, which makes it crucial that both the buyer and supplier recognize the terms and conditions in which they are agreeing to abide..

• Suppliers will work hard to ensure that their interests are being protected and they will draft an agreement that reflects this protection.

• A buyer can also make sure that they are protected by taking the time to review the terms and conditions to determine the relative position of the contract, meaning whether the contract favors one party over another.

• The buyer should know what key elements should be included in an outsourcing contract when reviewing the terms and conditions.

Terms summary

Scope of work,

Responsibilities,

Performance expectations,

Security procedures,

Pricing Termination conditions.

Governance,

Rights of recourse and

pricing

PERFORMANCEReward and

penalty clauses

Terms summary

Remedies for dispute resolution and the

jurisdiction

• Most outsourcing agreements will address such issues as:

Performance expectations, Responsibilities, Scope of work, Security procedures, Pricing. Termination conditions.

• Other areas that often are included in the contract terms and conditions include:

Governance, Rights of recourse and pricing.

• Reward and penalty clauses are often incorporated into outsourcing contracts, such as incentives for reaching certain targets and expectations, as well as penalties for non-performance and failure due to gross negligence.

• The termination provision is also an important component to the contract so that reasons for terminating the agreement are clearly identified.

• A termination clause may include termination for convenience, change of control termination for cause and flexibility of termination.

• Another important factor in a global sourcing contract involves remedies for dispute resolution and the jurisdiction in which the resolution should take place.

• This jurisdiction should be fair to the buyer and supplier.

• The jurisdiction chosen should allow either party to obtain a prompt, neutral and cost effective resolution to the dispute.

• Before signing the outsourcing contract, the buyer should thoroughly review the terms and conditions to identify any issues that may need to be negotiated.

• A lawyer or industry expert can help determine the level of protection for the buyer by closely analyzing the outsourcing agreement.

• Understanding the terms and conditions of the global sourcing contract can help the buyer find success with the outsourcing arrangement.

• Remember, a global sourcing relationship can last for years to come and in order to receive the most benefits from the arrangement, the terms and conditions must be fair.

• Taking the time to put together the outsourcing contract is well worth the effort.

Procurement and Sourcing 15 Negotiation Pitfalls – and How to Avoid Them

• Below is a list of 15 common negotiating pitfalls – and some tips on how to avoid them.

• Failure to be assertive due to fear of conflict, shyness, or lack of confidence:

• Commitment to the process is a necessary requirement. Failure to assert your position forces the other negotiator to contend until resistance is met, often making the situation worse.

• Contentiously defending particular solutions, rather than basic interests:

• Apply a strict policy of firmly defending your basic interests (the ends), but remain flexible about the solutions to achieve these interests (the means).

• Mixing contentious behavior with problem solving:

• This will kill the problem-solving effort and erode trust. Separate necessary contentious exchanges by assigning them to one person (“bad cop”), while a “good cop” works on problem solving, or schedule separate meetings for the contentious issues if you are negotiating alone.

• Using threats: • If threats are necessary to curtail the

opponent’s contentious behavior, use deterrent threats (“I cannot agree to…”) to clearly state your position and interests.

• Believing negotiation power comes solely from superior force or resources:

• Negotiation power actually comes from skills, knowledge, strong relationships, developing good alternatives, an ability to build elegant solutions, legitimacy (having “right” on your side, or being able to frame it that way), and commitment to interests and the negotiating process.

• Announcing “negative” commitments: • In order to be credible, each commitment

must be executed. It is illogical to harm one’s own interests simply to hurt the other party. These types of statements are often made under stress and are caused by negative emotions. Learn to sense your own emotions, and stop, look and listen, alter, or avoid is the advice.

• Viewing negotiations as psychological warfare:

• While negotiation has a strong psychological component, viewing it as a war is detrimental to achieving the integrative potential in most negotiation situations. The advice: communicate clearly, develop listening skills, and keep your own words and actions telling a clear and consistent message.

• Burrowing into details without an overarching agreement:

• Without a foundation and a plan on how to address the various issues, a negotiation can quickly bog down if details are not immediately addressed.

• Being unwilling to set or adhere to the pre-established limit:

• Generally this problem arises from inadequate preparation (failure to establish this limit in advance) or misreading how much an issue or item really is worth in sacrifice.

• Failing to commit to agreement when conditions are met:

• If you are prone to feel that things could “always be a little better,” or that you’ve “left something on the table,” trust your plan. If not, then something else may be wrong, so think about it and decide tomorrow.

• Taking an over-aggressive stance early in a negotiation:

• This turns-off the opposing negotiator, so, if you are prone to this, let others open negotiations or practice “toning down” your opening positions and statements.

• Getting distracted by the opposing negotiator’s personality and behavior:

• Stay focused on the opponent’s interests. If the opponent’s behavior becomes so distracting that negotiations are disrupted, however, ask for a break, then take him or her aside and address the behavior clearly and firmly.

• Closing yourself off to any attempt to be persuaded by the other side:

• Refusing to be affected by statements from the opposing side is a classic “rookie” error. If the argument is valid, it should be addressed; if not, it can be rebutted.

• Failing to seek information about the other side’s needs and wants:

• Even experienced negotiators often fail to really understand the other side’s interests. You should ask questions and keep communicating, even if you’re not agreeing.

• Bluffing or lying without the strategic advantage to carry through:

• If a negotiator is caught actively lying, trust is immediately lost and negotiations can grind to a halt. Due to the risks, as well as the ethical issues, lying should be eliminated from negotiating strategies.

• Negotiating skills are inherently intertwined with personality and emotions.

• The majority of these pitfalls involve situations where the negotiator lets emotional factors get in the way of working a deal that is best for the company.

Unit 5

9 KEY SUCCESS FACTORS

Cultural awareness

Strong Management & Sponsorship:

Governance Framework:

Offshoring Readiness:

Experience:

Quality Adherence:

Expectation Management: Contract:

Onshore-Offshore Ratio:

MANAGING GLOBAL RELATIONSHIPS

• In discussions about outsourcing, most of the attention has been paid to the performance of the offshore supplier rather than on managing the outsourcing relationship once the contract is signed.

Performance Relationship

MANAGEMENT OF ACTIVITIES IS DIFFICULT

Management of

activities is difficult because.

Has a different culture.

Several time zones away

Other party is many

thousands of miles away

They are not under one

roofNot under single

management control.

MANAGEMENT OF ACTIVITIES IS DIFFICULT

• Management of outsourced activities is difficult because they are not under one roof and under single management control.

• It is an even bigger problem when the other party is many thousands of miles and several time zones away and has a different culture.

PUT PRINCIPLES,PEOPLE, & PROCESSES ON PLACE

Establish effective

cooperation with their outsourcer.

Well-defined management principles.

With clear accountabilities.

People

Have unambiguous processes to deliver the promised benefits.

processes

COMMON MISTAKE-AND STRATEGIES

Common

mistake- designing

an effective management model.

For ITO-focuses on monitoring

and managing

service levels.

For BPO- Focuses on managing established

business outcomes

• AnswerAligning the management processes with the established outcomes of the outsourcing relationship (clearly outlined in the contract) is the first step in designing an effective management model.

• The management process for standardized transaction-based offerings such as infrastructure technology outsourcing (ITO) focuses on monitoring and managing service levels.

ITO-focuses on monitoring and managing service levels.BPO- Focuses on managing established business

outcomes .

• For more complex and custom goal-based services such as business process outsourcing (BPO) managing established business outcomes is the focus.

TOOLS TO REDUCE RISK?

• QuestionBecause the risks of BPO are much higher than the risks of less complex ITO, what specific tools help end users to mitigate this risk?

Tools to reduce risk?

Fee-based outsourcing is designed to reduce

Taking an investment

stake in your outsourcing provider is

another option.

• AnswerIn comparison to the traditional approach (i.e., take the whole enchilada and make it better), fee-based outsourcing is designed to reduce risks by enabling users to do two important things:

A. Narrow the scope of outsourcing.B. Retain their infrastructure and systems.

• Although the development of utility computing may one day erase the need for enterprises to own, operate, and maintain their own infrastructure, the fee-based approach is the most widely used and effective tactic for reducing risks associated with traditional outsourcing.

• Strategic contracting tactics such as taking an investment stake in your outsourcing provider is another option that some, albeit large, enterprises are using to reduce risks by getting closer to their outsourcing provider.

Taking an investment stake in your outsourcing provider is another option

• For example, when BP Amoco (Exult’s first client) signed a $600 million human resource-outsourcing contract with Exult in 1999, BP International (a division of BPO Amoco) also made a 10 percent investment in Exult.

UNIT 6

Factors fanning the potentials of IT outsourcing in India.

India's human resources

Skills availability

Cost efficiency of IT

outsourcing in India

People costStandard quality

that firms doing IT outsourcing in

India guaranteeIISO & SEI-CMM

standards

The reliable communication

facilitiesExcellent

telecom, ISP, and cellular networks

Technologically advanced

outsourcing firms in India

The applications include E-commerce, Business

Process re-engineering, System Migration,

Maintaining Legacy system, System integration etc.

Galloping growth in Indian

economyThe service

sector in India contributes 51%

of the GDP. Stable

government facilitating IT

growth

Indian government policies

Well structured Tax

system

factors fanning the potentials of IT outsourcing in India.

• 1. India's human resources• Being the world's second highly populated

country, human resources are a boon by itself.

• The Gulf: is renowned for its natural resource of crude oil, and

• South Africa: for its diamonds.• India: is proud of the abundance and easy

availability of its highly qualified and technically skilled English speaking computer professionals; who are key to success in the field of IT outsourcing to India.

• 2. Cost efficiency of IT outsourcing in India • Significant cost saving can be achieved by IT

outsourcing to India, owing to the wide gap between the personal costs in India and that of the developed countries.

• Offshore outsourcing to India offers considerable economical benefits for those who are prepared to exploit the advantages of outsourcing.

• 3. Standard quality that firms doing IT outsourcing in India guarantee

• The Indian companies involved in IT outsourcing in India provide high quality work, meeting international standards and complying with the ISO & SEI-CMM standards.

• Three out of every four SEI-CMM 5 companies worldwide is located in India.

• Thus India promises quality - IT outsourcing in India as it has the potential to furnish these services perfectly.

• 4. The reliable communication facilities• Excellent telecom, ISP, and cellular networks

are available in all cities & towns in the country.

• India prides in the reliable satellite and submarine communication links that facilitate good band connectivity with the rest of the world.

• Thus companies engaged in IT outsourcing to India, can be in touch with the vendors without any connection hurdles.

• This plays a significant role in determining the success of offshore IT outsourcing to India.

5. Technologically advanced outsourcing firms in India

• India's technologies offer excellent software solutions.

• The applications include E-commerce, Business Process re-engineering, System Migration, Maintaining Legacy system, System integration etc.

TERMS OF ENGAGEMENTwith business partners

Ethical Standards

Legal Requirements

Environmental Requirements

Community Involvement

Employment Standards Child Labor

Prison Labor/Forced

Disciplinary Practices

Working Hours

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